Risky business

The document argues that climate change is a material financial risk that UK auditors must integrate into their work to avoid legal and regulatory sanctions. It details how climate risk affects annual accounts (e.g., asset impairments) and other reporting (e.g., strategic reports), noting that auditors may be liable for 'material misstatements' or breaches of their duty of care. The paper highlights rising investor pressure for 'climate-competent auditors' and provides action points for firms to manage these risks.

• Climate change presents two primary categories of financial risk: physical risks, arising from direct impacts like extreme weather and sea level rise, and transition risks, resulting from the shift to a low-carbon economy through policy, technology, and market changes.
• UK company directors have legal duties to promote the success of the company and exercise reasonable care, skill, and diligence, which may now require them to obtain expert advice on climate risk and ensure it is managed and reported.
• Climate risk can directly impact annual accounts through the need for fair value estimates, identification of potential impairments, and the determination of asset retirement obligations.
• Auditors are required to provide assurance that 'other information' in annual reports, such as strategic reports and viability statements, is consistent with annual accounts and free from material misstatements, which includes disclosing principal climate-related risks and uncertainties.
• Auditors face significant regulatory risks from the Financial Reporting Council (FRC), which can impose reprimands and financial penalties for failures in auditor scepticism regarding material accounting treatments and impairments.
• Audit firms are increasingly vulnerable to legal liability and shareholder or creditor class actions if they fail to exercise the 'reasonable skill and care of an ordinary skilled person' in addressing climate risks that later lead to financial loss or insolvency.
• Individual auditors may be subject to criminal offences if they 'knowingly or recklessly' include misleading, false, or deceptive matters in an auditor's report.
• While many UK companies provide high-level climate risk disclosures in strategic reports, very few provide granular detail or quantify the financial impacts, creating a potential mismatch with annual accounts.
• There is growing investor demand for 'climate-competent' boards and auditors, with major asset managers like BlackRock and Vanguard making climate risk disclosure a priority for engagement.

APA

ClientEarth (2017). Risky business. https://www.clientearth.org/media/ta4myra0/risky-business-climate-change-and-professional-liability-risks-for-auditors-ce-en.pdf

Chicago

ClientEarth. Risky business. 2017. https://www.clientearth.org/media/ta4myra0/risky-business-climate-change-and-professional-liability-risks-for-auditors-ce-en.pdf.

Wikipedia

{{cite report |author=ClientEarth |title=Risky business |date=2 December 2017 |url=https://www.clientearth.org/media/ta4myra0/risky-business-climate-change-and-professional-liability-risks-for-auditors-ce-en.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{clientearth2017risky, author = {{ClientEarth}}, title = {{Risky business}}, institution = {ClientEarth}, year = {2017}, month = dec, url = {https://www.clientearth.org/media/ta4myra0/risky-business-climate-change-and-professional-liability-risks-for-auditors-ce-en.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }