KPMG urges boards to focus on climate risks

KPMG has released a new report on climate-associated financial risks that boards and their audit committees should consider.

Climate change has become a top priority for investors and other stakeholders, according to the report, and the question should be discussed in every corporate boardroom. The report recommends that boards should take a comprehensive look at the climate risks in their business. Earlier this year, the Sustainability Accounting Standards Board, now known as the Value Reporting Initiative, found that 68 out of 77 industries are significantly affected in some way by climate risks. A survey last year by KPMG Impact and Eversheds Sutherland found that companies moving toward decarbonization are doing so for reasons including company reputation (42%) and pressure from customers or others in the supply chain (28%). Employees are expressing dissatisfaction with their company’s climate change impact, according to 33% of the respondents, and 40% said employees are leaving as a result of the company’s climate change impact, while 28% indicated that job candidates are asking about the company’s climate impact during job interviews.

The report’s release comes during Climate Week in New York City, as world leaders gather at the United Nations General Assembly to discuss climate change and other pressing issues. President Biden said during a speech Tuesday at the U.N. that he would double U.S. commitments to helping developing countries deal with climate change. The Environmental Protection Agency also said Thursday it would be releasing a new rule to reduce super-polluting hydrofluorocarbons.

KPMG and other accounting firms have been expanding their efforts to help clients with environmental, social and governance reporting as ESG funds grow in popularity in response to the accelerating pace of climate change. KPMG set up a unit known as KPMG Impact to help clients with ESG reporting.

“Over the past year or so, ESG has climbed to the top of CEOs’ and CFOs’ agenda to be able to have conversations about it, and focus on ESG reporting and disclosure advisory and assurance,” said Maura Hodge, partner and audit lead at KPMG Impact, during a webcast last week. “We view ESG as a framework that allows businesses to integrate these concepts into your strategy based off of the risks and opportunities that have been presented to you to ultimately result in long-term financial sustainability and value creation.”

The new report found that not tackling climate change issues may put companies at a disadvantage in the war for talent, but tackling them in new and innovative ways may also precipitate talent risk. The board and management should consider the rising costs of capital and potential loss of access to the capital markets altogether due to a company’s stance on the climate and climate-related targets.