Thursday 4 February 2021 3:35 pm

FTSE firms ‘woefully inadequate’ at climate risk disclosure, sparking greenwashing fears

The overwhelming majority of top listed companies in the UK are “woefully inadequate” at disclosing in corporate reporting how climate change will affect their business – with many potentially breaching the law.

More than 90 per cent of companies’ financial accounts and associated audit reports made no reference to climate-change related factors, despite UK law requiring all large companies to disclose material information about their climate risks and impacts, a study by Client Earth has found.

The news comes as pressure from investors and regulators mounts on corporations to commit to climate targets and effectively report how climate change will impact their business.

Between June and September 2020, environmental charity Client Earth conducted a review of the most recent annual reports of the 250 largest companies listed on the main market of the London Stock Exchange.

The study found half (50%) of companies mentioned some sort of ‘Paris-alignment’ or ‘net-zero’ target in their reports, but many provided limited details, raising concerns of greenwashing among listed firms.

Just four per cent of businesses reviewed made a clear reference to climate change-related factors in their financial accounts, and just four per cent of audit reports provided a clear explanation about whether the auditors had considered climate change-related factors in their audit.  

FTSE 100 more thorough than 250

The study found fewer than a quarter of companies clearly referenced the impact that climate change will have on their business model.

FTSE 100 companies were significantly more likely to disclose climate change-related information and provide much greater detain than those in the FTSE 250.

Daniel Wiseman, a lawyer on Client Earth’s climate finance team, said the vast majority of firms had their head in the sand.

“Current disclosure practices indicate that many firms appear to be either ignoring or denying the systemic impact climate change and the zero-carbon transition will have on their business. Regulators, auditors and investors are letting them get away with it.”

Last year the government announced intentions to make recommendations of the Task Force for Climate-Related Financial Disclosures – the global baseline reporting standards – mandatory across the economy by 2025. Initial ‘comply or explain’ requirements take effect for premium listed firms from January.

Regulators the Financial Reporting Council (FRC) and Financial Conduct Authority (FCA) have powers to sanction companies and auditors, and require new statements, should they choose to do so.

The FCA said: “We engage with listed firms all the time regarding their compliance with our rules and assess every report of misconduct we receive, to determine what action, if any, to take.” 

The FRC added: “Climate change can impact entities in many different ways, both indirectly and directly, and companies and their auditors need to consider these impacts and assess whether the financial statements and related disclosures reflect these.

“This encompasses a number of accounting standards, such as those relating to asset carrying values and useful lives, decommissioning and other provisions or expected credit losses.”