Institutional Investors Group on Climate Change publishes updated investor expectations for embedding climate risks in financial statements

The Institutional Investors Group on Climate Change (IIGCC) published an updated “Investor Expectations” paper setting out how investors expect climate-related risks, opportunities and uncertainties to be reflected in audited financial statements, updating its 2020 guidance. The paper focuses on closing the gap between narrative climate disclosures and the numbers in the accounts, which IIGCC argues remains a recurring weakness in company reporting and a constraint on investors’ ability to assess value. The update reflects developments in accounting and reporting expectations, including the International Accounting Standards Board’s illustrative examples on how International Financial Reporting Standards treat uncertainty arising from climate-related matters, increased regulatory scrutiny by the European Securities and Markets Authority and the UK Financial Reporting Council, and the rollout of frameworks such as the International Sustainability Standards Board’s IFRS S1 and S2 and the EU Corporate Sustainability Reporting Directive. It sets expectations for companies to explicitly incorporate climate considerations in financial statements, align them with narrative reporting, quantify critical assumptions and provide sensitivity analysis; for auditors to test whether material climate risks are reflected and whether climate commitments are consistent with reported figures; and for audit committees to oversee integration, challenge assumptions and consider impacts on dividends and viability. The paper also provides engagement questions and examples drawn from FY2024 reporting practices.