By Simon Jessop and Muvija M
LONDON (Reuters) - Britain's financial accounting watchdog plans to review how companies and auditors assess and report the impact of climate change on their businesses, as investors push for better disclosure of the risks.
Climate change has surged to the top of the agenda for investors as policymakers demand companies step up efforts to help drive the global transition to a low-carbon economy.
"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," Financial Reporting Council (FRC) Chief Executive Jon Thompson said in a statement.
"Auditors have a responsibility to properly challenge management to assess and report the impact of climate change on their business."
Yet many money managers are concerned that the information they are given by companies, and the accounts signed off by auditors, do not give a full picture of the risks, leaving them at risk of steep losses.
In response, the FRC said its review will look into the extent to which British companies and auditors are responding to climate-related issues to ensure reporting requirements are being met.
The FRC said it would check company reports and accounts for their compliance with reporting requirements, and audits to see how auditors reflect climate risk, both in terms of the judgments they make and any related disclosures.
As well as assessing how much resource auditors such as KPMG, EY, Deloitte and PwC devote to evaluating the impact of climate change, it would also evaluate the quality of future risk disclosures under Britain's new Corporate Governance Code.
Getting a measure of the longer-term risks posed by climate change, including through the provision of better data and more rigorous stress-testing under a range of scenarios, is increasingly a central concern of global policymakers.
Bank of England governor Mark Carney, who leaves in the coming weeks to take up a role as climate envoy at the United Nations, has said the issue will be an area of focus at the United Nations' climate conference in Glasgow in November.
Carney has also championed the roll-out of the Task Force on Climate-related Financial Disclosures framework, which helps companies frame their climate-related risks in a more structured way, and has suggested it could become compulsory.
Ahead of that, the FRC said it would evaluate whether the Financial Reporting Lab’s recommendation for companies to report in line with the TCFD had been adopted.