Most audit reports conducted for high-emissions companies do not provide sufficient clarity over whether and how auditors addressed the impacts of climate risk on financial statements, according to Carbon Tracker. The think tank’s assessment of the fiscal year 2022 financial statements of 140 firms in Climate Action 100+’s Net Zero Company Benchmark found that just four audit reports comprehensively discussed climate considerations, and/or commented on inconsistencies across the company’s reporting. Carbon Tracker said the audits that represented best practice were prepared by Deloitte for BP, KPMG for Rio Tinto, PwC for Rolls-Royce and EY for Shell. It suggested incumbency was a potential problem, calling for increased audit rotation to induce greater rigour. Carbon Tracker also found different practices across jurisdictions, noting that allowing local offices to make decisions on appropriate levels of disclosure was “sub-optimal for addressing global climate-related matters”. The firm’s third annual assessment said improvements in audit report transparency are not happening at scale or in line with the pace of the energy transition. “This can impact the value of the audit report for investors and overall trust in financial markets,” it added. Carbon Tracker called on regulators to undertake reviews of audit tenure rules and audit report disclosures to understand whether and how such rules may have impacted transparency on how auditors considered climate-related matters. It also encouraged investors to engage with audit committees and/or the auditors about the usefulness of audit reports, as well as ensuring their voting policies include considerations of, and potential responses to, excessively long audit firm tenures.
