1、CLIMATE RISK AND STRATEGIES:FINANCE FUNCTION READINESS TO MEET ACCELERATING DEMANDS2CLIMATE RISK AND STRATEGIES:FINANCE FUNCTION READINESS TO MEET ACCELERATING DEMANDS TABLE OF CONTENTSExecutive Summary.5 Climate Change and Business Risk:A Focus on Corporate Finance and Accounting.5 Preparedness to

2、Respond to Climate-Related Risks:The Perspective of IMAs Constituents.6 Key Findings from Our Investigation.7Background.8 Development of Voluntary Reporting Guidelines on Climate Change.9 Authoritative Mandates.9 TCFD Recommendations Include Disclosures on Governance,Risk,and Opportunities.11 COSO E

3、RM and Similar Frameworks.12 Moving from Short-Term Perspectives toward Long-Term Engagement.13 Emphasis on Securities Regulations for Disclosure Overlooks Nonpublic Entities.14Our Study.15 Findings.15 1.Governance:board participation in risk management regarding climate.15 2.ERM process and climate

4、 risk.17 3.Governance structures for climate risk.17 4.Short-term vs.long-term perspective.18 5.ESG reporting.19 6.Use of ESG/sustainable business information.19 7.Perspectives and action on physical and transition risks related to climate change.20 8.Perspectives and action on climate-related oppor

5、tunities(strategy).24 9.Scenario analysis.24Questions for Further Study.27Conclusion.28Endnotes.293CLIMATE RISK AND STRATEGIES:FINANCE FUNCTION READINESS TO MEET ACCELERATING DEMANDS ABOUT THE AUTHORSCornelis T.van der Lugt,Ph.D.,is senior lecturer extraordinaire at the University of Stellenbosch Bu

6、siness School in South Africa.He has more than 20 years of experience working globally in the field of sustainability standards and responsible investment,including consulting and executive education in Switzerland at the Graduate Institute and Geneva University School of Economics and Management.He

7、 holds the Fundamentals of Sustainability Accounting(FSA)credential of the Sustainability Accounting Standards Board(SASB),Certified ESG Analyst qualification of the European Federation of Financial Analysts Societies(EFFAS),an MBA from HEC Paris,and a Ph.D.from the University of Stellenbosch.Shari

8、Helaine Littan,J.D.,CPA,is IMAs director of corporate reporting research and thought leadership.She also serves as staff liaison to the IMA Financial Reporting Committee and to the IMA Sustainable Business Management Global Task Force.Her primary focus areas are financial reporting and sustainable b

9、usiness information and management.In 2015,she completed the Postgraduate Certificate in Sustainable Business,with commendation,from the University of Cambridge Institute for Sustainability Leadership.Shari holds a J.D.from Boston University School of Law and a B.S.,magna cum laude,from the School o

10、f Management at Binghamton University.Milana Erlik,CMA,is a reporting and budgeting manager at Efes Kazakhstan and a member of IMAs Kazakhstan Chapter.She received a bachelors degree in business administration from KIMEP University and a master of finance from the University of Leicester.Milana has

11、more than 15 years of experience in budgeting and reporting,providing both decision support and strategic planning services.Basheer Abhari,CMA,CRMA,is a risk professional with 10 years of experience in the domains of risk management,governance,and compliance.He holds a bachelors degree in financial

12、economics from the Hashemite University in Jordan.He is a CMA and holds the Certification in Risk Management Assurance(CRMA)credential.Basheer has worked for various banks in Jordan.Throughout his career,he has led several risk and governance projects and initiatives.In his last job at IMDAD in supp

13、ly chain financing,he was responsible for the risk and compliance department and served as a board secretary and as an observer member on different company committees.He currently works as group risk manager at Hikma Pharmaceuticals.Besides his work duties,Basheer is an active member in many profess

14、ional organizations including IMA and JAMA(Jordan Association of Management Accountants).Aspen(Harding)Axelman,CMA,CPA,is a consulting assistant controller with CliftonLarsonAllen and sits on the board of IMAs Albuquerque Chapter.She graduated summa cum laude from the University of New Mexico,earnin

15、g a BBA.Aspen has a passion for the nonprofit industry,which is why she works with multiple nonprofit organizations on upgrading their accounting functions,preparing financial statements and dashboards,and helping them grow into more influential organizations.She also loves the outdoors,has earned a

16、 Presidential Volunteer Service Award for building hiking trails in Montana,and has climbed Africas tallest mountain,Mount Kilimanjaro.4CLIMATE RISK AND STRATEGIES:FINANCE FUNCTION READINESS TO MEET ACCELERATING DEMANDS IMA(Institute of Management Accountants)is a global professional association foc

17、used exclusively on advancing the management accounting profession.December 2022 /Institute of Management Accountants,10 Paragon Drive,Suite 1,Montvale,NJ 07645For more information,please visit www.imanet.org.ACKNOWLEDGMENTSThe authors appreciate the input contributors to our research and publicatio

18、n,including:5CLIMATE RISK AND STRATEGIES:FINANCE FUNCTION READINESS TO MEET ACCELERATING DEMANDS EXECUTIVE SUMMARY This green paper and the research that underlies it aim to educate regulators,standard setters,policy makers,and senior executive teams to ensure their readiness to identify,consider,an

19、d assess various categories of business risks related to climate change.1 The paper aims to look into internal corporate functioning with a specific focus on the role of the CFO,finance and accounting teams,and risk management processes.Climate Change and Business Risk:A Focus on Corporate Finance a

20、nd Accounting Diverse stakeholders including governments,consumers,and investors are looking to businesses to respond to climate change.This is further driving business organizations to look to their finance and accounting teams to support:External reporting:meeting demands of regulators,policy make

21、rs,investors,data aggregators,and other stakeholders for the disclosure of information on a businesss risks and responses to climate change;and Internal management:the development and implementation of strategies and processes to support management decision making on sustainable business issues in a

22、 way that preserves assets,enhances performance,and builds value.The demands for external reporting over the last two decades have led to the development of climate-focused surveys,such as CDP,and disclosure frameworks covering climate such as those published by the Sustainability Accounting Standar

23、ds Board(SASB),the International Integrated Reporting Council(IIRC),the Climate Disclosure Standards Board(CDSB),and the Global Reporting Initiative(GRI).More recently,the International Financial Reporting Standards(IFRS)Foundations newly formed International Sustainability Standards Board(ISSB)bega

24、n standard-setting work that encompasses the guidelines of its predecessor organizations:the SASB,the IIRC,and the CDSB.2 The initial work of the ISSB relies,in significant part,on the Recommendations of the Task Force on Climate-related Financial Disclosures,which was created in 2015 by the Financi

25、al Stability Board(FSB)to develop consistent climate-related financial risk disclosures for use by companies,banks,and investors.3The U.S.Securities&Exchange Commission(SEC),which has primary oversight of the public securities markets and the information that regulated,public entities must disclose,

26、introduced proposed rules in May 2022.Like the ISSB proposals,the SECs proposed rules reflect the disclosure requirements of the Task Force on Climate-related Financial Disclosures(TCFD)recommendations.At the same time,the European Commission is looking to its European Financial Reporting Advisory G

27、roup(EFRAG),which issued its own set of proposed accounting and reporting standards to support the Corporate Sustainability Reporting Directive(CSRD).As far as climate-related disclosures are concerned,although each of these regulatory bodies and standard-setting organizations are exposing different

28、 formulations,as noted,all,to a large extent,are relying on the TCFD recommendations.It is generally hoped that reference to the same original,voluntary reporting guidelines will reduce pending fragmentation and promote comparability.The TCFD guidelines provide for 11 points of disclosure related to

