With new elements of business constantly emerging, controversy arises over what are considered material risks when it comes to financial reporting. The public is beginning to demand that companies disclose liabilities regarding cyber threats and even climate change. Normally these topics are avoided in reports, as they are highly subjective and can sway opinions easily. But this is the first proxy season that shareholders are asking for detailed disclosure on the topics.
The PwC's report: "Risk ready: New approaches to environmental and social change", highlights the effects of climate risks.
"In 2012, droughts rocked more than 50% of the US, helping spark more than 30,000 wildfires on 2.1 million acres of land and curtailing crop yields and other agricultural production. And an 11-mile wide stretch of the Mississippi River was closed to traffic when it reached its lowest point in more than 40 years. Businesses either had to move lighter loads or were left stranded until the US Army Corps of Engineers could dredge the river's basin," it noted.
Our advice to companies is to start reporting this information now- because although the FASB and SEC do not currently call for details on these matters, chances are they will in the near future. Also, providing this information to shareholders before its required will reflect commitment to transparency and strengthen your trustworthiness in the eyes of your shareholders.