1. Why should financial reporting be linked to climate change?
Investor interest: Climate change can directly affect companies' cash flows, asset values and liabilities.
Risk management: Entities should disclose their climate-related physical and transition risks.
Regulatory compliance: Regulations such as the EU CSRD and IFRS S1/S2 — and their Turkish counterpart, the TSRS — require or encourage climate information to be reported in connection with financial information.
2. Climate-related risks and their financial effects
| Type of risk | Financial effects |
|---|---|
| Physical risks (floods, fires, etc.) | Loss of asset value, higher insurance costs, production stoppages |
| Transition risks (legislation, taxes, market changes) | Carbon taxes, new investment, lower revenue |
| Legal risks | Compensation, provision expenses |
| Reputational risks | Loss of brand value, lower investor confidence |
3. Climate-related elements in the financial statements
| Financial statement | Climate-related elements |
|---|---|
| Balance sheet | Asset impairment, stranded assets |
| Income statement | Rising costs, effects on depreciation and carbon pricing |
| Statement of cash flows | Green capital expenditure, carbon offset payments |
| Notes | Assumptions, climate scenarios, disclosure of risk exposures |
| Management report | Management strategies, risk management, forward-looking climate assessments |
4. Standards providing guidance
IFRS S1 and S2 (ISSB): Global standards for integrating climate information with financial reports.
TCFD recommendations: Four core pillars: Governance, Strategy, Risk Management, Metrics and Targets (the TCFD's monitoring role was transferred to the ISSB from 2023).
GRI 302, 305: Disclosures on energy and greenhouse gas emissions.
EU CSRD and ESRS E1: Mandatory climate disclosures for large entities in the EU.
5. Implementation steps
Identify climate risks – Analyse which risks your company is exposed to and to what extent.
Perform scenario analysis – For example, assess the difference in impact between 1.5°C and 4°C scenarios.
Measure the financial effects – Quantify the risks.
Review accounting assumptions – Useful lives of assets, impairment, provisions.
Disclose transparently – Address them clearly in both the financial and the sustainability sections.
6. Example: an energy company
Reduces the carrying amount of its coal-fired power plants → Balance sheet.
Operating expenses rise with additional carbon taxes → Income statement.
Invests to reduce carbon emissions → Statement of cash flows.
Discloses management strategies and risks → Management report / notes.
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This publication is for general information only and is not a substitute for professional advice.