Audit + Net-Zero
Investors are increasing the heat on businesses to audit and cut their greenhouse gases to achieve net-zero emissions.
A major component of future business thinking will be around the design and active support of investment strategies to reduce carbon emissions.
Businesses will need to steer a reasonable portion of their money flow towards projects that are targeted at improving their carbon credentials and managing climate-related risk.
Disclosure in financial statements of these strategies, plus their success at reducing carbon footprints, is being demanded by the investor community, major players in the superannuation sector and climate change advocacy groups.
Failure by businesses to properly address this issue will affect investor’s decision-making and where they channel their funds.
Auditors can provide independent assurance that businesses are properly identifying and managing climate-related risks.
Businesses are becoming more and more exposed to these emerging risks and are facing more challenges to explain the financial impact on the carrying value of assets.
For example, auditors will analyse the key assumptions used by businesses to estimate the exposure of assets to the threat of impairment and the need to write down the carrying value.
Audit can also provide investors with comfort that businesses have kept their promises to invest in activities that target their stated emissions-reduction goals.
Auditors of the future will check that the greenhouse gas disclosures in the financial statements are supported by evidence and that emissions have been correctly calculated.
Failure to disclose the amount of expenditure properly and accurately on emission reduction initiatives, and their effectiveness, could cost investors and expose businesses to the threat of legal action for loss recovery.
Auditors are keenly aware of the growing expectations from the investor community that businesses are truly facing up to climate-related risks.
By engaging with auditors, businesses will be better positioned to provide investors with additional comfort that they are properly measuring and reporting on their environment impact.
Read more at RSM.