29、 the financial effects of climate change on an organization,classified into four categories:governance,strategy,risk Are accounting teams ready to meet accelerating demands for management and corporate reporting regarding climate risk and strategies?6CLIMATE RISK AND STRATEGIES:FINANCE FUNCTION READ

30、INESS TO MEET ACCELERATING DEMANDS management,and metrics and targets(see Table 1).Instead of limiting recommended disclosures to greenhouse gas(GHG)emissions,they require an assessment of how an organization identifies,considers,and acts upon sustainable business information around climate issues.I

31、n summary,following the TCFD external disclosure guidelines depends on robust internal management processes,including governance and risk management processes that support strategic decision making.At the same time,organizations such as IMA(Institute of Management Accountants),whose members must con

32、sider not only external reporting but also internal management of sustainability,seek to promote sustainable business issues,including climate,in a way that supports management decision making.4 More specifically,these goals include identifying,assessing,and managing relevant risks.They include find

33、ing opportunities for efficiencies and implementing innovative strategies.Attention to sustainability serves to build resilient business models and create value with a long-term focus.5 Many organizations look to the Committee of Sponsoring Organizations of the Treadway Commission(COSO)Enterprise Ri

34、sk ManagementIntegrating with Strategy and Performance(ERM Framework)to evaluate risk management processes(see Figure 2).6 The framework promotes a multistep approach to risk that includes governance,oversight,and processes for identifying,assessing,and managing risks across an organization.From an

35、overall perspective,the internal processes directed by the ERM Framework can serve as a guide to responding to emerging areas of risk,such as climate and other environmental,social,and governance(ESG)items.In short,one can observe parallels between enterprise risk management(ERM)principles and the i

36、nformation suggested for disclosure by the TCFD.The bottom line is that the application of risk management principles and processes for management are foundational to external disclosure and compliance with the TCFD or similar climate-related standards or regulations.Preparedness to Respond to Clima

37、te-Related Risks:The Perspective of IMAs ConstituentsIMAs primary constituency is the global accounting and finance profession in business.This includes not only members from multinational,public companies but also from organizations that are private or considered small and medium-sized enterprises(

38、SMEs).In addition,although some are involved exclusively in external reporting compliance,many are involved in day-to-day transactional processes,implementing technology solutions,and focusing on strategic planning.A key question that they raise is the decision-usefulness of sustainable business inf

39、ormation from the perspective of business management.As calls for our constituents involvement in sustainable business management and ESG reporting accelerate,our members can offer a unique perspective on how these trends are affecting(or,alternatively,not reaching)this critical constituency.While m

40、uch is being addressed by corporate sustainability professionals,meaningful progress on both responding to and reporting on climate and other aspects of ESG risks calls for the input and expertise of IMAs core constituencies.By design,this study provides a snapshot.The goal was a qualitative,broad a

41、ssessment that summarizes the observations of our members and constituents on the readiness and maturity of their organizations risk management processes as far as climate change is concerned.Its results cannot be interpreted as representative of any particular subgroup in the overall economy such a

42、s public vs.private companies,geography,or industry.We suggest that this study be used to help develop further research into the perspective of professionals in corporate accounting and finance on climate and ESG-related challenges and risks.Our findings provide valuable insight.Internal accounting,

43、controls,and risk management processes are foundational for the performance reporting that investors and policy makers are seeking.It is also foundational for management to take meaningful action based on the information brought forward.This report also can support a 7CLIMATE RISK AND STRATEGIES:FIN

44、ANCE FUNCTION READINESS TO MEET ACCELERATING DEMANDS deeper understanding by those who are developing global standards for accounting and reporting of climate risks.It raises several questions for additional investigation by researchers and standard setters as they seek to help corporate accounting

45、and finance teams to become instrumental leaders and partners in climate and sustainability management.Key Findings from Our InvestigationEmploying an international survey and one-on-one interviews,our research team aimed to understand businesses readiness in terms of processes and structures to sup

46、port a meaningful response to the physical risks,transition risks,and strategic opportunities associated with climate change.The studys major findings are:About 25%of respondents reported coverage of climate and other ESG items as part of their organizations ERM processes with oversight by the board

47、 of directors.Many companies address climate change issues as part of a general response to ESG issues.For most companies,climate does not get separate attention as a stand-alone category.About half of the respondents,many of them based in private companies,stated that sustainability information is

48、not used by management for any purpose.Regardless of the differences between public and private entities,respondents from all entities generally indicated minimal maturity in managing or responding to climate-related physical risks,transition risks,and opportunities.While many respondents indicated

49、that particular risks or opportunities were identified,few characterized their positions as assessed or managed.It appears that most companies have begun to consider but have not quantified potential effects on their organizations or taken steps to manage the risks involved.A large majority of respo

50、ndents reported that their organizations are not performing any scenario or sensitivity analyses regarding climate-related risks.There appears to be a disparity in the attention that climate is receiving from respondents at public companies,which are assumed to be larger and have more resources,than

51、 those from private companies.It is fair to say that respondents from private companiesarguably representing the“real economy”have neither identified climate as a relevant matter nor acted on it.The focus on disclosure through securities regulation may be exacerbating disparities between the decisio

52、n-usefulness of standards for public companies and a lack of attention by private companies.In summary,with respect to climate,significant opportunities remain for businesses to move forward from initial risk identification to the more mature activities of assessment,mitigation,and management.Develo

53、ping more mature management and accounting systems will bring attention to supportive processes that are the precursors to reliable and trustworthy disclosure under the TCFD or similar standards and regulations.The current focus on publicly listed companies to respond to climate risks via disclosure

54、 overlooks large portions of the economysmall,medium,and privately held entities.8CLIMATE RISK AND STRATEGIES:FINANCE FUNCTION READINESS TO MEET ACCELERATING DEMANDS Various activities around the world have resulted in commitments to reduce greenhouse gas(GHG)emissions.These include new commitments

55、by businesses,among hundreds of organizations,that have joined in global undertakings.7 The corporate response has reflected both internal and external drivers for businesses to address climate change and other sustainability matters.8 The public health challenge around COVID-19,moreover,raised awar

56、eness of systemic,transnational consequences and the role of science in defining effective response strategies.For many,the business response to climate change focuses on risks.Generally,and following the Task Force on Climate-related Financial Disclosures(TCFD)typology,these risks fall into one of

57、three categories:physical risks,transition risks,and liability risks.Physical risks refer to potential losses from damaging weather events and long-term changes in climate trends.Storms,flooding,and wildfires,for example,are occurring with greater frequency and intensity than in the past.Climate cha

58、nge is also bringing about changes in long-term weather patterns,such as longer periods of rain or heat,and these changes can affect customer preferences,equipment functioning,and human productivity.Transition risks refer to exposures associated with market forces,technological developments,and regu

59、latory policies as industries,customers,employees,and investors avoid transactions with businesses that are seen as inadequately responding to decarbonization trends.Movement by companies to produce and deliver products in ways that reduce carbon emissions affects all of their suppliers.This means n

60、ot only energy suppliers but also suppliers of materials,transportation,and technology.Transition risk also means impairment of existing fossil fuel-dependent assets and operations due to the potential inability to recover invested costs.Liability risks refer to risks that an entity will be held lia

61、ble for the cost that its emissions or other environmental impacts have imposed on external entities.These can be imposed,for example,through regulatory enforcement actions or private litigation.Not all see business response to climate change in terms of risk.Some see it in terms of opportunities.Me

