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IFRS and Weather Risks: Now is the Time

by Jean-Louis Bertrand, Professor of Finance, ESSCA

Member of the “Climate and Financial Innovations” working group, Paris-Europlace and weather risk management consultant at Metnext

Wall Street has put a lot of pressure on corporates to meet the numbers and forced treasurers to tackle sales and earnings volatility through the use of rigorous hedging programmes. Most companies have dedicated resources to implement and manage IFRS compliant programmes to cover foreign exchange, interest rate and sometimes commodity exposures. To date, weather risks have not been on the radar screen, yet many studies confirm they can have financial consequences on the business and profits that can be far in excess of what currencies or interest rates can generate.

Treasurers have foreign exchange, interest rates or commodity risks under control, but is this the case for their most significant risk?

We all know that extreme weather events can cost companies a lot of money, but they might just be the tip of the iceberg. Day to day changes in temperature, precipitation or sun hours too can considerably affect business activity and more importantly the bottom line. The recent consequences of the high snowfall in London would be a good illustration.