Shareholders at big publicly-listed companies are waiving through the reappointment of auditors that have failed to address climate risk in their reports, posing a significant risk to their own investments and the planet, according to new research from Greenpeace.
Between January and August 2021, shareholders voted by 90% or more to reappoint the auditors at all but 3 of 349 large listed companies. The companies Greenpeace analysed were either listed on the UK FTSE100 or FTSE 250, or were one of 78 of major global emitters whose audit reports were identified by Carbon Tracker and the Carbon Accounting Project as failing to meet ‘good practice’. ClientEarth found that only 4% of the audit reports of the 250 largest listed UK companies clearly explained whether the auditors had considered climate change-related factors.
Charlie Kronick, Senior Programme Adviser at Greenpeace UK, said: “Polluting companies and their auditors are failing to integrate climate change and the 1.5 degree target of the Paris Agreement into their business plans and financial statements – for example over-valuing fossil fuels, rather than recognising they need to be phased out. This leads to bad investment decisions that not only harm company profits, but also wreck the climate. Our findings show that investors aren’t going to force auditors to improve any time soon. We’re calling for the government to step in by creating a duty for companies and auditors to ensure climate risk is reflected in financial statements.”
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Greenpeace’s research is published as the UK government is finalising its audit reform proposals. Investors managing more than $2.5 trillion are also calling on the government to mandate companies and auditors to produce ‘Paris-aligned accounts’. Research published in Nature earlier this month found that half of the world’s fossil fuel assets could become worthless by 2036 under a net-zero transition, underlining the urgent need for action. If companies and auditors continue to over-value fossil fuels it increases the risks of the economic impacts of climate change for pension fund members, institutional investors and the wider economy.
Greenpeace also examined the reasons asset managers put forward when they vote against auditors. Only one asset manager of the 16 reviewed (Sarasin & Partners) listed climate change as a relevant issue in decisions on auditor reappointment. Length of auditor tenure and potential conflict of interest over non-audit fees were the primary reasons offered when fund managers voted against auditor appointments.
Of the votes Greenpeace analysed, all of Vanguard’s disclosed votes were in favour of auditors; Blackrock voted only against one auditor (despite having a policy saying it may vote against auditors if climate risk is not reflected in financial reporting); and State Street Global Advisors voted against three. This suggests most large asset managers are a long way from taking the necessary voting action. UK asset managers were more willing than their US peers to vote against auditors at the 78 high carbon companies.