Key Resources

Looking for more information? Here’s everything you should need.

Key Quotes

Sepi Roshan, Senior Analyst, with the Accounting, Audit and Disclosure team said: “Our latest research reinforces the urgent need for regulators worldwide to step up, enforce existing reporting standards, and ensure that companies and auditors evidence their consideration of financial impacts of climate change and the energy transition. The global financial system must transition from “flying blind” to full transparency and accountability around reporting of financial risk. The Flying Blind series has consistently highlighted the need for greater reporting transparency in financial statements and audit reports. Without decisive regulatory action, investors, policymakers and indeed, regulators themselves, will remain in a ‘holding pattern’, in the face of significant undisclosed financial risks and impacts of climate change and the energy transition on companies. Regulatory activity focused on enforcing existing reporting requirements can help exit this lingering holding pattern and provide the transparency all efficient markets need.”

Barbara Davidson, Head of the Accounting, Audit and Disclosure team said: “Auditors and financial reporting are key pillars of the financial ecosystem and for market efficiency. Although we have seen a relative increase in relevant disclosures over time, investors still lack the requisite transparency to make essential decisions - particularly in the face of growing climate-related risks. It is therefore crucial that financial regulators ensure that audit reports and financial statements meet the highest standards.”

Richard Folland, Head of Policy and Government Affairs said: “To protect and reinforce their international climate leadership credentials, UK and EU governments must maintain the ongoing political support, resourcing and autonomy for robust regulation and enforcement to allow for transparent and efficient markets. Regulators do not operate in a vacuum and require political backing to resist any opposition to enforcing existing requirements that support investor decision making.”

This report is the latest in Carbon Tracker’s Flying Blind series, which focuses on the extent to which companies disclose their consideration of climate-related risks within financial statements, and auditors in their audit reports. It highlights jurisdictional differences in regulatory activity and apparent enforcement of existing standards that require consideration of the material financial impacts of climate and transition risks. It provides insights into how regulators can safeguard transparency in financial reporting, promote market integrity and financial stability.

Covering 97 companies across five key markets—Australia, the European Union (EU), Japan, the United Kingdom (UK), and the United States (US)—this report underscores the crucial role of regulators in driving high-quality financial statements – and audit reports – that investors, regulators and policymakers can rely on for decision making.

This report finds:

Evidence of, and transparency around, consideration of climate-related matters in financial statements and audit reports vary significantly across jurisdictions. This is despite the similarities in existing reporting requirements.
The EU and UK lead in transparency and disclosure quality, while Japan and the US lag. Australia sits in between. The relative positioning of these jurisdictions (refer Fig 2, p6) reflects the extent of regulatory activity and reinforces the link between reviews or enforcement and better practice.
Disclosure in audit reports across jurisdictions often lag those in financial statements, even in the EU which is a leader in company reporting and regulatory activity.
Regulators play a key role in monitoring and enforcing existing financial reporting and auditing standards that require companies and their auditors to assess the financial impacts of climate risk and the energy transition on financial statements. In some jurisdictions, their activities are falling short.