The Financial Reporting Council (FRC) is to undertake a major review of how companies and auditors assess and report on the impact of climate change.
The FRC will review the extent to which UK companies and auditors are responding to the impact of climate change on their business to ensure reporting requirements are being met.
The review will consider how the quality of information can be improved to support informed decision-making by investors and other stakeholders.
The regulator said it will monitor how companies and their advisers fulfil their responsibilities and encourage better practice by taking a number of key steps.
These include reviewing a sample of company reports and accounts across industries to assess the quality of their compliance with climate-related reporting requirements.
It will also assess a sample of audits to review how auditors are ensuring the impact of climate risk has been appropriately reflected in company reports and accounts, including the key areas of judgement and related disclosures.
The FRC will also assess the resources available within audit firms to support audit teams in evaluating the impact of climate change on audited entities, and evaluate the quality of disclosures under the new UK Corporate Governance Code regarding risk, emerging risk and long-term factors affecting their viability;
In addition, it will weigh whether the Financial Reporting Lab’s recommendation for companies to report in line with the Task Force on Climate-related Financial Disclosures framework has been adopted, highlighting developing good practice.
The regulator will also deliberate on how investors are addressing the climate challenge in the stewardship of their investments when it monitors the first reports under the new Stewardship Code, which will be issued from the beginning of 2021.
“Not only do Boards of UK companies have a responsibility to report their impact on the environment and the risks of climate change to their business, but investors expect them to operate sustainably, Sir Jon Thompson, CEO of the FRC said.
“Auditors have a responsibility to properly challenge management to assess and report the impact of climate change on their business.”