Accounting for climate change – the role of audit

ClientEarth has issued a formal letter to PwC alleging systemic failures in the audit of climate-related financial risks. The document asserts that existing IFRS, US GAAP, and IAASB standards already require the consideration of material climate risks, yet a report by Carbon Tracker indicates that PwC and other auditors frequently fail to demonstrate this scrutiny. ClientEarth warns that such failures create an information gap for investors and expose PwC to regulatory sanctions, shareholder claims, and potential criminal liability. The letter calls for a comprehensive review of PwC's audit practices for carbon-intensive companies and a commitment to using Paris-aligned accounting assumptions.

• International accounting and audit standards already mandate the inclusion of material climate-related matters in 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".
• A report by Carbon Tracker and the Carbon Accounting Project found that auditors are generally failing to address climate risks in the 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 the quantitative climate-sensitive assumptions used in their financial statements.
• PwC is specifically highlighted for failing to demonstrate adequate climate risk consideration in its audits. Of the 33 companies from the Carbon Tracker report audited in whole or in part by PwC, "significant concerns" were identified for all of them.
• There is a notable discrepancy between audit reports filed under different standards for the same company. Some auditors included climate change references in reports prepared under International Standards on Auditing (ISA) but omitted them in reports filed in the US under Public Company Accounting Oversight Board (PCAOB) standards.
• Climate change is presented as a material financial risk that can lead to significant asset write-downs, as evidenced by BP writing off $17.5bn in oil and gas assets in 2020. Failure to align financial statements with public climate commitments may result in "financial greenwashing", misleading investors and misdirecting capital.
• PwC faces several legal and professional risks due to its alleged audit failings, including regulatory sanctions, shareholder derivative actions for breach of contract or legal duty, and potential criminal liability under section 507 of the UK Companies Act 2006 for reports containing false or misleading material.

APA

ClientEarth (2021). Accounting for climate change – the role of audit. https://www.clientearth.org/media/cb1nynd4/encl-4-clientearth-letter-to-pwc-on-audit-and-climate-change-8-decembe-_redacted.pdf

Chicago

ClientEarth. Accounting for climate change – the role of audit. 2021. https://www.clientearth.org/media/cb1nynd4/encl-4-clientearth-letter-to-pwc-on-audit-and-climate-change-8-decembe-_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/cb1nynd4/encl-4-clientearth-letter-to-pwc-on-audit-and-climate-change-8-decembe-_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/cb1nynd4/encl-4-clientearth-letter-to-pwc-on-audit-and-climate-change-8-decembe-_redacted.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }