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FRC to assess how companies and auditors report on climate change

Published March 31, 2020

FRC to assess how companies and auditors report on climate change

The Financial Reporting Council (FRC) is to review companies and auditors assess and report on the impact of climate change.

The review will consider how the quality of information can be improved to support informed decision-making by investors and other stakeholders.

The FRC will review a sample of company reports and accounts across industries to assess the quality of reporting on climate change. The Council will also assess a sample of audits to review how auditors are ensuring the impact of climate risk has been appropriately reflected in company reports and accounts.

Also under review will be the resources made available by audit firms to support the evaluation of the impact of climate change on the entities they audit. 

Sir Jon Thompson, FRC CEO, said:

“Not only do boards of UK companies have a responsibility to report their impact on the environment and the risks of climate change to their business, but investors expect them to operate sustainably. Auditors have a responsibility to properly challenge management to assess and report the impact of climate change on their business.”

The FRC will evaluate the quality of disclosures under the new UK Corporate Governance Code regarding risk and emerging risk. It will look at whether companies are reporting in line with the Task Force on Climate-related Financial Disclosures framework. Nick Fedson, a Sustainability Analyst at Alfa Energy Group, said such initiatives may be rolled out more widely int the future:

“Auditing of environmental reporting is still in its infancy. The UK has new environmental reporting legislation that is impacting thousands of companies that have never before had to disclose their climate impacts. This is SECR – Streamlined Energy and Carbon Reporting – and it is an additional reporting requirement in companies’ Directors’ Reports. However, SECR is exempt from audit – unlike the financial information in a Directors’ Report. This may change in the future as environmental reporting becomes more mainstream and more importance is placed on high-quality and standardised climate impact disclosure.”