Only 2–4% of auditors include climate risk in sustainability audit reports, hindering transparency and net-zero alignment
A new report from Carbon Tracker reveals that corporate audit reports continue to neglect climate-related financial risks, threatening both transparency and long-term strategy for carbon-intensive companies.
Despite rising awareness of the climate crisis, only 2–4% of auditors address climate and energy transition risks in financial statements, according to Flying Blind: Disabling Autopilot for Audit Reports. The report evaluates 140 audit reports for fiscal years 2022 and 2023 from companies highly exposed to carbon risk, all monitored under the Climate Action 100+ initiative.
The findings are unequivocal: “The overwhelming majority of audit reports analyzed provided no indication of whether or how auditors considered the impacts of climate and energy transition risks in corporate accounts.”
Transparency at risk in sustainability audits
Auditors are not consistently or systematically evaluating the financial impact of climate change in their official reporting. This undermines trust in financial markets, where auditors are expected to act as a key safeguard.
Carbon Tracker highlights the issue with hard data:
- Only 4% of the 140 reports clearly acknowledged consideration of climate risks (Metric 2a)
- Just 2% addressed inconsistencies between financial statements and companies’ climate claims (Metric 2b)
- Not a single report fully met the criteria for alignment with net-zero goals (Metric 3b)
These low figures persist even in 2023, suggesting a deep-rooted systemic issue.
Behind the numbers: what’s going wrong?
Carbon Tracker identifies two main factors behind the failure:
- Audit tenure: Audit reports with limited climate content are often linked to long-term contracts. The report suggests that more frequent auditor rotation could raise professional rigor and improve sustainability audit quality.
- Inconsistent practices across countries: Even among the Big Four audit networks, Carbon Tracker observed major discrepancies in how local offices address climate risk. While international standards (ISA, PCAOB) are broadly aligned, their enforcement varies, leaving gaps in climate risk coverage.
Recommendations for action
To shift course, the report offers clear recommendations for auditors, regulators, and investors:
- Auditors should disclose how they tested management assumptions tied to climate, ensure consistent practices across their networks, and flag any mismatches between financial and environmental disclosures.
- Regulators should review rules on auditor tenure and improve global coordination to enhance uniformity in sustainability disclosures.
- Investors should apply pressure via shareholder engagement and voting, making audit quality a key criterion for evaluating supervisory bodies.
