Companies typically use the discounted cash flow (DCF) technique to calculate the recoverable amount. The rate applied to discount the cash flows is based on a market participant's view of the asset (or cash-generating unit (CGU)) – for both value in use (VIU) and fair value less costs of disposal (FVLCD). [IAS 36.55–56, A16, IFRS 13.B14(a)]
In our experience, the most common approach to estimating an appropriate discount rate is to use the weighted-average cost of capital (WACC) formula. One of the components of the WACC is the cost of equity, which is typically calculated using the capital asset pricing model (CAPM). Climate-related matters may affect two inputs that are used to calculate the cost of equity using the CAPM – the alpha and the beta factors. [IAS 36.A17(a), Insights 3.10.300.30].