The U.K. Financial Reporting Council (RFC) said it is reviewing the way companies and auditors report on the effects of climate change.
The review will result in more stringent disclosure rules for companies listed in the United Kingdom and tougher oversight for accounting firms.
The FRC said it would look at a sample of company reports in different industries to assess their compliance, consider how investors address systemic risk, and whether companies provide information to make informed decisions.
“Not only do boards of U.K. companies have a responsibility to report their impact on the environment and the risks of climate change to their business, but investors expect them to operate sustainably,” FRC chief executive officer Jon Thompson said. “Auditors have a responsibility to properly challenge management to assess and report the impact of climate change on their business.”
The FRC said it will examine the resources available to accounting teams to access the effects of climate change on the companies they audit. It will also look at how companies have adopted the recommendations of the Task Force on Climate-Related Financial Disclosures, which was set up in 2015.
Under guidelines that went into effect in the U.K. earlier this year, pension funds and asset managers must disclose their shareholder voting records on climate issues and must publish annual reports on environmental, social, and governance issues they consider when making investments.
The departing Governor of the Bank of England, Mark Carney, has said U.K. companies should use their annual financial reports to test their reporting of climate risk.
A lawyer for campaign group Client Earth, Daniel Wiseman, said the FRC’s oversight of climate risk has historically been poor.
“Climate change poses critical risks to companies, and systemic risks to the wider economy, and regulators have been asleep at the wheel on both counts,” Wiseman said. “This long overdue review must lead to strong enforcement action.”
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