Climate Change Impact on Financial Reporting – A Theoretical Approach
Climate Change Impact on Financial Reporting – A Theoretical Approach

Author(s): Almina Monoku
Subject(s): Business Economy / Management, Energy and Environmental Studies
Published by: Udruženje ekonomista i menadžera Balkana
Keywords: Climate change; Financial Reporting Standards; Non financial information
Summary/Abstract: Climate change has a dual effect on the financial dimension of companies: on one hand companies spend more to meet the requirements of climate impact and meeting climate targets and on the other hand the climate regulations have increased the burden of financial regulation and financial reporting. This paper aims to discuss the theoretical approach that has been suggested in the literature to tackle the increased burden of disclosing financial information related to climate change. The paper discusses the main Climate-Related Risks, Opportunities, and Financial Impacts and what the preparers of financial statements have to keep in mind while publishing financial and non-financial information. Based on thorough research of recent theoretical and empirical publications the author finds that the most impacted financial reporting standards are standards on financial instruments, standards on Insurance Contracts on items such as asset impairment, changes in the useful life of assets, changes in the fair valuation of assets due to climate-related and emerging risks, increased costs and/or reduced demand for products and services, potential provisions and contingent liabilities arising from fines and penalties; and changes in expected credit losses for loans and other financial assets. As the requirement to disclose more financial and non-financial information related to climate impact is expected to increase in the future, the author concludes with several recommendations that will very soon be relevant for big and medium companies.

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