Companies may be making more net-zero commitments, but addressing climate risk is not showing up in their financial statements, according to the Carbon Tracker Initiative.
In a report released Thursday, Still Flying Blind –The Absence of Climate Risk in Financial Reporting, the Carbon Tracker Initiative found that of 134 multinational companies responsible for up to 80% of corporate industrial greenhouse gas emissions, 98% did not show enough evidence that their audited 2021 financial statements include the impacts of climate-related matters.
The report also said that 96% of auditors reviewed did not consider the impact of emissions-reduction targets, changes to regulations or declining demand for company products in their audits.
“No company used assumptions and estimates that were aligned with achieving net zero by 2050 or sooner. This was despite that a significant majority of companies had targets or ambitions to achieve this drive,” the report said.
Even companies that said that climate risks could impact their financial assumptions failed to disclose the relevant quantitative climate-related assumptions and estimates used to prepare their financial statements, and those statements “failed to fully reflect climate considerations included in the companies’ other reporting,” Carbon Tracker said.
The disconnect can limit investors’ ability to make informed decisions about corporate vulnerability to climate risks, Barbara Davidson, head of accounting, audit and disclosure at Carbon Tracker and the report’s author, said in the release. When companies don’t take climate-related matters into account, their financial statements may include overstated assets, understated liabilities and overstated profits.”
The companies surveyed are the focus companies for the investor-led initiative Climate Action 100+ and include fossil fuel, mining, manufacturing, automotive and technology sectors.
Commenting on the report by email, Tracey Cameron, director of corporate climate engagement at Ceres, said that companies need to be accountable to their commitments.
“Climate risk is financial risk. The two are inseparable. Yet somehow, even the companies most vulnerable to impacts of the energy transition continually choose not to transparently account for climate in their financial reports,” said Ms. Cameron, who urged audit committees, auditors and regulators to require companies to fill in the gaps.
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