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Definition

Climate-related financial effects

A climate-related financial effect connects a climate risk or opportunity to a specific consequence for financial position, financial performance, or cash flows in the reporting period or a defined future horizon.

What are climate-related financial effects?

A climate-related financial effect is the consequence of a climate risk or opportunity for your accounts or cash. A current effect changes financial position, performance, or cash flows in this reporting period; an anticipated effect is expected to change them within your defined short, medium, or long term.

Why do climate-related financial effects matter to you?

IFRS S2 paragraphs 15-21 require companies applying the standard to show effects on financial position, performance, and cash flows. A reviewer needs the climate driver, affected financial line, amount or range, horizon, assumptions, and uncertainty.

The European Commission adopted revised ESRS on 3 July 2026, but it is not yet in force. If effective, ESRS 2 SBM-3 and E1-11 will also cover monetary asset and revenue exposure. Confirm which version applies.

How do climate-related financial effects work?

Start with a dated risk or opportunity and the affected activity. Match current effects to this period's accounts. For future effects, use the assumptions in your financial plan and give an amount or range unless the applicable standard permits a qualitative answer. Show risks and opportunities separately when they are separately identifiable. An asset-at-risk amount is not an expected loss.

What mistakes should you avoid?

  • Listing a climate hazard without naming the affected financial line.
  • Presenting exposed assets as a forecast write-off.
  • Mixing recognised costs with future estimates under one label.
  • Giving a precise amount without the horizon, method, assumptions, and uncertainty.

Is financial exposure the same thing?

No. Revised ESRS E1-11 asks for the carrying amount, meaning the accounting value, of assets at climate risk and for net revenue from exposed business activities. Those exposure figures are part of the financial-effect disclosure, but they are not automatically an expected loss, profit change, or cash movement.

How do you handle an unquantified effect?

IFRS S2 paragraphs 19-21 allow relief in specified cases. Explain the omission, name the affected financial-statement lines, and describe the effects. Give a combined amount with other factors unless it would be unhelpful.

Example

Suppose a hypothetical chemicals distributor in France identifies river flooding as a material physical climate risk at one warehouse. During the reporting period, a flood closes the warehouse for two days. The distributor records EUR 28,000 of temporary storage and rerouting costs and EUR 12,000 of damaged inventory, for a current operating-expense effect of EUR 40,000. It keeps the invoices, account codes, dates, and risk record together.

For the next financial year, the distributor models four closure days under its stated flood scenario. Temporary storage and rerouting would cost EUR 11,000 per closure day, or EUR 44,000. An expected EUR 30,000 insurance-premium increase brings the anticipated operating-expense effect to EUR 74,000. A planned EUR 250,000 barrier extension is shown separately as a capital-expenditure cash outflow. The file keeps the scenario, four-day assumption, rates, time horizon, exposure calculation, and approvals.

Where it comes up

IFRS S2 current and anticipated effects on financial position, financial performance, and cash flowsIFRS S2 paragraphs 15-21Official sourceRevised ESRS current and anticipated financial effects, including monetary asset and revenue exposure measuresESRS 2 SBM-3 paragraphs 25-32 and ESRS E1-11 paragraphs 38-42Official source

Related terms

Physical climate risk

Physical climate risk is the potential for acute events or chronic climate shifts to damage assets, interrupt operations, disrupt supply chains, and change revenue, costs, cash flows, financing, or insurance.

Climate-related transition risk

Climate-related transition risk is the financial risk that policy, legal, technology, market, or reputation changes create as economies move towards lower greenhouse gas emissions.

Climate scenario analysis

Climate scenario analysis tests how your strategy, business model and financial performance could change under several plausible climate futures, including physical hazards and policy, market and technology shifts.

Climate-related opportunity

A climate-related opportunity is a potential positive financial effect for your company arising from climate change or from efforts to mitigate or adapt to it.

Sources

  • IFRS Foundation and International Sustainability Standards Board

    IFRS S2 paragraphs 15-21 on current and anticipated financial effects, amounts or ranges, measurement approach, quantitative relief, and the qualitative fallback

    2026-08-21

  • European Commission

    Adopted revised ESRS 2 SBM-3 paragraphs 25-32 and ESRS E1-11 paragraphs 38-42 on financial lines, relief, asset and revenue exposure measures, and methodology

    2026-08-21

  • European Commission

    Revised ESRS adoption and status as not in force until publication in the Official Journal

    2026-08-21

Last verified 2026-08-21

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Climate-related financial effects Definition | Keslio