An official complaint from ClientEarth to the Financial Reporting Council (FRC) has resulted in two oil and gas firms changing their approach to climate reporting, but the activist law firm has criticised the regulator for failing to make public its recommendations
ClientEarth submitted a formal complaint to the FRC last August, after both SOCO International and Cairn Energy allegedly failed to make adequate reference to climate risks to their business in their 2015 strategic reports, contrary to legal requirements.
As a result of the intervention, SOCO’s risk management report now recognises that the transition to a low carbon economy could result in reduced demand and increased operating cost, capital cost, regulation and taxation. As such, climate change risk underlies many of the group’s principal risks.
Meanwhile Cairn’s strategic report contains a more comprehensive disclosure around climate change risk to the business. The report now acknowledges stranded assets as a likely threat and points to conflicting forecasts of oil demand.
ClientEarth lawyers argue that this signals progress, but say they remain concerned that Cairn has discussed climate risk outside its main analysis of fundamental business risks.
The pressure group is also unhappy that despite explicit reference by Cairn in its 2016 report to the FRC’s intervention, the regulator has yet to disclose the results of its investigation, or to provide guidance to companies clarifying that climate risk reporting is required under the law. ClientEarth has pressed the FRC to make its efforts more public.
James Thornton, ClientEarth CEO, said: ‘Two major companies have updated their disclosure practices as a direct result of ClientEarth’s complaint to the FRC. But this intervention was behind the scenes. For us, that means the regulator needs to exert its influence more widely. The FRC needs to send a clear and public signal about climate risk reporting, or it will lose credibility in the rapidly evolving disclosure conversation.’
A spokesperson for the FRC said: ‘These accounts were reviewed in accordance with the FRC’s normal operating procedures. We confirm the outcome to complainants once we see that the matters have been addressed as agreed when the accounts are published.’
The Financial Stability Board’s taskforce on climate-related financial disclosures (TCFD) is scheduled to report on its reporting recommendations at a meeting of the G20 in July.
