A new Carbon Tracker study reveals that leading global companies and auditors fail to provide investors with sufficient information about their climate risks, with only 37 percent of companies' financial statements providing insights into the integration of climate-related financial risks
New research from Carbon Tracker's third annual report reveals that nearly 140 of the world's leading emitters are under-reporting the impact of the climate crisis on their current operations. Furthermore, major auditors, including Deloitte, EY, KPMG, and PwC, reportedly failed to address investor inquiries regarding climate risks.
The study, assessing companies and auditors for the 2022 financial year, highlights that only 37 percent of companies' financial statements provide investors with insights into their integration of climate-related financial risks. This leaves investors in the remaining 63 percent unable to determine whether balance sheets accurately reflect climate impacts.
Moreover, the report notes that 81 percent of the analysed companies fail to disclose relevant quantitative assumptions and estimates used in financial reporting.
Additionally, 70 percent of companies' financial statements are inconsistent with their climate narratives, raising concerns about potential errors, poor governance, and greenwashing.
Companies providing minimal or negligible information include well-known entities such as Berkshire Hathaway, ExxonMobil, Procter & Gamble, Walmart, Toyota, Hitachi, Honda, Reliance Industries, Coal India, Bayer, Thyssenkrupp, Danone, and Saudi Aramco.
The report also emphasises that the big four audit firms, part of the Net-Zero Financial Service Providers Alliance, have pledged to achieve net-zero emissions by 2050. However, auditors lag behind companies, with 80 percent of audit reports providing little or no information about their assessment of climate impact.
Regional disparities are noted, with European and UK-based companies generally providing more climate-related information than those in the US and Asia-Pacific regions.
In response to these findings, the report offers several recommendations. It urges investment and stewardship teams to use the report's conclusions to understand governance implications and prioritise engagement questions for upcoming annual general meetings.
Market regulators are called upon to investigate potential deficiencies in financial reporting and audits based on the assessment results. The report also suggests policymakers and standard-setters identify gaps in policies and applications.
Auditors are specifically called upon to ensure the consideration of climate matters in audits and improve transparency. Ultimately, the report underscores the importance of companies establishing appropriate governance processes to address the impacts of risks and targets in their financial statements, improve communication with investors, and better inform investment decisions.