Auditors Ignore Corporate Climate Risk, ClientEarth Doubts Role of Global Public Policy Committee

The Accounting Firm is suspected of ignoring climate risk in assessing the Companys Audit report.

This accusation was leveled by Client Earth, an environmental law charity which accused senior managers of six of the worlds largest accounting firms of failing to adequately address climate change issues in their financial reports and corporate audits.

In a letter addressed to the Global Public Policy Committee (GPPC) – which includes leaders from the four major firms namely PwC, Deloitte, KPMG, and EY; and BDO and Grant Thornton – Client Earth expressed their concern that the auditor did not fully consider climate-related issues when assessing the companys financial statements. The charity is even concerned about the auditors compliance with auditing standards.

According to sources quoted by the Financial Times, the letter was sent by Client Earth last May, after raising concerns with the four major firms in 2021.

"The Big Four have significant influence over how climate risk is reflected in financial reporting and auditing, but the GPCC does not take a significant leadership role in dealing with climate change," said Client Earth attorney, Robert Clarke.

Roberts statement is in line with the assumptions of Climate Action 100+, an investor group that manages assets of up to $ 68 trillion. Based on their calculations, 94% of the 152 large companies assessed based on climate-related metrics did not meet audit-related criteria. This includes integrating climate-related issues in financial reporting and assessing the impact of material climate-related issues.

The International Accounting Standards Board (IASB) has stated that material climate-related issues should be integrated into financial reporting standards. Similar guidance has also been released on auditing standards. The GPCC has unequivocally endorsed the guidelines in 2020.

However, the letter from Client Earth indicates there have been only limited changes in financial disclosure practices. GPPC is considered to have not given further statements to the public about why this is considered reasonable.

The charity urged the GPCC to issue a clear public statement regarding its role and expressed concern that the GPPCs lack of role does not yet represent adequate leadership on climate-related issues.

In response, GPPC stated its commitment to reporting consistent and quality information to support stakeholder decision-making.

The GPCC unequivocally supports standard setters in addressing the current information gap, particularly in terms of the greater linkage between corporate disclosures related to sustainability reports and financial reports.