ClientEarth response to BEIS Consultation on Restoring Trust in Audit and Corporate Governance

ClientEarth responds to BEIS Consultation on Restoring Trust in Audit and Corporate Governance

Improving the quality of audit and corporate governance, and associated accountability mechanisms, is crucial to ensuring investors have access to timely and accurate information on the implications of these risks and to ensuring the stability of the investment market as a whole. However, despite clear investor demand, companies in the UK consistently fail to disclose material climate-related information to financial markets. These continued disclosure failures undermine investors’ ability to integrate climate-related information into their investment and stewardship decisions, increase financial stability risks and delay action to align the economy and financial system with the UK’s commitment to achieve ‘net-zero’ greenhouse gas emissions by 2050.

This document sets out ClientEarth’s response to the recent BEIS consultation on restoring trust in audit and corporate governance. Our key recommendations are:

• Public Interest Entities (“PIEs”) must be explicitly required to disclose how and to what extent their strategy and financial accounts are aligned with the Paris Agreement goal of limiting global temperature rise to 1.5 °C and, if they are not, then what adjustments to the strategy and accounts would be required for them to be so aligned.
• Auditors of PIEs must be explicitly required to undertake ‘Paris-aligned’ audits that test accounts against assumptions and estimates that are aligned with the goals of the Paris Agreement and to disclose to shareholders any concerns about the assumptions and estimates used by the company.
• The mandate for the new regulator, the Audit, Reporting and Governance Authority (“ARGA”), must require it to have regard to the government’s commitment to achieve a net-zero economy by 2050.