ClientEarth has alerted the UK financial regulator to reporting breaches by two oil and gas companies. These companies have failed to adequately disclose climate change risks to their businesses.
In detailed legal letters to the Financial Reporting Council (FRC) the international environmental law organisation has requested intervention to correct defective reporting by SOCO International Plc and Cairn Energy PLC.
The two oil and gas exploration and development companies make scant reference to climate-related risks to their business in their annual reports. This means investors are not fully informed of risks to the business.
In the UK, the Companies Act 2006 sets out a legal framework for companies to report material risks to the business. The FRC is the regulator responsible for monitoring compliance with relevant reporting requirements.
ClientEarth lawyer Alice Garton said: “For companies operating in this sector – with business models and strategies which rely on the continued use of hydrocarbons – it is inconceivable that climate risk is not a material and significant factor for these companies.
“Failing to adequately disclose climate risk is failing to mention one of the most important risks facing the company and means the annual report is only telling the positive side of the story.
“This information is vital for investors. Without it they simply cannot make a fully informed investment decision.”
Ms Garton said a robust response from the regulator was needed: “We want the FRC to take decisive action and oblige these companies to report on climate related risks to their business – as they are required by law to do.”
Natasha Landell-Mills, Head of Stewardship at Sarasin & Partners LLP, said: “The complaints brought by ClientEarth offer a timely opportunity for the FRC to send a clear message that climate risks must be treated like any other risk to capital, and properly disclosed.”