With investors increasingly eager to support environmentally responsible businesses, the Chartered Accountants of Canada are urging companies to improve disclosure of the business impacts of climate change.

A new report from the Canadian Institute of Chartered Accountants offers companies guidance in meeting investor expectations on such disclosure.

“There must be transparency and credibility with climate change matters,” said Dave Pollard, vice-president of knowledge development with the CICA.

In putting together the publication, the institute obtained input from institutional investors and MD&A preparers about the types of disclosures that would be most appropriate. It finds that institutional investors in Canada and the U.S. are dissatisfied with existing disclosures by companies about climate change.

Companies should address two aspects of climate change, according to the publication. First is adaptation or what action is being taken to respond to the anticipated effects of climate change on company operations, such as extreme weather conditions. Second is mitigation or what is being done to reduce the company’s own greenhouse gas emissions that contribute to climate change.

The report notes that shareholders and lenders are becoming cautious about investing in companies and industries that have high climate change risks without appropriate adaptation and mitigation plans.

“Investors are seeking disclosures of relevant information that would influence their investment decisions,” said Julie Desjardins, the publication’s co-author. “MD&A disclosures should allow investors to understand how management views the current and potential impacts of climate change and related regulations on the company.”

Although climate change will impact some industries and companies more than others, Desjardins said it would ultimately affect the business operations and financial performance of both large and small companies across the country.

As a general principle to follow in determining which information to disclose, companies must determine what, if any, climate change information is likely to be material to investors in their decisions to invest or continue to invest in the company. Any information likely to be material should be disclosed in securities filings, the report says.

“Boilerplate disclosures are not useful, nor are MD&A disclosures about every possible impact and issue related to climate change,” the report says.

More specifically, it finds that institutional investors are interested the impact of climate change in five areas: business strategy (including competitive threats and opportunities), risks, greenhouse gas emissions, financial impacts and governance processes.

IE