62、eting these demands can reveal new pathways for innovation,analysis of previously overlooked efficiency data,and cross-disciplinary collaboration.It brings about the rethinking of current business models and technology approaches.Business professionals involved in sustainability highlight new opport

63、unities over the short,medium,and long term that come from managing risks and taking advantage of opportunities as the economy transitions.Today,investors readily access large amounts of corporate databoth conventional financial data and environmental,social,and governance(ESG)data.Along with this d

64、ata comes a variety of ratings,rankings,and indices.As environmental data become increasingly pivotal in investment decision making,companies are concerned about the effects of a poor ESG rating compared to peers.Responsible investors have been a significant driver in the movement toward greater org

65、anizational attention to climate and other sustainable business or ESG matters.The largest institutional investors,such as BlackRock,Vanguard,and State Street,along with government employee pension funds around the world,are similarly pushing companies to measure and report on ESG.Similar trends are

66、 playing out around business lending,as sustainability-linked or sustainability-incentivized lending practices are on the rise.As financial services companies weigh the risk of investees with high GHG emissions in their portfolios,organizations of all sizes can increasingly expect lenders,insurers,a

67、nd institutional asset owners to demand information on ESG performance,including progress Background9CLIMATE RISK AND STRATEGIES:FINANCE FUNCTION READINESS TO MEET ACCELERATING DEMANDS on reducing GHG emissions.Many may provide incentives that lower the cost of capital for their investees.Developmen

68、t of Voluntary Reporting Guidelines on Climate ChangeDuring the first two decades of the 21st Century,multiple investor-based initiatives,such as the CDP and PRI,have accelerated pressure for corporate disclosure of ESG data.The CDPs work became prominent,particularly regarding climate,for large rep

69、orting entities.The CDPs disclosure process works via an annual,specialized survey instrument.Year to year,its questionnaire changes and implicitly reflects the goals driving maturity around corporate climate responses.The questionnaire has sought,progressively,more information on governance,risk,an

70、d internal processes.The results of the survey process,assigned ratings,and summary reports are publicly available on the CDP website.9 In addition,some of the underlying data that CDP collects are accessible on commercial investor platforms.The demand for corporate information around climate change

71、 and other sustainable business matters led to the proliferation of additional(1)commercial survey instruments and ratings and(2)voluntary frameworks and guidelines for external reporting.This proliferation of information demands further ignited regulatory movement toward mandatory climate and other

72、 ESG disclosures.As voluntary guidelines,these recommendations are well on the way toward becoming generally accepted.Authoritative MandatesWith respect to climate-related disclosures,there is significant movement toward authorities adoption of mandates that are based,in large part,on the TCFD recom

73、mendations.In its most recent report,the TCFD summarizes this worldwide coalescence around its disclosure recommendations.Figure 1 provides a summary of climate-related financial disclosure requirements and proposed requirements that incorporated or drew from the TCFD recommendations(referred to as

74、TCFD-aligned disclosure requirements).FIGURE 1:TCFD-ALIGNED DISCLOSURE REQUIREMENTSSource:TCFD,Task Force on Climate-related Financial Disclosures:2022 Status Report,October 2022,bit.ly/3PbDzGp.10CLIMATE RISK AND STRATEGIES:FINANCE FUNCTION READINESS TO MEET ACCELERATING DEMANDS In 2022,the U.S.Secu

75、rities&Exchange Commission(SEC)released for comment The Enhancement and Standardization of Climate-Related Disclosures for Investors(Release No.33-11042).10 This new rulemaking builds on the TCFD recommendations and,if adopted,would provide for new disclosure rules around governance and risk.In addi

76、tion,in 2021,the SEC announced that it would initiate rigorous oversight of corporate filings for compliance with its 2010 interpretation,Commission Guidance Regarding Disclosure Related to Climate Change(Release No.33-9106).11 This interpretation looks at the nature of required disclosures in Form

77、10-K and describes how a reporting entity should apply these requirements to provide climate-related information such as in the description of the business,legal proceedings,risk factors,and management discussion and analysis.Looking internationally,among the initial priorities of the International

78、Sustainability Standards Board(ISSB)was conducting due diligence on proposals for two initial standards,Exposure Draft(ED/2022/S1):General Requirements for Disclosure of Sustainability-related Financial Information and Exposure Draft(ED/2022/S2):Climate-related Disclosures.12 These standards were de

79、veloped by the International Financial Reporting Standards(IFRS)Foundations Technical Readiness Working Group,which included the ISSB predecessor organizations as well as the International Organization of Securities Commissions(IOSCO),the International Accounting Standards Board(IASB),and the World

80、Economic Forum.With respect to climate-related disclosures,the proposed standards parallel the TCFD recommendations.In Europe,at the direction of the European Commission,in mid-2022,the European Financial Reporting Advisory Group(EFRAG)released 13 exposure drafts as“Set 1”of sweeping new corporate r

81、eporting mandates that include an impact accounting approach,sometimes referred to as“double materiality,”with the objective of reflecting both internal and external impacts.Under this approach,a reporting entity provides disclosure of information not only about the effects of climate change and oth

82、er sustainability matters on its own organization,but also,conversely,the effects of its activities on the larger environment.The European Commissions larger objective is to support implementation of its green finance initiatives,some of which were codified through its Taxonomy Regulation(Taxonomy)a

83、nd Sustainable Finance Disclosure Regulation(SFDR).The Taxonomy is essentially a classification system that will be employed under a new Corporate Sustainability Reporting Directive(CSRD)with the SFDR covering investors and asset managers.The CSRD incorporates key aspects of the TCFD recommendations

84、.Globally,other regulators and securities exchanges in Asia and South America have been adding sustainability disclosures to their listing requirements,and many of these new guidelines specifically reference the TCFD.For example,in July 2022,the Sustainability Standards Board of Japan was establishe

85、d under the nations Financial Accounting Standards Foundation to address sustainability disclosure under Japans generally accepted accounting principles.This movement aligns with mandates from Japans Financial Services Agencys amendments to the Corporate Governance Code,effective April 2022,that the

86、 largest securities issuers(the Prime Market segment)provide disclosure of climate risk.Just over half of respondents(51%)reported that their organizations are not using sustainable business information at all.11CLIMATE RISK AND STRATEGIES:FINANCE FUNCTION READINESS TO MEET ACCELERATING DEMANDS TCFD

87、 Recommendations Include Disclosures on Governance,Risk,and OpportunitiesAs noted,the TCFD recommendations are not limited to GHG emissions data.Instead,the recommendations address 11 points of disclosure that align with four categories:Governance Strategy Risk management Metrics and targetsAlthough

88、 corporate disclosures that follow the TCFD recommendations have been on the rise,generally,the information provided to the market appears to be less robust than desired by investors,regulators,and other stakeholders.13 TABLE 1:RECOMMENDATIONS OF THE TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSUR

89、ESGovernanceStrategyRisk ManagementMetrics and TargetsDisclose the organizations governance around climate-related risks and opportunities.Disclose the actual and potential impacts of climate-related risks and opportunities on the organizations businesses,strategy,and financial planning where such i

90、nformation is material.Disclose how the organization identifies,assesses,and manages climate-related risks.Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material.Recommended Disclosuresa)Describe the boards overs

91、ight of climate-related risks and opportunities.a)Describe the climate-related risks and opportunities the organization has identified over the short,medium,and long term.a)Describe the organizations processes for identifying and assessing climate-related risks.a)Disclose the metrics used by the org

92、anization to assess climate-related risks and opportunities in line with its strategy and risk management process.b)Describe managements role in assessing and managing climate-related risks and opportunities.b)Describe the impact of climate-related risks and opportunities on the organizations busine

93、sses,strategy,and financial planning.b)Describe the organizations processes for managing climate-related risks.b)Disclose Scope 1,Scope 2,and,if appropriate,Scope 3 GHG emissions,and the related risks.c)Describe the resilience of the organizations strategy,taking into consideration different climate

94、-related scenarios,including a 2C or lower scenario.c)Describe how processes for identifying,assessing,and managing climate-related risks are integrated into this organizations overall risk management.c)Describe the targets used by the organization to manage climate-related risks and opportunities a

95、nd performance against targets.Source:TCFD,Task Force on Climate-related Financial Disclosures:2022 Status Report,October 2022,bit.ly/3PbDzGp.12CLIMATE RISK AND STRATEGIES:FINANCE FUNCTION READINESS TO MEET ACCELERATING DEMANDS COSO ERM and Similar FrameworksThese disclosure demands appear to be bui

96、lt on the assumption that companies have the right internal structures to perform the analysis and deliver compliant information.It reflects assumptions that the data,processes,and oversight are in place.As a general matter,however,companies are reluctant to disclose information for which they lack

97、comfort as to reliability.Reporting organizations must have the data,systems,oversight,and talent FIGURE 2:COSOS ENTERPRISE RISK MANAGEMENT FRAMEWORK 2017 COSO.Used by permission.All rights reserved.13CLIMATE RISK AND STRATEGIES:FINANCE FUNCTION READINESS TO MEET ACCELERATING DEMANDS resources to me

98、et these disclosure demands in a way that promotes trust and confidence.Disclosure rests on the existence of reliable internal risk management processes and systems.Many organizations look to the Committee of Sponsoring Organizations of the Treadway Commission(COSO)Enterprise Risk ManagementIntegrat

99、ing with Strategy and Performance(ERM Framework;see Figure 2)to guide their risk management processes holistically.The ERM Framework,for example,provides fundamental definitions and goals:Risks are defined as“the possibility that events will occur and affect the achievement of strategy and business

100、objectives.”Enterprise risk management(ERM)is defined as“the culture,capabilities and practices,integrated with strategy-setting and performance,that organizations rely on to manage risk in creating,preserving and realizing value.”Leadership set by an organizations board and executive management ens

101、ures not only that a company is operating efficiently but also that it remains capable of assessing emerging risks.Leaders judge whether the ship is going in the right direction or whether it drastically needs to change course.In some organizations such as insurance companies,financial risk manageme

102、nt is the heart of the business model,and sophisticated risk management teams,with specialized expertise,take the lead.All organizations,however,benefit from a robust risk management process,and they look to their CFO and finance and accounting teams to guide analysis for decision making.Risk manage

103、ment is one of the basic competencies of management accountants and other members of the finance and accounting unit.This includes familiarity with fundamental risk management principles,as described in the COSO ERM Framework and similar materials.This is part of the skill set required to assess con

104、ditions and respond with strategy.It includes careful consideration of the competitionnot only what peers are doing now but where they are headed.It is looking forward,considering future direction and value creation that reflects market and societal expectations.In 2018,COSO and the World Business C

105、ouncil for Sustainable Development(WBCSD)released a report to facilitate professional understanding and organizations ability to apply the COSO ERM Framework to integrate activities around climate and other ESG risks.This guide noted that the ERM Framework can help an organization respond by identif

106、ying,assessing,and managing or mitigating negative effects,such as a reduction in revenue targets or damage to reputation,as well as seize on positive impacts or opportunities,such as moving into emerging markets for new products or cost savings initiatives.14 Many of the TCFD guidelines that seek d

107、isclosure regarding the financial effects of climate change depend,in substance,on principles in the ERM Framework.At the heart of the five components of the COSO ERM Framework is the objective of delivering on performance.This requires three key steps,(1)identifying,(2)assessing,and(3)managing or m

108、itigating risks,based on a robust process of prioritization and consideration of emerging changes and drivers.Moving from Short-Term Perspectives toward Long-Term EngagementOne of the critical aspects of addressing climate and other sustainable business risks is the perspective of various profession

109、als within the accounting and management ecosystem.It is well recognized that satisfying market interests around sustainable business information and management will require a longer-term,forward-looking perspective than commonly referenced in business today.The shorter-term focus of corporate teams

110、(including the finance and accounting function)that are responsible for oversight of ERM processes,in comparison to the longer-term focus of sustainability professionals and institutional investors,is a significant challenge that requires attention to implementing strategies and reporting around cli

111、mate issues.CLIMATE RISK AND STRATEGIES:FINANCE FUNCTION READINESS TO MEET ACCELERATING DEMANDS Emphasis on Securities Regulations for Disclosure Overlooks Nonpublic EntitiesImportantly,the current emphasis on corporate disclosure,mandated through securities laws on public companies,may be overlooki

112、ng the important contributions of private organizations for reducing GHG emissions and supporting sustainable development.15 The emphasis on external disclosure to public markets appears to overlook the risks and contributions of nonpublic entities addressing climate-related risks and opportunities

113、as well as impacts on other parties that are contributing resources and have a stake in the enterprise.Overwhelmingly,even in developed countries,small and medium-sized enterprises(SMEs)make up a significant majority of the economy.For example,in the United States,the number of public companies toda

114、y is limited to about 4,000.16 The U.S.Small Business Administration reports that an astounding 99.9%of businesses are small businesses,and,in 2021,these 32.5 million entities employed almost 47%of the private workforce.17 Similarly,with a worldwide perspective,McKinsey&Company reports that in high-

115、income countries worldwide,SMEs account for 99%of all companies and 70%of all jobs,and they contribute more than 50%of gross domestic product(GDP).18 The COSO-WBCSD report observed:ESG-related risks are as relevant for small and medium-sized entities as they are for large corporations or government

116、bodies.However,resources in SMEs are often limited,making it challenging for these entities to establish robust governance or to adequately identify,assess and respond to all ESG-related risks.SMEs should take a common sense approach that uses available resources efficiently.This may include focusin

117、g on strategy and objective-setting and performance while being aware of the importance of continual monitoring and improvement.Nevertheless,it is generally viewed that SMEs are less inclined and less motivated to consider and address climate-related risks and opportunities than global,public compan

118、ies.International companies are assumed to have greater resources and greater compliance concerns than their private and smaller counterparts.Considering the drivers for change and attention to emerging issues,the researchers aimed to understand,with greater depth,the perspective of insidersthe prof

119、essionals who are to respond by considering risks and strategies.We sought to understand corporate maturity from the perspective of these insiders.Have they merely taken note of climate change as a topical public agenda item,or has there been a critical assessment of the relevance of the issue as a

120、longer-term,material risk for their own sector and business?14Internal accounting,controls,and risk management processes are foundational for the performance reporting that investors and policy makers are seeking.It is also foundational for management to take meaningful action based on the informati

121、on brought forward.15CLIMATE RISK AND STRATEGIES:FINANCE FUNCTION READINESS TO MEET ACCELERATING DEMANDS The results described in this report are based on:A literature review that focused on(1)TCFD and similar guidelines regarding financial risks related to climate change and(2)published risk manage

122、ment guidelines,including the COSO ERM Framework.A series of interviews with more than 15 corporate practitioners to gather general observations of corporate finance and accounting,risk management,sustainability,and executive leadership.An online survey of IMA(Institute of Management Accountants)mem

123、bers and via distribution through several external organizations including the International Federation of Accountants(IFAC),the Sustainability Investment Leadership Council,the New York State Society of Certified Public Accountants(NYSSCPA),and the Governance and Accountability Institute.The survey

