Audited report and accounts sit at the heart of systems of corporate governance around the world. They underpin executive accountability to shareholders. It is thus vital that these accounts provide a reliable – and not overstated – view of capital and performance. The effort to decarbonise the global economy could result in liabilities and / or losses for a range of companies, including those dependent on fossil fuel consumption for earnings.
The physical impacts of climate change could also impact the value of property and infrastructure, as well as entire economies. In most markets, these impacts, as far as they are material and foreseeable, must be reported in company annual report and accounts. They must be set out in the discussion of future risks (the ‘narrative’ part of the annual report), and they need to be reflected in financial statements where leaving them out could result in misrepresentation. These are fundamental and long-standing legal protections for shareholders. Investors are therefore considering whether all companies, but in particular fossil fuel dependent companies, are providing a full and fair disclosure of climate risks.