I joined a public event few months ago and I was surprised to hear a panelist saying that ESG and climate change are not so important for investors interested in Romanian listed companies. Unfortunately, nobody from panel responded to his statement.
Climate change is one of the most critical issues facing the world during nowadays. The climate change has the potential to exacerbate the multitude of calamities: pandemic, wars, inequities, economic disruptions. There are many discussions related extreme weather as wildfires, heat waves, hurricanes, floods, and droughts and specialists are estimating that dangerous consequences are expected to worsen in the coming years.
The auditors have a key role to play in global climate change. In fact, all listed companies are affected by climate related factors, either directly, or indirectly. The extent of impact on listed companies varies, and can change - driven by entity specific circumstances, such as industry, but also geographic and political location and developments.
The auditor’s objective is to obtain reasonable assurance about whether the financial statements of a company or of the group of the company, as a whole, are free from material misstatement and report on whether the financial statements are prepared, in all material respects, in accordance with the financial reporting framework.
“Climate change” has not been mentioned explicitly in accounting and auditing standards, although some specialists think that the effects of climate change are covered as any other risk factor that is financially material to a company. To eliminate any possible doubt, in June 2023, the International Sustainability Standards Board (ISSB) issued IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures: https://www.ifrs.org/issued-standards/ifrs-sustainability-standards-navigator/. The new requirements may add pressure on auditors as they need to involve sustainability specialists in their teams and it may increase the audit fee.
For investors, the auditor report is one of the most important elements regarding the status of a listed company. If auditors are not making any comments on climate related risks, who will do it?