Hall Chadwick ESG

When Climate Risk Escalates — “Natural Capital” Is Now Part of Financial Disclosure

Following the issuance of IFRS S1 and S2 by the International Sustainability Standards Board (ISSB), which established the global framework for disclosing climate-related financial risks, the recommendations released by the Taskforce on Nature-related Financial Disclosures (TNFD) signal a major shift: companies must now expand their focus beyond carbon emissions (climate risk) to encompass the broader spectrum of nature-related risks.

The convergence of these two standards positions TNFD as the second major disclosure framework that directly affects financial reporting. For industries highly dependent on natural capital—such as water resources, land, and biodiversity—including agriculture, construction, manufacturing, and tourism, TNFD adoption is not merely a sustainability exercise. It is a critical accounting issue that directly influences asset valuation and impairment testing.

A Wake-Up Call for 2026 Budget Planning — Cap-and-Trade Is Far More Forceful Than the Carbon Fee

With Taiwan’s carbon fee scheduled to take effect in 2026, corporate finance and accounting teams are facing unprecedented budgeting challenges. Yet the truly disruptive factor is not the price per ton of emissions, but the highly probable introduction of a cap-and-trade system in the near future.

Cap-and-trade not only imposes a strict limit on total corporate emissions but may also trigger carbon credit scarcity and soaring compliance costs—directly constraining production scale and eroding profitability. This article examines the potential impact of cap-and-trade and explores how companies can adopt financial strategies to optimize capital expenditure in advance, turning emerging risks into strategic assets.

In the past, ESG management mainly focused on corporate governance structures, carbon emission control, and supply chain disclosure. However, as the concept of sustainable development continues to deepen, global policies and investment institutions have begun expanding ESG applications to the consumer level. In recent years, the European Union has emphasized a policy framework for “Sustainable Consumption and Production,” guiding companies to integrate environmental impact assessments into every stage—from design, production, and packaging to sales and payment.

Driven by the rise of climate change awareness and sustainable finance, carbon emissions are no longer viewed merely as an environmental issue but as a critical indicator of corporate financial risk. According to a 2024 Bloomberg report, more than 230 financial institutions worldwide—managing a combined total of USD 40 trillion in assets—have publicly committed to supporting climate-related disclosures and incorporating them into their investment decision-making processes.

According to the United Nations Environment Programme (UNEP), the fashion industry accounts for about 10% of global carbon emissions, and 20% of industrial wastewater comes from textile production. The short-term sales push driven by fast fashion marketing encourages a “produce in bulk, then discount aggressively” cycle, creating severe inventory pressure and high disposal rates. This not only undermines financial soundness but also heightens corporate risks in ESG ratings, particularly in “resource efficiency” and “waste management.

The Carbon Border Adjustment Mechanism (CBAM) was first introduced by the European Union in 2021 to impose carbon tariffs on high-emission imports, aiming to prevent carbon leakage and safeguard fair competition for domestic industries. While Taiwan’s version of CBAM has yet to be officially named, joint announcements and policy planning by the Ministry of Finance, the Ministry of Environment, and other agencies in 2024 have outlined its framework. It is now taking shape as a key carbon-cost mechanism scheduled to roll out between 2026 and 2027.

Amid increasingly stringent global ESG (Environmental, Social, and Governance) regulations, supply chains are no longer just a matter for procurement departments but have become one of the core risks directly influencing board-level decisions. With IFRS S1 and S2, along with the EU’s CSRD, imposing higher transparency requirements on “supply chain disclosures,” supply chain audits have been elevated to a governance issue, directly tied to corporate financial reporting and market credibility. This means companies must not only monitor supplier compliance and ESG performance but also ensure that every piece of supply chain–related data is integrated into their financial systems and can withstand third-party audits.

The year 2025 will mark a new watershed for Taiwanese companies in disclosing ESG risks. While many firms have already begun addressing issues such as carbon emissions and energy use, global trends indicate that focusing solely on single environmental topics is no longer sufficient to meet broader sustainability requirements.
According to the latest insights from the Big Four accounting firms and the International Sustainability Standards Board (ISSB), natural capital, biodiversity, and water security are rapidly emerging as new focal points in ESG-related financial risk assessments.

As global sustainability regulations continue to tighten, carbon fees, carbon taxes, green subsidies, and tax incentives have become more than just environmental issues—they are now central to corporate strategy and financial planning.
Traditionally, tax management focused on minimizing tax liabilities and ensuring compliance. However, in the era of net-zero and responsible investing, taxation is no longer merely a cost—it has become a powerful lever to support ESG goals.

With the implementation of the Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS) in the EU, companies around the world are facing the most stringent ESG disclosure requirements in history. According to EU regulations, starting in 2024, the first batch of large listed companies must prepare sustainability reports in accordance with the ESRS and undergo limited assurance by a third party.
Many Taiwanese companies, even if not directly subject to CSRD, are required to enhance their ESG controls and internal audit standards due to their roles in global supply chains and investor expectations, ensuring data reliability, transparency, and alignment with international norms.

As ESG becomes central to business operations, Taiwan’s regulations will take another step forward in 2025. From carbon fees and sustainability disclosures to cross-department collaboration, finance departments must plan and allocate related budgets in advance. In the past, many companies saw ESG as an additional burden, which led to reports and frameworks that were merely procedural. However, the next wave of policy trends is gradually turning ESG into a quantifiable cost, an institutionalized process, and a subject of scrutiny. With new requirements — from listed company disclosure rules and carbon fee collections to sustainability-linked financial ratings — companies that fail to plan ESG spending early may face rising costs, higher capital expenses, or be rated as high-risk suppliers.

Financial instruments are steadily becoming a vital channel for global ESG financing. They also place higher demands on companies to ensure transparency in financial reporting and the maturity of their internal systems. In Taiwan, the Financial Supervisory Commission continues to promote the Green Finance Action Plan 3.0, encouraging financial institutions to develop sustainable financial products and support businesses in their sustainability transitions.
For companies, green bonds are not just a funding tool — they are also a public testament to their commitment to sustainability and their financial credibility.