Everyone talks about the weather, but no one does anything about it. If Mark Twain were commenting on the world today, he might say, “Everyone is talking about climate change, but 98% of the time, nobody intends to do anything about it.” He would probably say it better.
In any case, that could be the succinct version of a new report released Thursday by Carbon Tracker, an independent financial think tank that analyzes the effect of the energy transition on capital markets. For its second annual report on the lack of climate risk assessments in financial reporting, Carbon Tracker reviewed the audited financial statements of 134 “high carbon exposure companies” and found that 98% of these companies had not provided enough information to show how companies consider the financial impact of “material climate issues”.
It’s getting worse. Despite committing to net zero carbon emissions by 2050, no company has used assumptions and estimates in its financial reports that are consistent with these commitments.
Carbon Tracker has developed its own climate accounting and auditing assessment methodology consisting of seven measures, five of which are standard audit requirements. The other two specifically aim to achieve net zero emissions by 2050.
Using this scale, only eight of 134 companies received even partial positive scores. Of these eight companies, five were energy or utility companies: BP, Eni, Equinor, National Grid and Shell. The other three were Glencore, Rio Tinto and Rolls-Royce.
No US-based company was among the eight. It also gets worse: “Notably, none of the auditors of the 46 US companies provided evidence that they comprehensively considered the impacts of climate issues in such audits. American companies included in the audit included such notables as Berkshire Hathaway, Boeing, Chevron, Exxon Mobil, General Electric and Walmart.
A recent history of US corporate efforts to mitigate the impact of climate change may be helpful here. In 2019, the Business Roundtable said stakeholders, not just shareholders, were affected by corporate actions. The following year, the Roundtable issued a second statement, stating that the United States needed to take a “more comprehensive, coordinated, and market-based approach to reducing [greenhouse gas (GHG)] emissions. The Roundtable sought certainty: give us a market-based national GHG emissions policy, then back off and let the market work its magic.
In June of this year, the United States Securities and Exchange Commission released proposed rules that would require companies to report climate-related information in their federal filings. The roundtable described some key provisions as “unworkable”, imposing “requirements that could not be met in the manner and within the timeframe proposed, and may not result in decision-useful information for investors”. The roundtable also complained about the amount of information the proposed rule would require and said the information “would not be comparable, reliable or meaningful, let alone material, to investors.” The new rules would also subject companies to “significant liability for disclosures that inherently involve a high degree of uncertainty”.
Concluding its review, Carbon Tracker offered recommendations for businesses, auditors, regulators, policymakers and investors that markets need to provide information “on the financial impacts of climate on carbon-exposed businesses to to facilitate an effective and efficient transition to a low-carbon world”. the economy, or to understand the impacts of not making the transition.
The Carbon Tracker review calls for more advocacy roles for corporate audit committees and independent audit firms. The lack of climate-related information in a company’s financial statements would improve if the audit committee of a board of directors insisted. Similarly, audit firms should insist on more comprehensive risk assessments.
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