Letter: Auditing climate issues can contribute to the Paris goals
In “The Green Transition May Depend on Auditors” (Opinion, November 5), Gillian Tett rightly highlights the International Sustainability Standards Board and the roles of auditors, but misses an important piece of the puzzle.
International accounting and auditing standards already require listed companies to consider material climate-related issues in financial statements (and similarly for auditors in audit reports).
However, in our recent study of 107 carbon-intensive companies, we found that more than 70% (and 80% of their auditors) did not appear to consider these issues in the 2020 audited financial statements.
Notably, US multinationals (and their auditors) provided considerably less evidence than their foreign counterparts.
The financial effects of transition policies, regulations, changes in demand and emissions targets can reduce the useful life of assets, long-term commodity prices and expected growth rates, leading to impairments of assets and/or accelerated dismantling obligations. Inventories can become obsolete, bad debts, long-term contracts unprofitable.
Overvalued earnings and assets and undervalued liabilities will only encourage investment in unsustainable business activities.
Sustainability reports only partially address this issue. We risk a severe loss of investor capital that will limit our ability to meet the Paris targets if we fail to consider the significant financial effects of decarbonization today.
Senior Analyst, Climate Disclosure and
Accounting, Carbon Tracker Initiative
London SE1, UK