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ACCA publishes a report on climate change reporting by companies within the extractive industries

  • ACCA (UK Association of Chartered Certified Accountants) (lt green) Image

01 Apr 2021

The Association of Chartered Certified Accountants (ACCA) and the University of Glasgow Adam Smith Business School has published a report containing the results of a study that looked at climate change reporting by mining, oil and gas companies.

The objectives of the study were to:

  • explore the level and depth of climate-related disclosures provided by companies in the extractive industries in the narrative sections (i.e. front end) of their annual reports;
  • explore the level of integration of climate-related information into the accounting policies and relevant financial statements’ notes in the financial reporting section (i.e. back end) of companies’ annual reports; and
  • identify good climate-related reporting practices in both the front and back ends of the annual reports.

The study analysed the 2019 annual reports of 60 publicly listed companies in the extractive industries with the largest carbon emissions during the period 2016–18, measured by their average Scope 1 and Scope 2 carbon emissions3 over the period 2016–18.

Key findings included:

  • Less than a quarter (14 companies) provided scenario analysis that considered/discussed climate change risks.
  • Only 60% (36) identified addressing climate change risk as an integral part of their business model.
  • Just 15 companies (25% of the sample) considered international initiatives for climate change (e.g. the Paris Agreement) in the discussion of their business model.
  • Only four companies (7% of the sample) provided performance indicators where financial and climate change-related information is integrated.
  • Only 10% (6) disclosed that they incorporate climate change risks in their estimations of future cash flows, as part of their impairment testing calculations.
  • None of the sample companies identified climate change risk as an important factor in determining their assets’ useful lives.
  • In only 15% of the sample companies’ audit reports (9) was climate change risk identified as a key audit matter.

The report notes that:

Companies do not sufficiently engage with disclosures about their climate change-related risks. Companies are found to provide, on average, overly generic disclosures and they refrain from discussing how climate change risks affect their operations. Furthermore, only a small number of companies acknowledge the central role of climate change on their current and future activities. Our findings indicate that both the front and back ends of companies’ annual reports lack clarity of and depth in climate change related disclosures. Also, it has become evident that the two ends of the annual report are relatively disconnected, as companies provide more information about their climate change-related risks in the front end than in the back end. Thus, it appears that financial reporting does not follow narratives in considering the effects of climate change on companies’ operations.

A press release and the full report are available on the ACCA website.

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