Study reveals climate risk accountants fail as corporate polluters fail basic tests

A comprehensive analysis of companies responsible for 80 percent of corporate industrial greenhouse gas emissions found that auditors relented in disclosing climate-related risks as none of the 134 companies assessed passed fundamental tests.

The annual review by the independent non-profit Carbon Tracker group found that carbon-intensive companies under-disclosed the impact of climate-related risks and net-zero emissions plans in their financial statements, an omission that deprived investors of important information.

Of more than 130 industrial companies responsible for the bulk of pollution, 98 percent failed to provide evidence that their 2021 financial statements included the impact of climate-related issues, according to the report, in collaboration with the Climate Accounting and Audit Project, which works with a by the UN-backed investor organization.

“Auditors do not appear to fully consider the impact of material climate-related matters in their risk assessments and audit reviews,” the Carbon Tracker Initiative said. “The stark disparities between information in audit reports within the same global organization further point to a lack of network policies to address climate issues.”

For example, French multinational Air Liquide and automaker Mercedes-Benz indicated that climate change would not have a material impact on their financial statements but did not explain that conclusion, the report said. The companies declined to comment.

Better practices were identified in oil company BP’s financial statements, which explained how it had assessed the impact of the global move to net-zero emissions on the value of its assets and liabilities, including property, plant and equipment. BP said the expected long-term decline in fossil fuel prices is unlikely to affect the remaining useful lives of its oil and gas assets.

Very few companies disclosed how climate considerations would affect their assets or disclosed underlying assumptions such as: B. an implicit carbon price, according to the Carbon Tracker report. Most audit reports, meanwhile, did not thoroughly assess key climate-related matters, nor did they indicate whether they had considered the impact of net-zero emissions targets.

“If companies fail to address climate-related matters, their financial statements can contain overstated assets, understated liabilities and overstated earnings,” said Barbara Davidson, director of accounting, auditing and disclosure at Carbon Tracker.

Not a single company met all seven tests that the authors used in their assessment. Only eight companies passed some of the tests, which included the financial statements disclosing the quantitative climate-related assumptions and estimates used and the assurance report explaining how significant climate-related impacts were assessed.

The companies evaluated come from the coal, oil, gas, mining, manufacturing, automotive and technology sectors and are scrutinized by the influential investor group Climate Action 100+.

During this year’s AGM season, it became clear that investors are increasingly concerned about the potential discrepancy between discursive climate plans and financial statements.

In May, ExxonMobil shareholders backed a request for the oil major to issue an audited report explaining how the global transition to net-zero would affect the “assumptions, costs, estimates and valuations” used in its financial statements underlie.

All of the “Big Four” accounting firms joined the Net Zero Financial Service Providers Alliance last year and have committed to “align all relevant services and products towards achieving net-zero greenhouse gas emissions by 2050”.

But there was “little evidence that auditors are responding to requests from investors to assess companies’ alignment with this drive,” the Carbon Tracker initiative said.

PwC said accounting standards “may fall short of the expectations of some investors regarding climate, and as such we support the work of the International Sustainability Standards Board and others who will better align the standards with expectations.”

The International Accounting Standards Board is currently considering whether to clarify its existing requirements for companies to “consider climate-related matters” in preparing their financial statements “when the impact of those matters is material”.

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Adam Bradshaw

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