124、 yielded more than 500 responses.This study was nonquantitative in design.It represents only the views of the respondents.It was not designed or intended to be representative of a specified population.Based on self-reported responses,survey participants were largely from the U.S.(73%),followed by In

125、dia,Canada,China,the Netherlands,and Germany,and they worked at organizations with headquarters in similar geographic regions:U.S.(71%),Canada,India,Italy,the Netherlands,the United Kingdom,and Saudi Arabia.Almost three out of four respondents(73%)reported that they were from private companies.The r

126、emainder reported working for publicly listed entities.Similarly,about 25%indicated that their organizations were producing some form of sustainable business reports;64%stated that they were from nonreporting companies(see Figure 7).The remainder,approximately one in 10,were not sure about their com

127、panys ESG reporting.While this is not intended to be representative of the market,the inclusion of a large percentage of business professionals from entities that are SMEs or unlisted companies provides a deeper understanding of the challenges to responding to climate-related risks than exclusive fo

128、cus on entities that publicly report.By sector,almost 25%of respondents said they were from finance and financial services,which reflects respondents connection with IMA and other organizations related to professional accountancy.This was followed by manufacturing(16%),utilities(7%),and technology(6

129、%).One-third of respondents listed finance as his or her job function.One-fourth designated corporate accountant,and about 12%designated a role in management.A majority of respondents reported at least mid-level or senior positions.Almost one-third(31%)classified their role as owner or C-suite level

130、,and a similar number self-described as senior management.Findings1.Governance:board participation in risk management regarding climateThrough our interviews and survey,we asked respondents to describe board-level oversight and the delivery of information regarding climate-related risks.Board report

131、ing on climate risk:Respondents were asked how frequently their organizations board receives reports that include climate risk information.To this question,only about 10%reported regular standard reporting,either at every meeting(4%)or annually(6.5%;see Figure 3).Those reporting“at every meeting”mor

132、e commonly came from financial institutions,manufacturing,power utilities,and information and technology.The responses of a majority suggest an ad hoc approach of several times per year(14%)or only if a specific issue arises(21%).The largest single portion of respondents(37%)indicated that their res

133、pective boards never address climate risk.Our Study16CLIMATE RISK AND STRATEGIES:FINANCE FUNCTION READINESS TO MEET ACCELERATING DEMANDS Board committee:We asked respondents whether their board of directors has an established committee or subcommittee with oversight responsibility for ESG risks and

134、whether this includes climate change.In total,about one in four reported that their board has an established body,with the largest group(17%)stating that the boards designated group addresses all sustainability matters.Only 5%report that the boards oversight group addressed climate as its own catego

135、ry(see Figure 4).Almost two-thirds(63%)reported that their board has not designated a board-level committee at all.In summary,the dedicated board-level attention specifically to climate-related risk,as reported,is uncommon.40%35%30%25%20%15%10%5%0%Every meetingSeveral timesa yearAnnuallyOnly if a sp

136、ecificissue existsNeverDont knowFIGURE 3:BOARD INFORMATION ON CLIMATE RISKWhich best reflects how frequently your organizations board of directors receives reports that include climate risk information?70%60%50%40%30%20%10%0%Yes,climate as its own categoryYes,climate as part of ESGNoDont knowFIGURE

137、4:BOARD STRUCTURES ON CLIMATE RISKDoes your organizations board of directors have an established committee or subcommittee with oversight responsibility for ESG risks,and does this include climate change?17CLIMATE RISK AND STRATEGIES:FINANCE FUNCTION READINESS TO MEET ACCELERATING DEMANDS 2.ERM proc

138、ess and climate riskWe asked respondents whether their organizations risk management process covers risks related to climate change.As shown in Table 2,only 7%reported affirmatively that their organization has a process that covers climate as a risk in its own category.A larger minority of responden

139、ts(15%)stated that their organizations ERM processes cover climate risks as part of a broader range of ESG risks.A larger group(20%)responded that their ERM processes address risks that include climate,but not as a separately identified risk category.The largest group(32%),however,indicated that the

140、ir organizations process excludes climate risks,and 16%reported that they do not have an ERM process at all,with the remainder(11%)unsure.3.Governance structures for climate riskWe asked several questions that aim to ascertain who within respondents organizations is leading and participating in addr

141、essing climate risk.We dont consider climate-related risks at all.32%We consider climate-related risks as part of other risk categories but not separately and not regularly.20%We dont have an ERM process.16%We address ESG risks including climate-related risks as a regular part of our ERM process.15%

142、Not sure.11%We address climate-related risks as a separate risk and as a regular part of our ERM process.7%TABLE 2:RISK MANAGEMENT AND CLIMATE CHANGE30%25%20%15%10%5%0%CEO directlyNot assignedChief riskofficerChiefsustainabilityofficerCFOChiefoperatingofficerChief legal,compliance,or publicpolicy of

143、ficerChief investment officerFIGURE 5:CORPORATE LEADERSHIP ON CLIMATE RISK18CLIMATE RISK AND STRATEGIES:FINANCE FUNCTION READINESS TO MEET ACCELERATING DEMANDS Leadership:We sought to discover the leader to whom units with responsibilities for climate risk oversight report(see Figure 5).Most respond

144、ents(30%)indicated the CEO as the primary leader,followed by the chief risk officer(12%)and the chief sustainability officer(CSO,11%).About 15%,however,responded their organization has not assigned responsibility for monitoring risks related to climate change.Participants:To understand the structure

145、s,we asked respondents to what extent members from specified functions participate in the risk management process regarding climate change(see Figure 6).It appears that most commonly,these activities are led by someone from risk management(27%)or sustainability(27%).Yet not all organizations have a

146、risk management or a sustainability function.Respondents also described regular participation in these risk-related activities by members from operations(40%),risk management(35%),legal/public policy(35%),and finance and accounting(31%).More than one out of four respondents(28%)reported that members

147、 of finance and accounting participate only periodically in risk management regarding climate change,and 18%reported that their finance function does not participate in risk management at all.It is reasonable to conclude that involvement of the accounting and finance function,bringing expertise in r

148、isk management,would provide new insights and discipline to the process.4.Short-term vs.long-term perspectiveBusiness professionals commonly break down perspectives in terms of the short,medium,and long term.These perspectives of time horizon can also differ based on sector or industry.We asked our

149、respondents to consider the outlook of different professionals in their leadership teams and stakeholders such as investors.45%40%35%30%25%20%15%10%5%0%HumanresourcesLegal/publicpolicyFinance andaccountingOperationsRiskmanagementSustainability/corporateresponsibilityFIGURE 6:PARTICIPATION IN RISK MA

150、NAGEMENT REGARDING CLIMATE CHANGETo what extent do members from each of the following functions participate in your organizations risk management process regarding climate change?n Doesnt participaten Participates periodicallyn Participates regularlyn Leads this effort19CLIMATE RISK AND STRATEGIES:F

151、INANCE FUNCTION READINESS TO MEET ACCELERATING DEMANDS The information we gathered suggests a critical and impactful difference between the time frame perspective of professionals based on their role and discipline.Responses indicate that members of accounting and corporate finance teams appear to h

152、ave a significantly shorter-term focus than their senior leadership,including CFOs and CEOs.They also indicated that investors and lenders have a longer-term focus than people in these specific executive roles,who are,in turn,less long term-focused than lenders and investors,the sources of financial

153、 capital.Sustainability officers are described as being longer term-focused than their corporate leadership teams and more aligned with investment officers.5.ESG reporting The demand for disclosure around GHG emissions and business responses to climate change has accelerated.This demand has been vol

