Marybeth Collins

If your 2026 earnings model still treats environmental exposure as a compliance expense, it is likely understating volatility.

This year, environmental obligations are showing up in places they didn’t five years ago: guidance language, reserve calculations, insurance renewals, supplier margin modeling, and audit committee conversations. What used to sit in sustainability reports now carries financial consequences that are harder to defer.

The shift isn’t ideological. It’s mechanical.

Disclosure divergence, structured PFAS settlements, rising insured losses, and carbon-linked trade mechanisms are turning environmental exposure into a forecast variable.

For CFOs, the issue is no longer whether environmental risk matters. It is whether it is being priced accurately.

Disclosure Fragmentation Is Creating Financial Uncertainty

The regulatory landscape has not simplified — it has fractured.

At the federal level, climate disclosure requirements remain unsettled. At the state level, California’s emissions and climate-risk reporting laws are expected to pull thousands of companies into formal disclosure regimes. In Europe, proposed revisions to CSRD may narrow direct scope but leave cross-border and supplier expectations intact.

For finance teams, the result is not relief. It is modeling ambiguity.

Companies are navigating:

• External assurance costs that are still evolving
• Data system investments that were not in long-range plans
• Disclosure timelines that do not align cleanly across jurisdictions
• Inconsistent regulatory signals that complicate forward-looking statements

The real risk is not missing a filing deadline. It is issuing earnings guidance that later appears misaligned with environmental risk disclosures.

That is a credibility issue. And credibility affects cost of capital.

PFAS Settlements Have Changed How Liability Is Modeled

PFAS litigation has become the clearest financial template for environmental exposure.

Industry-wide settlements have surpassed $11 billion in recent years. One recent state-level agreement structured $875 million in payments over 25 years, with scheduled cash flows beginning in 2026.

That structure matters.

These obligations are no longer contingent abstractions. They are discounted cash flow inputs. They influence leverage ratios. They require coordination with insurers. 

And increasingly, downstream entities are being pulled into litigation, not just original manufacturers. That expands the circle of financial exposure.

For finance teams, the lesson is straightforward: environmental liability now arrives in scheduled installments, not surprise spikes.

Insurance Markets Are Sending a Clear Pricing Signal

Global insured losses from natural catastrophes reached approximately $137 billion in 2024, with total economic losses near $318 billion. Industry estimates for 2025 insured losses range from $108 to $140 billion.

That trend is translating into real operating pressure:

• Higher premiums
• Larger deductibles
• Tighter coverage language
• Increased engineering audits

Insurance renewals are now part of earnings planning. In some sectors, they are becoming as material as energy hedging or raw material pricing.

Finance leaders are discovering that resilience investments deferred in prior years are reappearing as premium pressure today.

Carbon Border Mechanisms Are Entering Margin Assumptions

The EU’s Carbon Border Adjustment Mechanism (CBAM) moves closer to financial impact as transitional reporting tightens and payment structures take shape.

For companies importing covered goods — or sourcing from suppliers who do — embedded carbon accounting becomes:

• A data verification cost
• A pricing negotiation issue
• A potential margin drag

Even firms not directly exporting to the EU may see cost pass-through effects in their supply chain.

Trade policy has become a climate-cost variable.

Earnings Language Is Quietly Shifting

Across sectors, environmental exposure is moving from sustainability appendices into:

• Risk factor disclosures
• Contingency footnotes
• Insurance discussions
• Capital expenditure justifications

Executives are increasingly framing environmental exposure as cost variability, not corporate citizenship.

That tone shift reflects internal reality: volatility is harder to ignore.

What Finance Leaders Should Adjust Now

1. Strengthen reserve modeling discipline.
   Environmental contingencies should be modeled as structured payment schedules, not one-time charges.
2. Align environmental disclosure with financial controls.
   Data supporting climate and chemical risk statements should meet the same internal control rigor as revenue assumptions.
3. Reprice insurance strategically.
   Insurance renewal discussions should feed directly into capital planning and resilience investment decisions.
4. Integrate supplier exposure into forecasts.
   Downstream litigation and carbon cost pass-through risk must be reflected in margin modeling.
5. Stress-test guidance against regulatory divergence.
   Jurisdictional inconsistency increases the risk of disclosure misalignment.

The Structural Reality of 2026

Environmental obligations are no longer episodic compliance costs. They are influencing:

• Earnings confidence
• Reserve adequacy
• Insurance strategy
• Supplier pricing
• Disclosure defensibility

Companies that continue to isolate environmental risk within sustainability functions will struggle to forecast accurately.

Those that integrate it into core financial planning will regain control of volatility — and narrative.