19 September 2018

Lawyer activists call out UK companies on climate risk reporting

UK companies and auditors told relegating climate considerations to CSR in annual reports is no longer good enough.

Environmental lawyers ClientEarth have launched an assault on the environmental record of gout UK companies and the ‘big four’ audit firms.

Reporting failures

ClientEarth reported EasyJet, Balfour Beatty, EnQuest and Bodycote to the Financial Reporting Council (FRC) over failures to address climate change trends and risks in their reports to shareholders. For the first time, the companies’ auditors are also under scrutiny by the charity. The four companies acknowledge their greenhouse gas emissions and indicate efforts to reduce them, but the lawyer activists say none of the four clearly confront the risks or trends that climate change or the low carbon transition present to their business. This makes them ‘outliers’ among their peers and in potential breach of UK reporting laws, according to the lawyers. The companies’ auditors PwC, KPMG, EY, and Deloitte are also accused of failing to signal any problems, though stating that the reports complied with the law and that there were no material misstatements. ClientEarth has sent letters to the Big Four, asking them to explain their approach to these issues. The firm has asked the regulator to investigate the companies and to ensure any deficiencies in the reports are corrected. They warned that after the widespread endorsement of recommendations by the industry-led Taskforce on Climate-related Financial Disclosures, relegating climate considerations to the Corporate Social Responsibility section of a report is no longer good enough.

All at risk

ClientEarth lawyer Daniel Wiseman, said ‘it’s 2018 and the dial has shifted. Governments, regulators and investors have been saying for years that climate change and the energy transition are some of the biggest challenges facing business. For companies in exposed sectors to claim these risks are not material to their shareholders is unacceptable. 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.’ Mr Wiseman said a robust response from the regulator was needed, ‘the law here is clear – companies must report material trends and risks likely to affect them to shareholders and in our view, these companies have manifestly failed to do so.’ Copies of the complaints to the FRC and the letters to the audit firms can be found here.