TCFD Climate Scenarios and Company Valuation: Insights from IFRS Climate Disclosures & Econometric-Financial Modeling

This report investigates the connections between financial reporting, sustainability, and climate risks under the evolving ESRS and IFRS SD standards, guided by the TCFD structure. Sponsored by the NASDAQ Nordics Foundation, it offers guidance for Nordic companies to enhance their sustainability reporting and strategic planning regarding climate risks and opportunities. The study reveals how climate risks impact IFRS line items like asset valuations and liabilities through physical and transitional risks. A further analysis of sustainability reports and interviews with Nordic companies show varying levels of integration of sustainability frameworks into operations, highlighting the need for comprehensive practices and improvements in climate scenario planning and disclosure. The report also emphasizes the critical role of growth rate assumptions in assessing long-term climate risks, advocating for growth rates that reflect a company's climate resilience accurately. Quantitative methodologies, such as Monte Carlo simulations and DCF analysis, are recommended to assess climate risks effectively. These tools help understand the impact of climate-related parameters on financial metrics and enterprise value. The case study on a fictive real estate company illustrates early practical applications, showing how climate risks influence financial planning. Overall, the research contributes to a deeper understanding of climate risks, transparency, and comparability in sustainability reporting, providing insights for management, investors, and regulators.