FRC to review how U.K. companies and auditors address climate change

“Auditors have a responsibility to properly challenge management to assess and report the impact of climate change on their business,” said FRC CEO Sir Jon Thompson. “The FRC has high standards for company disclosure, including regarding climate change. Company reports and accounts are essential to understanding how the corporate world is responding to the challenge of climate change.”

The FRC said its review will consider “how the quality of information can be improved to support informed decision-making by investors and other stakeholders.” To monitor how companies and their advisers fulfil their responsibilities and encourage better practice, the FRC intends to:

• Review a sample of company reports and accounts across industries to assess the quality of their compliance with reporting requirements in relation to climate change;
• 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;
• Assess the resources available within audit firms to support audit teams in evaluating the impact of climate change on audited entities;
• Evaluate the quality of disclosures under the U.K. Corporate Governance Code regarding risk, emerging risk, and long-term factors affecting their viability; and
• Evaluate whether the Financial Reporting Lab’s recommendation for companies to report in line with the Task Force on Climate-related Financial Disclosures (TCFD) framework has been adopted, highlighting developing good practice.

The FRC said it will also consider “how investors are addressing the climate challenge in the stewardship of their investments and in their response to systemic and market risks when it monitors the first reports under the new Stewardship Code,” which will be issued in 2021.