Thursday 20 February 2020 4:57 pm

Audit watchdog to test how companies and auditors report climate change risk

Audit watchdog the Financial Reporting Council (FRC) today announced a major review of how companies and auditors report on the impact of climate change.

The FRC said it will review the extent to which UK companies and auditors are responding to the the impact of climate change on their businesses to ensure reporting requirements are being met.

The review will consider how the quality of information provided to investors can be improved to help them make informed decisions.

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The FRC said it will review a sample of company reports and accounts across industries to assess the quality of their compliance with reporting requirements in relation to climate change.

It also said it will review a sample of audits to assess how auditors are ensuring the impact of climate risk has been appropriately reflected in company reports and accounts.

It said it would assess the resources available to audit teams for assessing the impact of climate change on the companies they audit.

The FRC said it will also consider how investors are addressing climate change in the stewardship of their investments and in their response to systemic and market risks when it monitors the first reports under the new stewardship code, which will be issued from the beginning of 2021.

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FRC chief executive Sir Jon Thompson said: “Not only do boards of UK companies have a responsibility to report their impact on the environment and the risks of climate change to their business, but investors expect them to operate sustainably.

“Auditors have a responsibility to properly challenge management to assess and report the impact of climate change on their business.”

“The FRC has high standards for company disclosure, including regarding climate change. Company reports and accounts are essential to understanding how the corporate world is responding to the challenge of climate change.”

Lawyer for campaign group Client Earth Daniel Wiseman said: “Oversight of climate risk by the FRC and FCA has historically been poor, even in the face of glaring climate reporting failures we have flagged to both regulators. Climate change poses critical risks to companies, and systemic risks to the wider economy, and regulators have been asleep at the wheel on both counts. This long overdue review must lead to strong enforcement action.”