154、untary or market-driven,reflecting growing consumer interest and regulatory movement as authorities demand climate disclosures to enable market-based and fiscal schemes such as emissions trading and carbon taxes.By 2021,more than 96%of the S&P 500 produced some type of sustainability or ESG report.1

155、9 This trend appears to remain largely among public companies,with privately held or SMEs not participating.Among our respondents,professionals at both publicly held and privately held organizations,only one-quarter affirmatively indicated that their organizations issue ESG reports(see Figure 7).Alm

156、ost two-thirds(64%)indicated that their organizations are not issuing ESG or sustainability reports,and 11%signaled that they do not know whether their organization does so.Although some publicly listed companies may be providing some sustainability information in their annual reports or regulatory

157、filings,the responses signal low levels of sustainability or ESG reporting by a large segment of the economy.6.Use of ESG/sustainable business informationWith the emphasis on external ESG reporting,we aimed to understand whether the information brought forward,gathered,analyzed,and delivered to the

158、market was decision-useful from a management perspective.Regardless of whether their organization issued an external ESG report(or responded to rating questionnaires),all respondents were asked how management uses sustainable business information,which includes information regarding climate risk,for

159、 internal purposes.In this regard,just over half of respondents(51%)reported that their organizations are not using sustainable business information at all(see Table 3).The next most common responses were that 11%25%64%FIGURE 7:EXTERNAL SUSTAINABILITY REPORTERSn Yesn Non Dont know20CLIMATE RISK AND

160、STRATEGIES:FINANCE FUNCTION READINESS TO MEET ACCELERATING DEMANDS the information is used“to identify and assess risks”(26%)and“reviewed by senior management for financial planning and analysis purposes”(21%).About 15%-18%of respondents reported an active ongoing use of the information,such as for

161、benchmarking with peers,capital budgeting,tracking year-to-year progress,and employee engagement.The least frequent response(5%)indicated that the information is used for managers compensation.The inclusion of sustainability factors in managers goal setting,performance,and compensation may deserve c

162、loser attention,as research continues to reveal connections between sustainability performance and management effectiveness,lower costs of capital,and financial performance overall.7.Perspectives and action on physical and transition risks related to climate changeAs noted,the analysis of economic r

163、isk related to climate change generally falls into three categories:physical risks,transition risks,and liability risks.For the most part,the focus is on the first two categories.Physical risks generally refer to the impairment or destruction of assets or operations due to a weather event(such as st

164、orms or wildfires)or chronic change in climate patterns(such as sea level rise and potential effects on waterfront property).Transition risks generally refer to the impairment or destruction of the productive use of assets or operations due to changes in the markets or overall economy as it transiti

165、ons to activities with low or neutral emissions.One step further,this economic shift raises opportunities for organizations to innovate and develop strategies to perform well and create value given the emerging new paradigm.None of the above51%Used to identify and assess risk?26%Reviewed by senior m

166、anagement for financial analysis and planning purposes?21%Compared to prior reports to see if youre making progress?18%Shared with employees to enhance engagement?18%Compared to your competitors for benchmarking purposes?15%Used for capital budgeting?15%Used by facilities and plant managers?14%Used

167、to evaluate suppliers?14%Used to secure customer transactions and contracts?10%Used as a basis for any part of managers compensation?5%TABLE 3:INTERNAL USES OF SUSTAINABLE BUSINESS INFORMATION21CLIMATE RISK AND STRATEGIES:FINANCE FUNCTION READINESS TO MEET ACCELERATING DEMANDS Responding to physical

168、 risks:We asked respondents to what extent their organizations have considered,in detail,various potential effects of a range of physical risks,transition risks,and opportunities.Analysis of responses shows that for the most part,organizations have considered or identified various risks and opportun

169、ities,but have done little else toward assessing or managing these factors(see Table 4).This suggests that all organizations,regardless of their status as reporting entities,are just starting to bring risk management and innovation techniques to climate-related business matters.The lack of maturity

170、may,in fact,be a significant factor in the lack of robust reporting related to climate risks and opportunities.About a third of the responses to various aspects of physical risks was that they are not material to the business model.Sea level rise appears to be the least concerning.The highest weight

171、ed average scores pointed to changes in insurance coverage and supply chain disruption.These concerns were followed by productivity losses/impairment of physical assets and limited or blocked access to premises.Perhaps due to challenges presented by the global COVID-19 pandemic,the most reported man

172、agement or mitigation action relates to supply chain disruption.Yet around 30%have not even considered the potential risks of drought/wildfires or intense heat or heatwaves.We havent consid-ered this risk Weve identified this as a potential riskWeve assessed this risk to our busi-nessWeve taken step

173、s to manage or mitigate this riskThis is not material to our business modelWeighted average scoreScore12340Changes in insurance coverage24%17%15%23%20%2.0Supply chain disruption21%19%17%22%21%2.0Productivity losses/impair-ment of physical assets20%19%17%19%24%1.9Storms/floods22%17%16%19%26%1.8Limite

174、d or blocked access to our premises27%15%11%19%27%1.7Chronic periods of intense heat/heatwaves30%18%9%12%31%1.4Drought/wildfires31%13%11%11%35%1.3Chronically shorter winters/longer summers32%13%8%9%38%1.2Sea level rise35%12%7%5%40%1.0TABLE 4:MATURITY OF RESPONSES TO PHYSICAL RISKS RELATED TO CLIMATE

175、 CHANGEWeighted average score computed by assigning 1 point to“We havent considered this risk,”2 points for“Weve identified this as a potential risk,”3 points for“Weve assessed this risk to our business,”4 points for“Weve taken steps to manage or mitigate this risk,”and items reported as“This is not

176、 material to our business model”given a weight of zero.22CLIMATE RISK AND STRATEGIES:FINANCE FUNCTION READINESS TO MEET ACCELERATING DEMANDS Responding to transitional risks:Reputation and the public impression of an organization being active or inactive appears to be the most compelling climate tra

177、nsition risk in moving companies to climate action(see Table 5).With respect to transition risks,the highest weighting pointed to intangible assets and relationships:reputational risks with the public and policy makers followed by employee engagement.The third-ranked risk,government-imposed limits o

178、n GHG emissions,may suggest a lack of familiarity with the various means that government authorities are considering in the responses to collective climate risks;most are considering emissions trading systems over direct emissions taxes and specific limits on emissions.The collective survey response

179、s regarding peer-to-peer competition were unexpected,as during one-on-one interviews,several respondents raised this concern with us.In personal interviews,it was noted that actual competition today(particularly with regard to investment)and potential competition in the future(particularly with rega

180、rd to large corporate buyers and consumers)were observable drivers for movement toward managing climate and other ESG risks.We havent consid-ered this risk Weve identified this as a potential riskWeve as-sessed this risk to our businessWeve taken steps to manage or mitigate this riskThis is not mate

181、rial to our business modelWeighted average scoreScore12340Reputational risks with the public/policy makers27%23%13%13%24%1.6Employee engagement if we are seen as irrespon-sible31%22%13%12%23%1.6Government-imposed limits on greenhouse gas emissions27%21%10%14%28%1.5New taxes on greenhouse gas emissio

182、ns29%20%12%12%27%1.5Impairment/diminished value of our investment portfolio27%21%7%14%31%1.5Cap-and-trade systems to limit greenhouse gas emissions31%16%8%12%33%1.3Competitors using technol-ogy to go greener faster than us32%20%7%10%31%1.3TABLE 5:MATURITY OF RESPONSES TO TRANSITIONAL RISKS RELATED T

183、O CLIMATE CHANGEWeighted average score computed by assigning 1 point to“We havent considered this risk,”2 points for“Weve identified this as a potential risk,”3 points for“Weve assessed this risk to our business,”4 points for“Weve taken steps to manage or mitigate this risk,”and items reported as“Th

184、is is not material to our business model”given a weight of zero.23CLIMATE RISK AND STRATEGIES:FINANCE FUNCTION READINESS TO MEET ACCELERATING DEMANDS For all transition risks presented,however,very few reported activities beyond identification.For example,although employee engagement is identified a

185、s a risk,only around 12%have assessed this risk or taken action steps to manage/mitigate it.It remains to be seen whether the competition for talent becomes a driver for assessment and management/mitigation,particularly if management considers younger employees preference for employers that are demo

186、nstrating leadership on sustainability/ESG issues.Fourteen percent of respondents signaled that their company has taken steps to mitigate the risk of impairment or diminished value of their company investment portfolio.This result coincides with feedback from investment professionals who appear to b

187、e more mature than peers in other business functions on the prominence of ESG or sustainable business risks and opportunities.We havent consid-ered thisWeve identified this as a potential opportu-nityWeve developed strategy around thisWeve imple-mented action stepsThis is not material to our busines

188、sWeighted average scoreScore12340Energy efficiency21%25%13%22%19%2.0Enhanced employee engagement29%25%13%13%21%1.7Other operational efficien-cies(other than energy)29%24%8%16%23%1.6Working more closely with suppliers27%25%10%13%25%1.6Enhanced customer loyalty26%28%12%11%24%1.6Reduced transportation

189、costs23%26%10%13%28%1.6Enhanced organizational resilience32%22%10%12%24%1.5Lower cost of capital/borrowing rates31%22%10%10%27%1.5Labeling ourselves as carbon neutral34%17%8%10%32%1.3Reduced packaging costs25%18%8%11%38%1.3TABLE 6:MATURITY OF RESPONSES TO STRATEGIC OPPORTUNITIES RELATED TO CLIMATE C

190、HANGEWeighted average score computed by assigning 1 point to“We havent considered this,”2 points for“Weve identified this as a potential opportuni-ty,”3 points for“Weve developed strategy around this,”4 points for“Weve implemented action steps,”and items reported as“This is not material to our busin

191、ess”given a weight of zero.24CLIMATE RISK AND STRATEGIES:FINANCE FUNCTION READINESS TO MEET ACCELERATING DEMANDS 8.Perspectives and action on climate-related opportunities(strategy)Similar to the survey questions around climate-related risks,respondents were asked about their organizations recogniti

192、on and action on opportunities related to the economic transition from fossil fuel dependency to lower or zero-emission operations(see Table 6).Weighted average scores were the highest for energy efficiency,followed by enhanced employee engagement,and other operational efficiencies.With respect to n

193、onenergy-related efficiencies,our one-on-one interviews brought further understanding.Business professionals are highlighting how analysis of energy use and emissions typically brings new and valuable insights on how an organization is using other resources,such as water.It also brings about,for exa

194、mple,new understanding on means to reduce waste and utilize technology for enhanced resource efficiency in operations.These questions with respect to opportunities yield results that align with our findings with respect to risk.A significant portion of the respondents(21%-34%)either have not conside

195、red the listed opportunities or have merely identified them(17%-28%).With the exception of energy efficiency(22%),no more than 16%report either developing strategy or taking action steps around the items raised.9.Scenario analysisThe TCFD recommendations call for organizations to perform and disclos

196、e the results of scenario analysis to assess potential business,strategic,and financial implications of climate-related risks and opportunities.The purpose of the scenario(or sensitivity)analysis is to assess the range of risks and financial outcomes that may result from meeting demands to keep glob

197、al warming within 1.5 or 2.0C of preindustrial levels.Some entities,such as insurance companies or large integrated energy companies,have sophisticated risk modeling processes that can consider different global environmental conditions,governmental regulations,market changes,and company activities,a

198、nd produce quantitative analyses.It remains somewhat unclear,however,how organizations with fewer resources or in other industries can perform analyses with similar sophistication.Some entities begin by considering,qualitatively,the various potential future conditions with respect to storms,floods,w

199、ildfires,days of productivity,access to supply chain,and a range of connected considerations.Those that do scenario analysis indicated that it involves a balance of qualitative and quantitative information used,and overall respondents felt a combination of both would be desirable.Models are availabl

200、e for companies to consider and assess various scenarios,including sensitivities at 1.5 or 2.0C.They can also use models published 17%14%69%FIGURE 8:RESPONDENTS WHOSE ORGANIZATIONS ARE STRESS-TESTING AGAINST CLIMATE RISKSn Yesn Non Dont know25CLIMATE RISK AND STRATEGIES:FINANCE FUNCTION READINESS TO

201、 MEET ACCELERATING DEMANDS under the auspices of the Intergovernmental Panel on Climate Change(IPCC),the International Energy Agency,or other organizations with recognized expertise in science-based modeling.Yet,as noted,there is limited external scenario disclosure by companies.To get an understand

202、ing of the current state or sophistication of the requisite internal processes to support disclosure,we asked respondents whether their organizations have implemented any processes for stress-testing or scenario analysis regarding climate risk for internal risk management purposes.Only 14%of respond

203、ents indicated that their organizations were performing this type of analysis(see Figure 8).More than two-thirds(69%)of respondents confirmed that their organization had not performed a scenario analysis,while 17%indicated that they did not know.To gain deeper insight into the relatively low positiv

204、e responses(as expected),we asked respondents to provide insight on the challenges that hinder their organization performing the analysis(see Table 7).Not at allAn insig-nificant challengeA man-ageable challengeSome-what chal-lengingA significant challengeWeighted average scoreScore12345Forecasting

205、climate-related regulatory actions19%6%16%27%31%3.4Monetizing our findings to translate risks into business action22%8%21%24%26%3.2Identifying or accessing reliable external information on climate trends and expectations24%6%27%17%26%3.2Identifying the talent resources to perform a reliable analysis

206、22%8%27%22%21%3.1Securing the right software or systems to analyze the data23%7%26%22%22%3.1Predicting how quickly our competitors will divest of carbon intense assets30%8%18%19%26%3.1Developing an overall portfolio view of our risks24%9%27%22%18%3.0Accessing the right internal data23%8%32%20%18%3.0

207、Determining localized or site-level climate-risk exposures25%9%26%21%19%3.0Getting a mandate from senior management to do the assess-ment29%10%26%14%20%2.9TABLE 7:PRACTICAL CHALLENGES TO STRESS-TESTING ON CLIMATE RISKSWeighted average score computed by assigning 1 point to“Not at all,”2 points for“A

208、n insignificant challenge,”3 points for“A manageable challenge,”4 points for“Somewhat challenging,”and 5 points for“A significant challenge.”26CLIMATE RISK AND STRATEGIES:FINANCE FUNCTION READINESS TO MEET ACCELERATING DEMANDS Respondents,in general,rated various aspects of performing a scenario ana

209、lysis somewhere between manageable and somewhat challenging.The task of forecasting climate-related regulatory actions was considered the most significant challenge overall,which suggests that those performing assessments find transition risks driven by government and regulatory movement most diffic

210、ult to assess.Respondents perceived the least significant challenge in performing a scenario analysis as getting a mandate from senior management to do the assessment.Overall,however,respondents generally described each of these activities as equally challenging,which could suggest the lack of famil

