Accounting for climate change – the role of audit

ClientEarth asserts that EY and other auditors are failing to incorporate material climate-related financial risks into company audits, despite clear guidance from standard-setters like the IFRS Foundation and IAASB. Referencing a Carbon Tracker report, the letter highlights a systemic lack of transparency regarding climate-sensitive assumptions in financial statements. ClientEarth warns EY of potential legal and regulatory liabilities in the UK and US and calls for a comprehensive review of its audit practices for carbon-intensive firms.

• International accounting and audit standard setters, including the IFRS Foundation, IAASB, and FASB, have established that material climate-related matters must be integrated into financial statements and audits.
• A report by Carbon Tracker and the Carbon Accounting Project found that 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.
• EY was responsible for the audits of 31 carbon-intensive companies analyzed in the Carbon Tracker report, and 'significant concerns' were identified in relation to all of them.
• There is a notable discrepancy in audit reporting for companies listed in both the UK/Europe and the US, where climate references appeared in ISA audit reports but were omitted from PCAOB reports for the same company.
• Climate change is presented as a material financial risk for carbon-intensive businesses due to transition risks, such as the need for 'no new oil and gas fields approved for development' to meet IEA net zero pathways.
• Institutional investors, representing over $103 trillion in assets, are demanding that companies reflect climate risks in financial accounts and that assumptions be compatible with the Paris Agreement.
• EY faces potential legal and professional liabilities for failing to evidence its adherence to audit standards, including regulatory sanctions, shareholder claims for breach of contract, and potential criminal liability for misleading reports.

APA

ClientEarth (2021). Accounting for climate change – the role of audit. https://www.clientearth.org/media/zm4ox2wv/encl-3-clientearth-letter-to-ey-on-audit-and-climate-change-8-december-_redacted.pdf

Chicago

ClientEarth. Accounting for climate change – the role of audit. 2021. https://www.clientearth.org/media/zm4ox2wv/encl-3-clientearth-letter-to-ey-on-audit-and-climate-change-8-december-_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/zm4ox2wv/encl-3-clientearth-letter-to-ey-on-audit-and-climate-change-8-december-_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/zm4ox2wv/encl-3-clientearth-letter-to-ey-on-audit-and-climate-change-8-december-_redacted.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }