In the new annual reporting season, companies will no longer be able to avoid it: accountant KPMG will check more strictly for climate risks. The board of directors writes that Friday in a letter to his customers, among others.
The accountancy firm intends to have critical discussions on this subject and to report on this to all major companies in the auditor’s report – the standard part of an annual report that the accountant writes himself. It also puts more manpower with knowledge of climate on audits of companies in industries with high emissions.
The new working method is necessary, writes KPMG, because the climate is already changing rapidly and the need for transparency about climate risks is great among shareholders and NGOs. Mark Vaessen, international head of sustainability reporting, explains.
You look more closely at climate risks. Won’t companies say: Ho ho, you can’t ask us for more than the law requires?
“We cannot indeed force companies to do more than the legal requirements at the moment. But in our audit report we can give an indication of how seriously companies take their climate policy, and whether we see any inaccuracies in this area.”
“All our teams receive tools for the interviews, such as a whole list of climate risks, to see how well the organization has mapped them out. We will discuss this with the organization. We ask questions such as: are there factories on the balance sheet that are sensitive to extreme weather? We will also ask companies what climate change means for future income. If customers no longer buy your products because you are not good for the climate, use too much plastic or produce waste – you will have to do something about your business model.”
Sustainability has been playing an increasingly important role in annual reports for years. But that is often accompanied by greenwashing claims, such as poorly thought-out promises about net zero emissions, or that there is little insight into the environmental damage of production at all. In short, the practice is rather unruly.
“That’s right. We have been working on sustainability for thirty years. We see that companies have done a lot of good things in their reporting on a voluntary basis, for example by working with NGOs. But the consistency was missing. An alphabet soup, a mess has arisen. For example, NGOs say that it is often difficult to see from companies’ climate plans whether it concerns a net reduction in emissions, or a reduction on paper, by buying C02 certificates. We want to play a role in ensuring that climate ambitions are written down as transparently as possible.”
“It is also important that reporting is as consistent as possible. Sometimes companies change their metrics, or objectives, along the way when things get tough. We want to be sharp on that, but there is also a need for an unambiguous language. New regulations are on the way that will explain more specifically what green and sustainability exactly mean. Because that is still under discussion. For example, is nuclear energy now green?”
The new, stricter European rules will apply from 2024, and should be reflected in the annual reports in 2025. What do you see as the pitfalls of the new legislation?
“Companies are open to more regulation, and more clarity of what is expected of them. The most important thing we have to watch out for is that companies don’t just follow those rules as a matter of compliance conceive. From: we have an additional task, and only fill in some lists for a nice booklet. If the climate plans are not really anchored in the strategy of companies, then we as a world will not achieve our goals.”
The new legislation will also have a major impact on KPMG’s accountancy branch. How do you prepare for this?
“We have developed large training programs in collaboration with universities. It is the intention that our accountants, who are now focused on financial audits, will include this in their duties. That they check the financial and non-financial information in the same way. With the help of many specialists. We are currently hiring very broadly: engineers, physicists, geologists, human rights lawyers. In short, it already has a lot of impact on our organization.”
A version of this article also appeared in the newspaper of November 26, 2022