211、iarity with the details in performing these sensitivity analyses.Respondents similarly gave relatively equal weight,for example,to challenges around systems,peer analysis,and talent resources.From the survey responses,it appears that existing processes are generally viewed as currently inadequate to

212、 performing scenario analysis,particularly with the rigor that is required to provide external reporting(subject to assurance)for climate-related scenario analysis.The shorter-term focus of corporate teams(including the finance and accounting function)that are responsible for oversight of ERM proces

213、ses,in comparison to the longer-term focus of sustainability professionals and institutional investors,is a significant challenge that requires attention to implementing strategies and reporting around climate issues.27CLIMATE RISK AND STRATEGIES:FINANCE FUNCTION READINESS TO MEET ACCELERATING DEMAN

214、DS As noted,the objective of this research and report is to contribute to the global conversation about the future of accounting and reporting on climate and other ESG risks.It is based on IMAs unique constituency and its importance in developing meaningful sustainable business practices not only fo

215、r external reporting but also for managing and mitigating risks through strategic decision making and innovation.Advocates for sustainability in business and the accounting profession have made a wide range of thought leadership materials available.These materials helpfully describe various framewor

216、ks and rationale for incorporating sustainable business practices and reporting processes.Other research analyzes the details of companies reports and compliance with external frameworks and expectations.Nevertheless,investigation into the actual perspective and day-to-day work of corporate professi

217、onals remains limited.Deep-dive research on practical challenges and how these challenges might be overcome in a way that results in meaningful progress in enhancing sustainability in business and addressing climate risk may foster the foundational attention and conversations to build processes for

218、corporate action.Based on our work,we suggest that further research investigate the following:Why have organizations been slow to innovate around sustainable business,including the development of structures and assignment of responsibilities of emerging risks?Is there a knowledge gap among corporate

219、 professionals,including members of the accounting and finance function,that is preventing more in-depth assessment and management of climate and other sustainable business risks?Is the information being demanded or delivered under ESG reporting standards and by data aggregators/rating companies dec

220、ision-usefulness from managements perspective?Is there a critical difference among the time horizon perspectives(that is,short term,medium term,long term)of members of the accounting and finance function,CFOs,CEOs,CSOs,risk officers,investment officers,lenders,and other stakeholders who share respon

221、sibility for different aspects of sustainable business information and management?Are these different perspectives serving to inhibit corporate response to climate and other ESG risks?Do private companies or SMEs perceive a difference in the need to respond to climate and other sustainable business

222、risks?Is the emphasis on external reporting via securities regulation compliance making sustainable business issues appear irrelevant to their businesses?Questions for Further Study28CLIMATE RISK AND STRATEGIES:FINANCE FUNCTION READINESS TO MEET ACCELERATING DEMANDS Regulators,investors,consumers,an

223、d other stakeholders are looking to businesses lead in global responses to climate change and its related risks.One of the primary tools that these stakeholders are considering is enhancing disclosure requirements under the securities laws and listing requirements of various jurisdictions.Corporate

224、accountants will need to be leaders and key facilitators in organizations for meeting these demands.Current proposed regulations and standards around climate disclosure are referencing or incorporating the guidelines issued by the TCFD,established by the Financial Stability Board.The TCFD recommenda

225、tions call for 11 points of disclosure,classified in four categories:governance,strategy,risk management,and metrics and targets.Although these categories correspond to information that public companies provide in their management commentary sections of regulatory filings and annual reports,the subj

226、ect matter is novel.Companies are building new processes and internal systems to meet these new demands for information with the dual goals of external disclosure and internal management decision making.Moreover,the climate disclosure requirements reflect processes that find roots in the COSO ERM Fr

227、amework and materials.Despite the drivers,business responses to climate,including risk management and reporting,have remained slow among the broad spectrum of both private and public enterprises from all sectors and industries.From an internal perspective,only a minority of respondents of our survey

228、 among professionals in accounting,corporate finance,and related disciplines reported regular attention to climate(and other ESG issues)from their boards.They reported a significant difference between the time horizon of finance and accounting team members and sustainability team members,the latter

229、more aligned with the perspective of institutional investors.Only about a quarter of respondents indicated that their companies use ESG data for internal decision making.Moreover,they are not performing climate scenario analyseseither quantitative or qualitative.Most of our respondents,who are with

230、both public and private companies,are not reporting on ESG matters and have done little beyond identification of various potential aspects of climate risk and opportunities.Participants responses suggest largely immature processes around the assessment and management of risks and business opportunit

231、ies related to climate change.CONCLUSIONFor more information,please visit imanet.org/thought_leadership.29CLIMATE RISK AND STRATEGIES:FINANCE FUNCTION READINESS TO MEET ACCELERATING DEMANDS ENDNOTES 1 A green paper contributes insight into ongoing investigations and conversations among thought leade

232、rs toward understanding specific policies and proposals.It is meant to be preliminary with respect to conclusions but help frame and direct fundamental questions and understanding into government proposals and policies.2 In 2021,SASB merged with the IIRC to become the Value Reporting Foundation(VRF)

233、.Subsequently,the Trustees of the IFRS Foundation acquired the VRF,along with the CDSB,as it organized the new ISSB.3 TCFD,Recommendations of the Task Force on Climate-related Financial Disclosures,June 2017,bit.ly/3rGdFja.4 See,for example,the IMA Statement of Position on Sustainable Business Infor

234、mation and Management,2021,bit.ly/3CSZB9T.5 In late 2021,the VRF issued new Integrated Thinking Principles that describe the organizational conditions for integrating sustainability into a business.6 COSO,Enterprise Risk ManagementIntegrating with Strategy and Performance,2017,bit.ly/3ec30tt.7 See,f

235、or example,Science Based Targets,bit.ly/3BYWoaE.8 Shari Helaine Littan,Arnaud Broh,Kevin Fertig,Christine Khong,and Jaxie Friedman,Management Accountants Role in Sustainable Business Strategy:A Guide to Reducing a Carbon Footprint,IMA,February 2022,bit.ly/3VausZ2.9 CDP,.10 SEC,The Enhancement and St

236、andardization of Climate-Related Disclosures for Investors,March 2022,bit.ly/3DL5uck.11 SEC,Commission Guidance Regarding Disclosure Related to Climate Change,February 2010,bit.ly/3qWepjE.12 Exposure Draft(ED/2022/S1):General Requirements for Disclosure of Sustainability-related Financial Informatio

237、n,bit.ly/3RJBkK2;Exposure Draft(ED/2022/S2):Climate-related Disclosures,bit.ly/3yoLfxX.13 See,for example,Huw Jones and Simon Jessop,“Companies climate disclosures still lacking-task force,”Reuters,October 14,2021,reut.rs/3DMGSA7.14 COSO and WBCSD,Enterprise Risk Management:Applying enterprise risk

238、management to environmental,social,and governance-related risks,October 2018,bit.ly/3xHsyVN.15 IMA Statement of Position on Sustainable Business Information and Management.16 Vartika Gupta,Tim Koller,and Peter Stumpner,“Reports of corporates demise have been greatly exaggerated,”McKinsey&Company,Oct

239、ober 21,2021,mck.co/3BMNc8g.17 U.S.Small Business Administration,“2021 Small Business Profile,”2021,bit.ly/3xZ6XZ8.18 Diaan-Yi Lin,Sruthi Namratha Rayavarapu,Karim Tadjeddine,and Rebecca Yeoh,“Beyond financials:Helping small and medium-size enterprises thrive,”McKinsey&Company,January 26,2022,mck.co/3T74GTw.19 See Governance and Accountability Institute,2022 Sustainability Reporting in Focus,bit.ly/3UAigiS.