The Expanding Role of the CFO in Climate Disclosure Reporting

For nearly two decades, assessing and reporting on climate-related risks and opportunities was primarily the domain of ESG managers and sustainability professionals, even as the focus began shifting towards understanding the financial implications of climate change on organisations.

However, recent legislative changes in Australia, including the release of the Australian Sustainability Reporting Standards by the Australian Accounting Standards Board (AASB), require that climate impacts now be incorporated into annual corporate reports, including the introduction of dedicated climate statements, which is calling for an expansion of the role of the CFO in an organisation’s response to, and reporting of, climate related risks and opportunities.

The Changing Role of the CFO

The new reporting requirements mean CFOs will now have a much more central role in climate disclosure assessment and reporting.

This will likely require collaborating closely with multidisciplinary teams led by ESG managers, or, as is increasingly common, CFOs may assume primary responsibility for meeting climate disclosure obligations.

Accordingly, CFOs will need to rapidly upskill on key aspects of climate science, methods and processes that relate specifically to the outputs required under the new standard, such as in relation to emissions footprinting and scenario analysis.

Preparing for Regulatory Compliance and Future Reporting

To ensure compliance, CFOs must familiarise themselves with the new standards, including the mandatory climate disclosure standard (S2) and the voluntary sustainability reporting standard (S1).

For many organisations, especially those new to climate disclosure or with limited experience, the first step is a readiness assessment and a structured roadmap to meet reporting requirements.

The timeline for any roadmap is dependent on the reporting group an organisation belongs to, with Group 1 entities reporting in the first full financial year after January 1, 2025.

Managing compliance across multiple jurisdictions will be an additional challenge for some CFOs, especially those operating in countries or regions with existing mandatory climate reporting standards, such as Europe and New Zealand.

Challenges and Opportunities for Finance Teams

CFOs’ expertise in quantifying financial impacts will be critical in identifying short, medium, and long-term climate-related financial consequences.

While such disclosures have been anticipated in previous regulatory standards, the need for finance teams to measure and report material financial outcomes of climate impacts is now mandatory.

To succeed, CFOs will need to guide their teams in understanding various types of climate risk—physical and transition risk—and where opportunities may arise.

Key considerations will include questions such as:

• What are the impacts of climate change on the financial statements over different timeframes?
• How should climate impacts be factored into budgeting and forecasting processes?
• What are the balance sheet implications for assets and liabilities (such as impairment, useful life, inventory valuations and fair value assessments)?
• How will climate risks and opportunities affect access to capital?
• How will climate reporting readiness influence M&A activities?

The Importance of Scenario Analysis

Scenario analysis will be an increasingly critical tool for CFOs, especially in light of the new AASB requirements.

The ability for finance teams to model the impacts of climate change under varying future conditions—climatic, regulatory, and technological—should be seen as valuable not only for compliance but also for crafting resilient, long-term business strategies.

Data Governance and Systems

Climate change impact analysis is a complex discipline that has evolved in recent decades based on advances in understanding the underlying climate science. Yet, complexity arises in applying science-based data to business specific operating and financial models.

As such, CFOs will face challenges around capturing relevant data accurately and dealing with the inherent uncertainty in some climate information (such as aspects of Scope 3 analysis).

Organisations may need to invest in new systems or data analytics capabilities to integrate sustainability reporting with financial reporting and to ensure consistent, high-quality data collection to meet assurance requirements and to provide reliable financial reporting disclosures.

Board-Level Engagement and Governance

Given the potentially material financial implications of climate change on many organisations, CFOs should actively engage with their Board and other C-suite colleagues to ensure alignment on climate risks and opportunities, especially in determining what could lead to material impacts on the organisation.

A key component to this will be educating the Board on regulatory requirements and setting up governance structures that support comprehensive, high-quality reporting and oversight.