COP26 was the first summit of its kind to have placed the contribution of the financial markets in reducing global emissions at centre stage. The climate transition relies on capital being directed towards those companies that are helping to tackle climate change. To achieve this, corporate reporting must provide investors and stakeholders with information they can trust, and it is here where auditors have a critical role to play.
Investors and wider society are demanding that companies provide greater transparency on their emissions, more detail on their environmental strategies, and further insight into how climate change will impact their business in the future. However, there are many challenges to building trust in this type of data, and the associated reporting, as PwC highlights in a recent report. As international sustainability reporting and auditing standards evolve, so too will the ability of auditors to scrutinise companies’ commitments to net zero, and the risks posed to their business by the changing climate. The launch of the International Sustainability Standards Board is an important first step.
This remains a new and complicated area but I am optimistic about the huge contribution that auditors can make to the net zero transition. If we are able to harness the energy and enthusiasm evident at COP across the business and investor community, I am confident that we can help to rewire the global economy towards net zero.
We are continuing to upskill our audit teams, and this summer all of our qualified auditors received specific training on climate related risks and their impact on the audit. We are leveraging the knowledge of our experts to support our audit teams, helping them to understand the challenges that specific industries are facing.
With auditors having an important role to play in driving progress, what are we doing?
As signatories to the Net Zero Service Providers alliance, as part of the Glasgow Financial Alliance for Net Zero (GFANZ), we are committed to ensuring the financial sector can measure and manage climate-related financial risks. For December 2021 year ends onwards we have introduced mandatory consideration of climate-related risks for all of our audits. For FTSE 350 organisations, we will reference climate change considerations within the audit report for December 2021 year ends onwards, with greater detail given where we have identified the entity as facing higher climate risk.
We are continuing to upskill our audit teams, and this summer all of our qualified auditors received specific training on climate related risks and their impact on the audit. We are leveraging the knowledge of our experts to support our audit teams, helping them to understand the challenges that specific industries are facing. Our experts include an award-winning Sustainability and Climate Change advisory practice, which has grown into a team of 800 experts globally, with over 100 based in the UK. I’m also excited to have recently launched a new climate change industry network for our auditors, encouraging knowledge sharing between the audit teams facing similar climate related matters.
It’s also important that we work with the organisations we audit to support their knowledge and confidence relating to reporting in this area. We are working with companies’ boards and their audit committees to raise awareness of how PwC’s audits are changing to focus on climate related risks and disclosures. The climate change agenda is also now included in our broader programmes such as the Non-Executive Director Network events and our regular Accounting & Reporting Updates.
Beyond COP26, climate reporting will continue to evolve as more organisations set new climate strategies and make commitments. Change will require all parties in the corporate reporting ecosystem to work together. We are committed to playing our part to improve reporting in this area. Providing assurance that material climate risks and commitments have been included in the financial statements will build confidence in business. It will also enable investors to meaningfully allocate capital to drive positive change and protect our planet.