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Disclosure of weather risks of European Utilities : Assessment of the current situation of listed utilities domiciled in Germany, France, Austria, United Kingdom and Switzerland
Type
case study
Date Issued
2010
Author(s)
Abstract
With regards to the scientific fact about climate change, weather risk is of increased importance to companies in weather dependent industries. Increasing volatility in temperatures and precipitation as well as unseasonal weather result in increased financial risk to weather dependent companies.
This white paper assesses the current situation disclosure of weather dependency and weather risks of European exchange listed companies with the aim to promote transparency in risk reporting to shareholders. The study reviewed annual reports of utilities across Austria, Germany, France the UK and Switzerland for inter-country comparisons. Although there is no explicit legal requirement to disclose weather risks, weather risks are becoming more prominent given climate change. As all material risks must be disclosed in plain language to investors, management must review company risks associated with increased variability in climate in order to improve reporting.
Annual reports of utilities often mention weather dependency but rarely address it properly in the risk reporting. The analysis therefore identified both, the disclosure of weather dependency in the annual reports in general and the specific mentioning in the risk report. This method was applied to annual reports for the years 2007 and 2008 for all five countries. The collected data was used in descriptive and explorative statistical tests and shows a clear picture.
The study shows that 90% of all annual reports contain some information about weather of which only 40% explain the weather dependency clearly. Information contained within French and German reports tends to be better, whereas Austrian and Swiss reports are lacking.
The picture changes when assessing weather risk reporting. Only one in three annual reports disclosed weather risk, and just one in ten reports describes weather risks clearly. This shows that listed companies from all countries have room for improvement.
The quality of disclosures is not consistent over the years. There is significantly more information in the year 2007 than in 2008. This is due to the mild spring 2007 which had a very negative impact on most utilities sales.
There is a positive relationship between the level of information and the size of the company and the size of the annual report in general. In Switzerland however, this trend is negatively correlated i.e. the larger the company and annual report, the less information about weather risks. The best practice analysis shows some good examples about risk reporting of large corporations. However, only a few of the companies assessed are of exemplary quality for weather risk reporting.
It can be observed that some utilities mention weather dependency but do not report the associated risks in the risk reporting. As there are no clearly defined requirements to report weather risks, it is the companies own responsibility to provide the relevant information and increase overall transparency; especially in Switzerland.
This white paper assesses the current situation disclosure of weather dependency and weather risks of European exchange listed companies with the aim to promote transparency in risk reporting to shareholders. The study reviewed annual reports of utilities across Austria, Germany, France the UK and Switzerland for inter-country comparisons. Although there is no explicit legal requirement to disclose weather risks, weather risks are becoming more prominent given climate change. As all material risks must be disclosed in plain language to investors, management must review company risks associated with increased variability in climate in order to improve reporting.
Annual reports of utilities often mention weather dependency but rarely address it properly in the risk reporting. The analysis therefore identified both, the disclosure of weather dependency in the annual reports in general and the specific mentioning in the risk report. This method was applied to annual reports for the years 2007 and 2008 for all five countries. The collected data was used in descriptive and explorative statistical tests and shows a clear picture.
The study shows that 90% of all annual reports contain some information about weather of which only 40% explain the weather dependency clearly. Information contained within French and German reports tends to be better, whereas Austrian and Swiss reports are lacking.
The picture changes when assessing weather risk reporting. Only one in three annual reports disclosed weather risk, and just one in ten reports describes weather risks clearly. This shows that listed companies from all countries have room for improvement.
The quality of disclosures is not consistent over the years. There is significantly more information in the year 2007 than in 2008. This is due to the mild spring 2007 which had a very negative impact on most utilities sales.
There is a positive relationship between the level of information and the size of the company and the size of the annual report in general. In Switzerland however, this trend is negatively correlated i.e. the larger the company and annual report, the less information about weather risks. The best practice analysis shows some good examples about risk reporting of large corporations. However, only a few of the companies assessed are of exemplary quality for weather risk reporting.
It can be observed that some utilities mention weather dependency but do not report the associated risks in the risk reporting. As there are no clearly defined requirements to report weather risks, it is the companies own responsibility to provide the relevant information and increase overall transparency; especially in Switzerland.
Language
English
Keywords
risk disclosure statement
risk reporting
weather risk reporting
energy
compliance
HSG Classification
contribution to practical use / society
Refereed
No
Publisher
CelsiusPro AG
Publisher place
Zürich
Subject(s)
Division(s)
Eprints ID
59904
File(s)