More than 90% of the most recent annual reports of the 250 largest companies listed on the main market of the London Stock Exchange make no reference to climate-related factors in their financial accounts, new research has found.
Existing UK laws require all large companies to disclose material information about their climate change-related risks and impacts. But the ClientEarth’s Accountability Emergency report found 40% of FTSE 250 companies (as of 1 June 2020) do not refer to climate change-related risk in the ‘principal risks and uncertainties’ section of their annual report.
Furthermore, fewer than 25% of companies clearly reference the impact climate change will have on their business models, and 15% of companies still fail to disclose their Scope 1 and 2 greenhouse gas emissions.
See also: – ‘Not disclosing climate risks is no longer an option’
ClientEarth lawyer Daniel Wiseman highlighted investors have a responsibility to drive accountability of companies failing to disclose climate change-related factors. He said: “Investors have been complaining they can’t take action until companies provide better disclosures – but they are far from helpless.
“If investors are serious about their climate credentials, they need to use their legal powers to vote out directors and auditors where climate change risks are not being properly managed and reported.
The report provides a number of recommendations, including for investors to manage climate change-related risks through their investment and stewardship decision-making. To do this it recommends:
- Formally placing companies, directors and auditors on notice of their expectations regarding the materiality of granular climate change-related financial information for their decisions;
- Filing and supporting robust shareholder resolutions at AGMs to demand companies set and implement a strategy, with associated metrics and science-based targets (including interim targets), that is aligned with the Paris Agreement goals to achieve ‘net-zero’ global emissions by 2050 (Scopes 1-3); and
- Setting and implementing a robust stewardship policy to vote against the reappointment of directors, audit committee chairs and auditors at companies that omit material climate change-related information.
ClientEarth’s Wiseman continued: “The UK now has a legally binding obligation to reach net-zero greenhouse gas emissions by 2050. It must be a basic expectation that all companies have a strategy to transition their business to meet this target and provide fair and balanced disclosures to their investors about how they plan to do so.”
The report found around 50% of companies mention some form of ‘Paris-alignment’ or ‘net-zero’ target, but many provide limited details – raising concerns of greenwashing. It calls for regulatory enforcement teams to investigate the adequacy of a company’s climate reporting, and for investors to be provided with additional engagement tools through an annual shareholder vote on transition plans.
“The Financial Reporting Council and Financial Conduct Authority already have powers to sanction companies and auditors, and require new statements. Strong enforcement action is needed when companies, their directors and auditors omit material climate change-related information in their annual reports,” Wiseman added.