Climate Investing

1The Financial Materiality of Climate Change: Evidence from a Global Survey

This chapter presents evidence from a global survey of nearly 700 investors and companies on the materiality of climate risk for financial reporting. There are growing calls by investors and other stakeholders to expand the scope of materiality judgments and mandate the disclosure of climate-related financial risks. Field evidence shows that investors believe climate risk to be financially material and to represent heightened regulatory and litigation risk. The study further finds a misalignment of the materiality perception of investors compared with companies. Far fewer companies believe that they are exposed to climate risks and consequently do not make any disclosures about it. Investors state difficulties with identifying and quantifying risks due to the lack of disclosures as the main challenge in assessing the impact of climate change. The findings suggest that current disclosure practices do not provide investors with adequate information about climate-related financial risks.

1.1. Introduction

What constitutes material information for investors evolves over time. In recent years, various organizations have advocated for enhanced corporate disclosures in financial reports beyond traditional financial metrics to include material environmental, social and governance (ESG) information¹. Specifically, the potential financial risks associated with climate change have attracted increasing attention. ...