The most recent report from climate change thinktank Carbon Tracker presented some appalling evidence showing how the world’s heaviest polluters have not properly disclosed the potential impact that shifting environmental conditions will have on their bottom lines.
According to the Carbon Tracker report, around 98% of the 134 companies responsible for the majority of pollutant emissions failed to adequately disclose the impact their operations may have on the environment in their financial statements for 2021.
Gross Overstatement of Assets, Gross Understatement of Liabilities
Barbara Davidson, head of accounting, auditing, and disclosure for Carbon Tracker, opines that this is a serious – and potentially dangerous – an oversight on the part of these companies.
Based on the report’s findings, companies that do not take a serious approach regarding climate-centric matters tend to include overstated assets and profits in their reports. They also underreport serious liabilities, which could cost them their profits over time.
Davidson added that this lack of disclosures can leave investors ill-informed regarding the ability of these companies to properly comply with environmental, social, and governance (ESG) standards now considered mandatory. It also means markets cannot function properly, let alone allocate capital to the right sectors.
All in all, these companies are essentially undermining, if not outright derailing, ongoing efforts to make the global economy carbon-free.
Not the Only Culprits
But companies aren’t the only ones who have not been forthright about their potential environmental impact. Auditors were also noted to pay no mind to climate-centric issues.
Practically all of the audit reports submitted to Carbon Tracker for review failed to state how certain factors – specifically emissions reduction targets, regulatory changes, or a rise/fall of demand for products – impacted the environment.
But on a positive note, Carbon Tracker also noted some progress, as a few companies have seen the value of providing sufficient disclosures about their plans to reduce emissions in their operations.
A Need for Improved Compliance
Over the past few years, international regulators have come after the global business community on the proper disclosure of any climate-related risks their operations pose, as well as their overall impact on the environment.
It has been noted that companies that are ESG-compliant concerning the disclosure of their financial statements can get help from investors willing to put money into their efforts to meet the net-zero emissions target that many nations hope to attain by 2050.
