What does climate change mean for a municipality’s finances, services, infrastructure, and residents?
Imagine a community where flooding is becoming more frequent. Roads and public buildings require increasingly costly repairs, insurance premiums rise, and essential services face disruption. At the same time, the municipality must decide whether to invest in stormwater upgrades and other resilience measures. A climate plan may identify the problem and propose actions. A climate-related financial disclosure goes further by connecting the climate risk, the proposed response, and their financial implications.
Climate-related financial disclosures are municipal reports or statements that explain how climate-related risks and opportunities may affect municipal operations, infrastructure, services, budgets, and long-term financial planning. They also consider how municipal policies, investments, land-use decisions, and procurement activities affect people, communities, and the environment.
Understanding climate-related risks and opportunities
Figure 1. Two types of climate-related risk.
Infographic derived from: Marlowe et al., Climate-Related Financial Disclosures Guide: A Resource from the Municipal Net-Zero Action Research Partnership (N-ZAP).
Municipalities generally consider two main types of climate-related risk:
- Physical risks arise from the direct impacts of a changing climate. Acute risks are caused by shorter, event-driven hazards such as floods, wildfires, extreme heat, and severe storms. Chronic risks develop gradually and include long-term warming, sea-level rise, reduced water availability, ecosystem change, and biodiversity loss.
- Transition risks arise from the shift toward a low-carbon economy. New policies, regulations, technologies, and market expectations may require municipalities to upgrade infrastructure, replace high-emission assets, retrain staff, or change how services are delivered.
Climate change can also create climate-related ooportunities - benefits that municipalities can gain by responding proactively to climate risks and supporting the transition to a more sustainable economy. In other words, they are not benefits caused by climate change itself, but benefits created through effective climate action.
Key opportunities:
- Energy and resource efficiency: Upgrading buildings, installing LED lighting, and reducing water and energy use can lower operating costs.
- Renewable energy: Solar energy, transportation electrification, and other low-carbon solutions can reduce emissions and exposure to changing fuel prices.
- Resilient infrastructure: Upgrading stormwater systems, roads, and public buildings can reduce future damage and repair costs.
- Sustainable financing and grants: Climate projects may provide municipalities with access to government grants, climate funds, and other financing opportunities.
- More reliable public services: Resilient infrastructure can improve the reliability of water supply, transportation, and emergency services.
- Community and environmental benefits: Climate investments can improve public health, air quality, and public spaces while supporting local employment.
For each risk or opportunity, municipalities need to consider how likely it is to occur, how significant its consequences could be, and which assets, services, communities, and financial resources may be affected.
Figure 2. Four pillars of climate-related financial disclosures.
Infographic derived from: Marlowe et al., Climate-Related Financial Disclosures Guide: A Resource from the Municipal Net-Zero Action Research Partnership (N-ZAP).
By bringing these elements together, climate-related financial disclosures connect climate commitments with everyday municipal decision-making. They help municipalities move from simply stating climate goals to showing how those goals are governed, financed, implemented, and measured.
Understanding materiality: What information matters?
Once a municipality begins preparing a climate-related financial disclosure, the next challenge is not to report every piece of climate information available. It is to determine which information matters most and should be disclosed. This is where the concept of materiality becomes important.
There are three main ways to understand materiality
Financial materiality considers how climate-related risks and opportunities may affect the municipality’s finances, operations, assets, cash flows, and ability to provide public services. Information is financially material when leaving it out could influence the decisions of people who use the municipality’s annual financial report.
Impact materiality considers how municipal policies, services, infrastructure, and other activities affect people, communities, the economy, and the environment - even when these impacts do not create an immediate financial effect for the municipality.
Double materiality brings both perspectives together. It considers how climate change affects the municipality and how the municipality’s decisions affect society and the environment.
One issue, two perspectives
Imagine a municipality experiencing more frequent and severe heat waves.
From a financial materiality perspective, it would consider rising energy and emergency-response costs, heat-related damage to roads and public facilities, and possible disruptions to municipal services.
From an impact materiality perspective, it would examine how decisions about cooling centres, tree planting, public spaces, and infrastructure affect residents - particularly vulnerable communities, and the environment.
A double materiality approach considers both perspectives when deciding where and how to invest, connecting municipal financial resilience with positive outcomes for people and the environment.
Figure 3. Understanding financial, impact, and double materiality.
Infographic derived from: Marlowe et al., Climate-Related Financial Disclosures Guide: A Resource from the Municipal Net-Zero Action Research Partnership (N-ZAP).
For municipalities, this broader perspective is particularly important. Unlike private companies, municipalities serve many different users, including residents, Indigenous Communities, local businesses, community organizations, council members, staff, other governments, insurers, and investors. These groups may need different types of information to make decisions and understand the municipality’s climate performance.
Figure 4. Who is involved in climate-related financial disclosure?
Infographic derived from: Marlowe et al., Climate-Related Financial Disclosures Guide: A Resource from the Municipal Net-Zero Action Research Partnership (N-ZAP).
The current landscape
Figure 5. Geographic locations of municipalities consulted for this study.
Source: Marlowe et al., Climate-Related Financial Disclosures Guide: A Resource from the Municipal Net-Zero Action Research Partnership (N-ZAP), p. 17.
Canada’s climate-related financial disclosure landscape is still emerging and remains largely voluntary. The guide identifies seven municipalities that voluntarily include climate-related financial information in their reporting: Calgary, Edmonton, Mississauga, Montreal, Ottawa, Toronto, and Vancouver. The Region of Peel provides an example at the regional-government level.
Six municipalities are highlighted as leaders and early adopters: Calgary, Edmonton, Mississauga, Montreal, Toronto, and Vancouver. They publish climate-related information in their annual financial reports using internationally recognized guidance organized around governance, strategy, risk management, and metrics and targets. Their disclosures show who oversees climate-related issues, how climate risks affect municipal plans and services, how these risks are managed, and how progress is measured.
Canmore is at an earlier stage: It has not yet published a formal climate-related financial disclosure, but its Climate Emergency Action Plan and Implementation Risk Assessment already include elements of climate strategy and risk management.
Overall, Canadian municipalities take different approaches, but they share a common goal: making climate-related risks, responsibilities, actions, and progress more visible in municipal decision-making and financial reporting.
How to implement?
Figure 6. Climate-related financial disclosures step-by-step process.
Source: Marlowe et al., Climate-Related Financial Disclosures Guide: A Resource from the Municipal Net-Zero Action Research Partnership (N-ZAP), p. 26.
Climate-related financial disclosure is not a one-time exercise. Municipalities can begin with the information and resources they already have, expand their approach over time, and improve the quality of each reporting cycle.
Step 1. Build knowledge
Learn about climate-related financial disclosure, create a business case, and build a knowledge base of municipal climate and financial information.
Step 2. Assemble a team and framework
Create a core team led or co-led by finance and sustainability staff, with support from senior leadership and political champions. Define the disclosure’s objectives, scope, responsibilities, timeline, information needs, and plans for phased implementation.
Step 3. Map and integrate the process
Map and understand the annual financial reporting process to determine how best to align with existing processes. Develop the climate-related financial disclosures process and integrate it into existing annual financial reporting processes.
Step 4. Establish a governance system
Establish the governance processes, controls, and procedures the municipality will use to monitor, manage, and oversee climate-related risks and opportunities.
Step 5. Develop strategy
Identify the municipality’s short-, medium-, and long-term climate-related risks and opportunities. Assess how they may affect infrastructure, operations, public services, communities, financial planning, and future investments, and use scenario analysis to test the municipality’s ability to respond to changing conditions.
Step 6. Conduct risk management
Explain how climate-related risks and opportunities are identified, assessed, prioritized, and monitored. Document the data, climate scenarios, users’ input, and methods used to evaluate likelihood and consequences, while carefully managing information that may be legally or operationally sensitive.
Step 7. Establish and validate metrics and targets
Select reliable metrics and targets for measuring mitigation, adaptation, financial impacts, and community outcomes. Combine process-based indicators, which track actions taken, with outcome-based indicators, which show the actual results, and explain any data gaps or limitations.
Step 8. Prepare and report
Work closely with departments to prepare disclosures while following the new integrated climate and finance annual financial reporting process. Prepare and disclose climate-related financial information in the annual financial report.
Step 9. Monitor, adjust, and report
Monitor implementation throughout the year, update climate data and risk assessments, and report regularly on progress. Use lessons from each reporting cycle to improve methods, strengthen accountability, address gaps, and gradually expand the scope and quality of future disclosures.
Together, these nine steps create an ongoing cycle: municipalities build their knowledge, integrate climate into decision-making, report transparently, learn from the results, and begin the next cycle with stronger information and experience.
Key Takeaways
Climate-related financial disclosure turns climate information into practical insights for municipal decision-making. By considering both financial and community impacts, municipalities can better understand their climate-related risks and opportunities, connect climate commitments with budgets and long-term planning, and strengthen public accountability. Effective disclosure depends on collaboration across finance, sustainability, leadership, municipal departments, and affected communities. Municipalities do not need to create a perfect or comprehensive disclosure from the beginning; they can start with the information and capacity they already have and improve their approach over time. Ultimately, climate-related financial disclosure is an ongoing process that helps municipalities make more transparent, informed, and resilient decisions.
Want to learn more about how municipalities can integrate climate considerations into financial reporting and decision-making?
Explore the full Climate-Related Financial Disclosures Guide for detailed implementation guidance, municipal examples, and additional resources.
This is a summary of the Climate-Related Financial Disclosures Guide: A Resource from the Municipal Net-Zero Action Research Partnership (N-ZAP).
Citation
Marlowe, J., Meaney, M., ElAlfy, A., Clarke, A., Cho, C., Rogers, J., KPMG, Gross, A., Ma, K., Dunsky Energy + Climate Advisors, & Zhou, Y. (forthcoming). Climate-Related Financial Disclosures Guide: A Resource from the Municipal Net-Zero Action Research Partnership (N-ZAP). Federation of Canadian Municipalities, ICLEI Canada & University of Waterloo.