The scathing financial review looked at the annual reports of 250 firms in fiscal year 2019/2020 and found that only 4% of companies made clear references to climate change data in their financial reporting, 4% of audits clearly indicated climate change as a factor in auditing, and 15% of companies failed to report direct and indirect greenhouse gas emissions.
“While there are undoubtedly examples of good reporting by individual companies, overall disclosure practices fall a long way short of the granular climate change-related narrative and financial information which investors say that they need and expect,” ClientEarth said in its report.
Even in the absence of a legal requirement, ClientEarth found that 31% of companies mentioned some kind of alignment with “Net Zero” targets or goals of the Paris Agreement, concluding that the highly generalized “boilerplate” language in these statements combined with a lack of material climate change information reporting puts UK firms at risk of greenwashing.
The U.K. requires climate change disclosures both explicitly and implicitly, with greenhouse gas emissions data explicitly required for companies bound by the Companies Act and climate change data required wherever else it is considered “material” in the reporting of business models, risks, impacts, and strategy. Investor and regulator expectations are clear - companies need to address climate change related data in annual reports, according to the report.
The report labeled this an “accountability emergency” noting that ClientEarth had made numerous noncompliance reports in the past to regulatory bodies like the Financial Conduct Authority and the Financial Reporting Council. It pointed to the lack of public findings on climate reporting related noncompliance as an indicator of an accountability gap, calling on regulatory bodies to prevent greenwashing with strong enforcement and proper resources and training.
The accountability sought by ClientEarth may be on the horizon for the U.K. after it committed to bring financial reporting standards up to snuff with the recommendations of the Task Force on Climate Related Financial Disclosures by 2025 last November.
The report noted improvement in some companies it had previously reported for noncompliance and 40% of companies reporting made some clear reference to climate change when reporting business related risks and uncertainties.
