Press release: 19 December 2019

Financial regulators are “missing in action” on climate risk – ClientEarth lawyers

ClientEarth has called out the UK’s financial regulators for failing to enforce the law on climate risk disclosure in a new briefing released today.

The news comes after the legal charity reported numerous companies to the Financial Reporting Council (FRC) and Financial Conduct Authority (FCA) over their failures to address climate change trends and risks in their reports to shareholders – and the regulators avoided taking clear enforcement action.

Under UK law, companies must disclose material trends and risks facing their business to investors in their annual report. But many are still failing to do so. ClientEarth has reported major companies including airline, EasyJet and insurance company, Admiral to the UK’s financial regulators over these omissions.

Despite this evidence, the FRC and the FCA failed to take clear enforcement action against any of these companies. Except for one complaint, the financial regulators failed to even make a determination about whether or not the reports complied with the law.

The regulators could impose fines or oblige the companies to publish information which rectifies the omissions in their annual reports. But they have decided not to do so.

ClientEarth lawyers warn that unless regulators are willing to enforce the law, incentives are lacking for companies to report investment-grade information on climate-related risks and impacts.

ClientEarth lawyer Daniel Wiseman, who co-authored the new briefing, said: “On climate change, the UK’s financial reporting watchdogs are being at best sluggish and at worst recalcitrant. Either way, the current approach is unacceptable – our regulators are missing in action.

“Enforcement teams must be properly resourced and empowered to take strong action where non-compliance is identified. Companies, directors and auditors need to be held accountable for breaches of reporting requirements – especially when investors have been so vocal that climate-related disclosures are material and missing. ”

Recent public statements by some of Europe’s most prominent financial voices, such as Mark Carney, Bruno Le Maire and Christopher Hohn, have made it clear that companies must raise their game on climate-related reporting.

Natasha Landell-Mills, head of stewardship at asset manager Sarasin & Partners, which is spearheading a campaign by 29 investors pressing top auditors to take urgent action on climate-related risks, said: “While there has rightly been substantial attention to voluntary reporting guidance developed by the Task Force for Climate-related Financial Disclosures, the UK already has strong laws and regulations in place requiring disclosure of material risks, as well as the inclusion of foreseeable losses and liabilities in company financial statements.

“These need to be properly enforced today. A failure to do so is perpetuating capital misallocation to activities that put not just shareholder capital at risk, but ultimately threatens the stability of our planet.”

ClientEarth lawyers are concerned that without appropriate supervisory and enforcement actions, companies will not have the incentives to avoid greenwash and provide the balanced disclosures required by investors and the law. The lawyers are now calling on government and regulators to take urgent action to close the enforcement gap by properly training and resourcing enforcement teams and holding companies, directors and auditors accountable for breaching disclosure laws.

ENDS

Notes to editors:

Access our new briefing “UK financial regulators are missing in action on company failures to disclose material climate-related information“.

The Financial Conduct Authority (FCA) is Britain’s financial markets regulator. The Financial Reporting Council (FRC) is responsible for overseeing corporate reporting and regulating auditors, accountants and actuaries.

Despite widespread recognition that the financial risks and impacts associated with climate change are some of the biggest mega-trends facing business today, many UK companies still fail to disclose meaningful information about climate change-related risks in their annual reports.

In order to help address this information gap, in recent years, ClientEarth has reported numerous companies to the FRC and the FCA for breaching legal duties to disclose material risks. A summary of ClientEarth’s regulatory complaints and outcomes can be found on page 5 of the briefing.

About ClientEarth

ClientEarth is a charity that uses the power of the law to protect people and the planet. We are international lawyers finding practical solutions for the world’s biggest environmental challenges. We are fighting climate change, protecting oceans and wildlife, making forest governance stronger, greening energy, making business more responsible and pushing for government transparency. We believe the law is a tool for positive change. From our offices in London, Brussels, Warsaw, Berlin and Beijing, we work on laws throughout their lifetime, from the earliest stages to implementation. And when those laws are broken, we go to court to enforce them.