As any responsible investor already knows, trying to find out how companies account for climate-related risks is far from straightforward.
Research from Carbon Tracker reveals 70% of the world’s biggest corporate emitters failed to disclose the effects of climate risk in 2020 financial statements. These included Chevron, Exxon Mobil, BMW, and Air France-KLM. Meanwhile 80% of their auditors showed ‘no evidence of assessing climate risk when reporting’.
The report – Flying Blind: The glaring absence of climate risk in financial reporting – also found that none of the companies surveyed incorporated Paris-aligned assumptions into their financial statements.
Barbara Davidson, senior analyst at Carbon Tracker and lead author of the report, made clear the problem this presents to investors.
‘Without this information there is little way of knowing the extent of capital at risk, or if funds are being allocated to unsustainable businesses, which further reduces our chances to decarbonise in the short time remaining to achieve Paris goals,’ Ms Davidson said.
Investors have long been frustrated by companies failing to meet expectations on climate reporting, but these frustrations are compounded yet further by the unwillingness of auditors to play their part in making this information available to investors.
Carbon Tracker recommends companies disclose climate-related forward-looking estimates and assumptions to show how they are taking these risks into account. This gives investors a starting point for their analyses. It also demands auditors ensure that the financial statements are consistent with other company disclosures about climate-related matters, and that assumptions and estimates are adequately scrutinised in the audits and transparently disclosed in company reports.
Only then can investors really hope to engage with companies and drive positive action.