Solving the moral hazard of transition costs falling on the present generation, while the benefits of those actions (in reduced climate impacts) accrue to future generations, has proved a tall order. What this means is that we will never have perfect information on the risks of climate change.
However, the mandatory climate-risk disclosure standards being developed by the External Reporting Board (XRB) and to be independently monitored and enforced by the Financial Markets Authority (FMA) will help start closing some of those information gaps. Firms’ disclosure on how they identify and manage climate change risks will help to bring those risks into focus for management and investors alike.