The environmental law firm ClientEarth has reported four major UK businesses to the FRC over a failure to adequately report on climate change in their shareholder reports. And it didn’t stop there: the companies’ auditors are under scrutiny, too.
ClientEarth alleges that EasyJet, Balfour Beatty, EnQuest and Bodycote don’t adequately “confront the risks or trends that climate change or the low carbon transition present to their business”.
All four businesses acknowledge greenhouse gas emission and indicate efforts to reduce them. But none of them, said ClientEarth, adequately report on the risk climate change poses to their businesses and how it might affect financial performance in the future.
EasyJet, Bodycote and EnQuest’s reports don’t mention the term 'climate change' at all. Balfour Beatty’s report does reference it, but ClientEarth argued that this was not a substantive discussion of the risks.
The law firm said this makes them "outliers among their peers" and in "potential breach of UK reporting laws".
Under UK law, companies must disclose material trends and risks facing their business to investors in their annual report. Auditors in the UK must also give opinions about this information in their audit report to provide investors with greater confidence it can be trusted.
ClientEarth lawyer Daniel Wiseman said that businesses need to take climate change more seriously. "For companies in exposed sectors to claim these risks are not material to their shareholders is unacceptable," he said.
“Manufacturers, builders, airlines oil and gas producers – all are at risk in some way, Investors expect these issues to be dealt with just like any other risk to their capital.”
ClientEarth didn’t stop at the businesses, either. In letters to the Big Four firms which audit the four businesses, ClientEarth questioned the process the auditors use to assess climate risks. KPMG is auditor to Balfour Beatty, Deloitte to Bodycote, PwC to EasyJet and EY to Enquest.
None of the Big Four firms signalled any issue with the shareholder reports, approving them as materially accurate. ClientEarth has contacted all four firms asking for clarity about their approach to climate risks.
All of the Big Four are supporters of the Task Force on Climate-Related Financial Disclosures. The task force is committed to developing “consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders”.
None of the audits of the four businesses meets this standard, said ClientEarth’s Wiseman. “Statutory auditors now have a critical role to play in providing investors with assurance that information disclosed by companies about trends and risks facing their business is prepared in accordance with the relevant legal requirements, is free from material misstatements, and is otherwise fair, balanced and understandable.
“In our view, this should necessarily entail a consideration of material climate change-related trends and risks facing a company, including whether such trends and risks might have implications for assumptions and estimates used in preparing financial accounts themselves.”
You can read all of ClientEarth’s correspondence here.
About Francois Badenhorst
Francois is a writer, editor and broadcaster specialising in business.