The urgency of climate change makes it imperative that companies report transparently on its impact. PwC sees that this is not yet happening sufficiently in risk assessments, the management report and the annual report, according to the publication 'Climate change reflected in the financial statements, a role for companies and their auditors'. As a result, investors lack transparant information the long-term risks and opportunities in relation to climate risks. In order to encourage PwC audited organizations to report transparently and clearly, the assessment of climate-related risks as an explicit element of the audit of the financial statements. From financial year 2022, PwC will challenge audited organizations about the transparency of the effects in the financial statements.
Climate change major business risk
The World Economic Forum's Global Risk Report 2022 identifies the failure to combat climate change as one of the greatest risks globally for the next decade. Businesses play a crucial role in combating climate change and its impact, and many will feel the effects themselves. But PwC research shows that most companies have often not integrated climate-related risks into their risk management and then do not always transparently translate these risks into the financial statements.
Increased attention to climate risks in audit of the financial statements
It is the responsibility and role of the auditor to ensure transparent reporting. That is why, as of financial year 2022, PwC Netherlands will include a company's ambitions and climate plans, or the absence thereof, in the risk assessments for all of our audits of the financial statements. Based on this, we will determine which audit procedures are required to adequately address the risks. This includes the translation to the company’s business model, the risk profile, viability, the valuation of assets and liabilities and the qualitative and quantitative disclosures in the financial statements. We will communicate our findings as appropriate.
Don’t wait for new laws and regulations
Companies' financial statements need to better reflect climate-related costs and also the opportunities in combating climate change. PwC believes companies should not wait for regulations such as the Corporate Sustainability Reporting Directive ('CSRD') and the EU Taxonomy for sustainable activities to apply. Companies can act now. Firstly, companies should prepare qualitative disclosures and then start to quantify them. The basis for this is a risk assessment that includes the impact on, for example, business models. As auditors, we will work on assessing this risk assessment.
Publication Climate change reflected in financial statements
In our publication 'Climate change reflected in the financial statements, a role for companies and their auditors', we explain how we are shaping our responsibility around climate risks in the approach of the audit of the financial statements. We describe how climate change is currently disclosed and provide examples of how climate change is affecting companies' financial statements. We also explain how, in our opinion, companies should address climate change in their financial statements and how auditors should assess these disclosures.
"More and more organizations report promising climate ambitions, but the financial consequences are mostly not yet disclosed in the financial statements. A robust and stimulating role of the auditor to raise this to a higher level is of importance to society. We must move away from the level of informality in relation to understanding and translating these climate risks and ambitions."
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