Britain’s financial accounting watchdog plans to review how companies and auditors assess and report the impact of climate change on their businesses, as investors push for better disclosure of the risks.
Climate change has surged to the top of the agenda for investors as policymakers demand companies step up efforts to drive the global transition to a low-carbon economy.
“Auditors have a responsibility to properly challenge management to assess and report the impact of climate change on their business,” said Financial Reporting Council (FRC) chief executive Jon Thompson.
Many money managers are concerned information they are given by companies and the accounts signed off by auditors do not give a full picture of the risks, leaving them vulnerable to steep losses. In response, the FRC said its review will examine the extent to which British companies and auditors are responding to climate-related issues to ensure reporting requirements are met.
The FRC said it would check company reports and accounts for compliance with reporting requirements and audits to see how auditors reflect climate risk.
As well as assessing the resources auditors such as KPMG, EY, Deloitte, and PwC devote to evaluating the impact of climate change, it would gauge the quality of future risk disclosures under Britain’s new corporate governance code.
Stephanie Pfeifer, chief executive of the Institutional Investors Group on Climate Change, said the review provides an opportunity to clarify the responsibilities of auditors.