Accounting for climate change – the role of audit

ClientEarth has issued a formal letter to Deloitte alleging that the firm is failing to demonstrate how it incorporates material climate risks into its audits of listed companies. The document asserts that existing standards from the IASB, IAASB, and FASB already require the consideration of climate-related matters. Referencing a report by Carbon Tracker and the Carbon Accounting Project, ClientEarth claims that Deloitte and other auditors are habitually failing to provide evidence of climate risk assessment, creating an information gap for investors and risking legal liability in jurisdictions such as the UK and US. The letter calls on Deloitte to review its audit practices, ensure consistency between financial statements and narrative climate commitments, and adopt Paris-aligned accounting assumptions.

• International accounting and audit standard setters have established that material climate-related issues must be integrated into financial statements and audits. The IFRS Foundation states that companies must consider these matters when the effect is "material in the context of the financial statements taken as a whole", while the IAASB clarifies that climate-related conditions fall within the auditor's remit to assess the "risk of material misstatement".
• Climate change represents a material financial risk to the global economy, particularly for carbon-intensive businesses. Transition risks are highlighted by policy shifts such as the Glasgow Climate Pact and national net-zero commitments in the UK and US, as well as corporate actions like BP writing off $17.5bn in oil and gas assets in 2020 due to accelerating transition forecasts.
• A report by Carbon Tracker and the Carbon Accounting Project found significant failures in the 2020 financial reporting of 107 carbon-intensive firms. Specifically, 80% of auditors provided no indication of how they considered material climate-related matters, and 75% of companies failed to disclose climate-sensitive quantitative assumptions. For the 19 companies audited by Deloitte in this sample, "significant concerns" were identified in every case.
• There is a pervasive lack of 'Paris-aligned' accounting assumptions in corporate reporting. Only 25% of the companies in the Carbon Tracker report disclosed any quantitative climate-related inputs, and none appeared to use assumptions aligned with the goals of the Paris Agreement or provide corresponding sensitivity analysis.
• Deloitte faces potential legal and professional liabilities for failing to evidence its compliance with audit standards on climate change. These risks include regulatory sanctions, shareholder claims for breach of contract or legal duty, and in extreme cases, criminal liability for reports containing "false, misleading or deceptive material".

APA

ClientEarth (2021). Accounting for climate change – the role of audit. https://www.clientearth.org/media/wqflbepb/encl-1-clientearth-letter-to-deloitte-on-audit-and-climate-change-8-de-_redacted.pdf

Chicago

ClientEarth. Accounting for climate change – the role of audit. 2021. https://www.clientearth.org/media/wqflbepb/encl-1-clientearth-letter-to-deloitte-on-audit-and-climate-change-8-de-_redacted.pdf.

Wikipedia

{{cite press release |author=ClientEarth |title=Accounting for climate change – the role of audit |date=8 December 2021 |url=https://www.clientearth.org/media/wqflbepb/encl-1-clientearth-letter-to-deloitte-on-audit-and-climate-change-8-de-_redacted.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@misc{clientearth2021accounting, author = {{ClientEarth}}, title = {{Accounting for climate change – the role of audit}}, publisher = {ClientEarth}, year = {2021}, month = dec, url = {https://www.clientearth.org/media/wqflbepb/encl-1-clientearth-letter-to-deloitte-on-audit-and-climate-change-8-de-_redacted.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }