140 companies are not reporting how climate change affects their business, says Carbon Tracker.

The Climate Tracker report entitled, “Flying Blind: In a Holding Pattern”, says that companies and their auditors are providing only 40% of climate impact information in financial statements and audit reports, although this is up on 35% on a year ago.

The 140 companies are among the world’s largest corporate greenhouse gas emitters and are mostly audited by one of the big four audit firms: Deloitte, EY (Ernst & Young), KPMG and PwC (PricewaterhouseCoopers).

The report analyses their financial statements and related audit reports for their 2022 financial years using the Climate Accounting and Auditing Assessment methodology. It says 94% of companies and their auditors are failing to respond to investor calls for information about how balance sheets could be affected by the drive to achieve net zero.

The report finds that:

Only 37% of companies’ financial statements provide investors with some information on how they incorporate climate-related financial risks. Investors in the remaining 63% cannot tell whether balance sheets reflect climate impacts and so “lack a window into management’s views of the energy transition.

81% of companies continue to omit the most basic and accessible data: the relevant quantitative assumptions and estimates [inputs] used in financial reporting. This is despite companies identifying these inputs as significant to the preparation of the financial statements and subject to considerable judgement and estimation uncertainty.

70% of companies’ financial statements are not consistent with their other climate narratives. Discrepancies could be evidence of material errors, poor corporate governance or potential greenwashing. Company climate targets may also raise concerns about greenwashing because they are often dependent on the use of technologies that are either not developed or not available at scale, such as carbon capture and storage, with no insight into the financial statement impacts.

Barbara Davidson, Head of Accounting, Audit & Disclosure and report author said: “These companies have significant exposure to climate and transition risks and most have emissions reduction targets. Such matters can materially impact their businesses, balance sheets and cash flows. Investors and regulators urgently need information about how companies are reflecting this in their financial statements today.

“If management and investors are basing their decisions on incomplete or incorrect information, such as potentially overstated assets and profits and understated liabilities, then investors, including pension funds and retail shareholders, risk significant financial loss in the face of a disorderly energy transition.”

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