Investors Express Concerns, As Emitting Companies Fail To Address Climate Crisis Impacts

By Faridat Salifu

A recent report published by Carbon Tracker has revealed that 140 of the world’s highest-emitting companies are failing to adequately address the climate crisis’s impact on their existing business operations.

With this investors are increasingly concerned about the financial implications of climate change and the transition to renewable energy, are left in the dark as only 40% of the companies surveyed provide some information on climate-related risks in their financial statements and audit reports. This figure has only marginally improved from 35% reported a year ago.

Barbara Davidson, Head of Accounting, Audit & Disclosure at Carbon Tracker, emphasized the urgency of the situation, noting that these companies face significant exposure to climate and transition risks.

With most of them having emissions reduction targets, the lack of transparency regarding climate impact in financial statements could lead to inaccurate decision-making, potentially resulting in substantial financial losses for investors, including pension funds and retail shareholders.

Carbon Tracker’s report, the third in its annual series, delves into whether companies and their auditors disclose how they are considering climate change in their financial statements and audits.

The analysis focused on 140 companies, including major greenhouse gas emitters, subject to similar accounting and auditing requirements, with most audited by one of the big four audit firms: Deloitte, EY (Ernst & Young), KPMG, and PwC (PricewaterhouseCoopers).

Key findings from the report include:

Only 37% of companies’ financial statements provide investors with some information on how they incorporate climate-related financial risks, leaving investors without insight into management’s views on the energy transition.

81% of companies omit relevant quantitative assumptions and estimates used in financial reporting, despite these inputs being significant and subject to estimation uncertainty.

The report underscores the critical need for transparency in disclosing climate-related risks to investors, enabling them to assess potential losses and make informed decisions.

It will be followed by three additional notes focusing on companies, auditors, and regulators, aiming to shed further light on the issue and drive necessary action.