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Accounting for Sustainability launches first-of-its-kind framework for incorporating the impact of climate change into business valuations

The impact of climate change and business valuations are inextricably linked but quantifying the actual effects remains a challenge. A new publication – The A4S Essential Guide to Valuations and Climate Change – has been developed to help business valuators price climate change risks and opportunities for organizations.

TORONTO, February 25, 2021 – The impact of climate change and business valuations are inextricably linked but quantifying the actual effects remains a challenge. A new publication – The A4S Essential Guide to Valuations and Climate Change – has been developed to help business valuators price climate change risks and opportunities for organizations.

This first-of-its-kind guide offers a five-step framework that enables investment and valuation communities to apply climate change risks and opportunities consistently to their valuations and decision-making. The goal of the guide is for the integration of climate change into valuations to become accepted practice, resulting in better decision making, shifting investment towards sustainable outcomes, and more consistent and transparent disclosures in corporate reporting. 

“Until now, the general approach to considering climate change in valuations has been primarily qualitative in nature. The Essential Guide to Valuations and Climate Change, on the other hand, enables valuators to quantify the impact of climate change on business valuations, providing a more robust, accurate and holistic indication of the true impact of climate change risks and opportunities.” says Charles-Antoine St-Jean, President and CEO of Chartered Professional Accountants of Canada (CPA Canada).

Globally, investors and businesses are implementing changes to their strategies and investment practices in order to mitigate and adapt to climate change. Organizations that exhibit strong environmental, social and governance (ESG) traits can experience significant benefits, from outperforming their peers and experiencing a lower cost of capital, to minimizing share price volatility as well as attracting and retaining talent more easily. For these organizations, having the ability to price climate change impacts explicitly into their valuations could further benefit their long-term performance and reputation.

The guide was developed as part of The Prince of Wales’s Accounting for Sustainability Project (A4S), in partnership with CPA Canada, finance teams from its CFO Leadership Network, global institutional investors and industry experts. Contributing members to this guide include Ontario Teachers’ Pension Plan (OTPP), New Zealand Superannuation Fund, OMERS, Brookfield Asset Management, Caisse de dépôt et placement du Québec (CDPQ), Chartered Business Valuators Institute (CBV Institute) and CPA Canada.

“We are delighted to launch the A4S Essential Guide to Valuations and Climate Change today, which presents an exciting step towards the systematic integration of climate change into the heart of business valuations” said Jessica Fries, Executive Chairman of A4S. “At A4S, our ultimate goal is to make sustainable business, business as usual. Calculating the value of businesses and assets is one of the most important factors determining where investors put their money. By embedding these considerations into the valuation process – using guidance developed by industry professionals and the valuation community – there is potential to make the integration of climate risk become the norm rapidly. We hope that the launch of this guide will spur action from finance and investment teams globally and help accelerate the transition to a net zero, sustainable economy.”

David McGraw, Chief Financial Officer, at Ontario Teachers’ Pension Plan, a member of the Canadian Chapter of the A4S CFO Leadership Network and a key contributor to the guide and framework, stated: “Factoring climate change into valuations is in its infancy. Through this guide we hope to inform the discussion among the valuation, accounting and regulatory communities to encourage moving this forward into accepted practice. By doing so, we would expect more disclosures on the impact of climate change in corporate reporting and a greater oversight by boards on this topic.”

The full guide and framework, which includes a practical guide and workbook demonstrating the five-step framework in practice, can be viewed at this link. 

 

Notes to editors

About The Prince’s Accounting for Sustainability Project (A4S)

Our aim is to make sustainable business, business as usual. HRH The Prince of Wales established A4S in 2004 to work with the finance and accounting community to Inspire finance leaders, transform financial decision making and scale up action to transition to a sustainable economy. www.accountingforsustainability.org

A4S CFO Leadership Network

  • A4S’s CFO Leadership Network brings together influential CFOs from large global organizations to show personal leadership on sustainability.
  • The Network was launched by HRH The Prince of Wales in 2013 and now has chapters in Europe, Canada and the USA, as well as active regional circles of practice throughout the world including Brazil, Singapore, Australia and New Zealand.
  • The aim of the Network is to encourage collaboration and insights-sharing amongst its members, helping them to solve their challenges when it comes to sustainability in business, develop their finance teams, scale-up action and showcase their leadership on sustainability.
  • Its member organizations currently represent combined total assets of US $3.8 trillion (US).

The Canadian Chapter of the CFO Leadership Network

  • A4S has partnered with CPA Canada to run the Canadian Chapter.
  • The Canadian Chapter are developing a number of projects to address key challenges for organizations in Canada.