Most of the U.K.’s Major Companies Are Falling Short on Climate Risk Disclosure

Most of the largest U.K. companies are getting away with “woefully inadequate” disclosure of the risks they face from climate change, according to an analysis of annual and audit reports by environmental charity ClientEarth.

Just 40% of FTSE 250 companies clearly referred to climate change when discussing key risks and uncertainties in their most recent annual reports as of June 2020 said the group, which is headquartered in London. “There are very general statements being made, but very little in the way of accountability,” said Daniel Wiseman, a lawyer at ClientEarth who co-authored the report. “Currently, the financial regulators aren’t adequately doing their job in ensuring financial markets have the climate-change information they need.”

Investors are increasingly demanding more transparency to help them evaluate companies’ strategies for dealing with threats from climate change on business areas such as supply chains and hard assets. In November, the U.K. became the first major economy to commit to introducing mandatory reporting aligned to guidelines by the Task Force on Climate-Related Financial Disclosures. (Michael R. Bloomberg, the founder and majority shareholder of Bloomberg LP, the parent company of Bloomberg News, is the chair of TCFD.) While these rules aren't yet in force for all listed companies, U.K. law has long required that they identify significant risks to the value of significant assets or their underlying business model.

Just 4% of the company financial accounts and audit reports ClientEarth examined clearly referred to climate change. PricewaterhouseCoopers LLP audited 73 of the 250 companies examined in the report, but clearly referred to climate change in just one of its audit reports, the analysis said.

“Ensuring accurate information is provided to investors on climate-related risks is a critical issue and is something we're raising with the organizations we audit,” said Hemione Hudson, head of audit at PwC U.K. “We expect to see increased reporting from the organizations we audit and in our audit opinions in the future.”

ClientEarth’s report also highlighted discrepancies in reporting standards. Some rules, such as reporting greenhouse-gas emissions, don’t apply to companies which are listed in Britain but registered abroad. The U.K.’s Financial Reporting Council, which regulates corporate governance, hasn’t sanctioned any auditors for failures to ensure adequate reporting on climate issues by the companies they audit, it said in an emailed statement. The body “is paying particular attention” to auditors’ work on climate change going forward after an internal review found auditors’ assessments to be inadequate, it added.

The Financial Conduct Authority, an independent regulatory group that oversees financial services and markets, also says it hasn’t taken any enforcement actions against companies for failing to disclose climate risk. “If we suspect serious misconduct in relation to a listed company’s failure to ensure adequate risk reporting related to climate change, we will investigate, and take enforcement action if appropriate,” a representative said, adding that it will work closely with FRC to enforce the new reporting rules.

The ClientEarth report contained several recommendations, including that investors exercise stronger accountability, and that action be taken by FRC and FCA when companies and auditors omit material climate-related information. It also advocated that the U.K. explicitly require firms to disclose their strategies to achieve net-zero carbon emissions by 2050, which would put them in line with the national goal to reach net zero by the same year.

©2021 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.