imported>Doug Williamson |
imported>Doug Williamson |
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| ''Climate change - financial risks''.
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| The Bank of England defines climate transition risk as financial risks that could arise from adjusting to a lower-carbon economy.
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| Climate transition risks are distinct from the direct physical risks of climate change, such as more frequent and severe extreme weather events.
| | In financing where assets and liabilities are acquired indirectly by an entity by way of a financial structure but are not purchased directly by the entity, in such a way that the liabilities are not required to be disclosed in the entity's balance sheet. |
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| | The trend in financial reporting over time has been to restrict the types of structures which may be accounted for 'off balance sheet' in this way (instead requiring the liabilities to be appropriately reported in the balance sheet of the reporting entity). |
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| :<span style="color:#4B0082">'''''Climate transition risks and opportunities'''''</span>
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| :* Policy and legal changes including changes relating to energy generation, renewable energy targets, sustainable land use and water efficiency.
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| :* Technological advancements in renewable energy, battery storage and electrification of transport, aviation and agriculture.
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| :* Change in demand for products and commodities, including fossil fuels and lithium, leading to market risk.
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| :* Reputational risk arising from shareholder, consumer or investor concerns, reflecting the transition in views regarding fossil fuels.
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| :''Actuaries Institute of Australia Climate Change Working Group''
| | The indirect financial reporting of the related liabilities within the notes to the financial statements - or possibly not at all - rather than directly on the face of the balance sheet. |
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| | Sometimes known as 'off balance sheet treatment'. |
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| :<span style="color:#4B0082">'''''What are the climate transition risks?'''''</span>
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| :"Transition risks can occur when moving towards a less polluting, greener economy. Such transitions could mean that some sectors of the economy face big shifts in asset values or higher costs of doing business. It’s not that policies stemming from deals like the Paris Climate Agreement are bad for our economy – in fact, the risk of delaying action altogether would be far worse. Rather, it’s about the speed of transition to a greener economy – and how this affects certain sectors and financial stability.
| | Relevant accounting standards include FRS 102 Sections 2, 11, 12 and 23. |
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| :One example is energy companies. If government policies were to change in line with the Paris Agreement, then two thirds of the world’s known fossil fuel reserves could not be burned. This could lead to changes in the value of investments held by banks and insurance companies in sectors like coal, oil and gas.
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| :The move towards a greener economy could also impact companies that produce cars, ships and planes, or use a lot of energy to make raw materials like steel and cement."
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| :''Bank of England''
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| == See also == | | == See also == |
| * [[Bank of England]] | | * [[Balance sheet]] |
| * [[Climate change]] | | * [[FRS 102]] |
| * [[Climate Disclosure Standards Board]] | | * [[Off-balance sheet finance]] |
| * [[Climate liability risk]]
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| * [[Climate physical risk]]
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| * [[Climate risk]]
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| * [[Climate transition]]
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| * [[COP26 Private Finance Hub]]
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| * [[Financial Conduct Authority]]
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| * [[Financial Stability Board]]
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| * [[Fossil fuel]]
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| * [[G20]]
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| * [[Greenflation]]
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| * [[Greenhouse gas]]
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| * [[Listing Rules]]
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| * [[Market risk]]
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| * [[Paris Agreement]]
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| * [[Premium Listing]]
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| * [[Reputational risk]]
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| * [[Stakeholder]]
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| * [[Standard Setting Body]]
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| * [[Stranded assets]]
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| * [[Task Force on Climate-related Financial Disclosures]]
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| * [[TCFD Recommendations]]
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| * [[Transition]]
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| * [[Transition finance]]
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| * [[Transition risk]]
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| * [[World Economic Forum]]
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| == External link ==
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| * [https://www.bankofengland.co.uk/knowledgebank/climate-change-what-are-the-risks-to-financial-stability Climate change - What are the risks to financial stability? Bank of England]
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| [[Category:The_business_context]] | | [[Category:Accounting,_tax_and_regulation]] |
| [[Category:Corporate_finance]]
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| [[Category:Compliance_and_audit]]
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| [[Category:Ethics]]
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| [[Category:Identify_and_assess_risks]]
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| [[Category:Manage_risks]]
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| [[Category:Risk_frameworks]]
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| [[Category:Risk_reporting]]
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| [[Category:Financial_products_and_markets]]
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(OBS).
1.
In financing where assets and liabilities are acquired indirectly by an entity by way of a financial structure but are not purchased directly by the entity, in such a way that the liabilities are not required to be disclosed in the entity's balance sheet.
The trend in financial reporting over time has been to restrict the types of structures which may be accounted for 'off balance sheet' in this way (instead requiring the liabilities to be appropriately reported in the balance sheet of the reporting entity).
2.
The indirect financial reporting of the related liabilities within the notes to the financial statements - or possibly not at all - rather than directly on the face of the balance sheet.
Sometimes known as 'off balance sheet treatment'.
Relevant accounting standards include FRS 102 Sections 2, 11, 12 and 23.
See also
