Regulatory complaints from campaign group ClientEarth to the UK audit and reporting watchdog have prompted two leading oil and gas firms to change the way they report on climate-change risks to their businesses.
Oil and gas firms SOCO International and Cairn Energy have stepped up their climate reporting following interventions by ClientEarth lawyers and the Financial Reporting Council (FRC).
But despite the success, lawyers from ClientEarth slammed the FRC for failing to act transparently.
ClientEarth CEO James Thornton said: “Two major companies have updated their disclosure practices as a direct result of ClientEarth’s complaint to the FRC.
“But this intervention was behind the scenes. For us, that means the regulator needs to exert its influence more widely.”
Thornton said the FRC must send “a clear and public signal about climate risk reporting” or risk losing credibility as climate-change reporting evolves.
“We look forward to hearing from the FRC regarding this investigation and its findings,” he added.
A spokesperson for the FRC said: “These accounts were reviewed in accordance with the FRC’s normal operating procedures. We confirm the outcome to complainants once we see that the matters have been addressed as agreed when the accounts are published.”
Following a ClientEarth complaint, SOCO International revamped its environmental disclosures.
On page 30 of its annual report, the company explained that the transition to a low-carbon economy could result in reduced demand and increased operating costs, capital costs, regulation, and taxation.
The firm also acknowledged that risks from climate change were connected to many of its principal risks.
Meanwhile, Cairn’s strategic report contained a more detailed disclosure around climate change risk to the business. On page 69, the report also acknowledged stranded assets as a likely threat and pointed to conflicting forecasts of oil demand.
However, ClientEarth’s lawyers said they were still concerned that Cairn discussed climate risk outside its main analysis of fundamental business risks.
ClientEarth submitted its complaints to the FRC last August.
The organisation argued that both SOCO International and Cairn Energy had failed to make adequate reference to climate risks to their businesses in their 2015 strategic reports.
The requirement to make the disclosures is set out in s172 of the Companies Act 2006. Section 172 requires a company director to “act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole”.
Pensions & Investment Research Consultants (PIRC) has alleged that the FRC has repeatedly failed to compel companies to report on how they have complied with section 172.
In letter to the UK parliament, the FRC’s chief executive Stephen Haddrill said a change in the law was needed to reinvigorate section 172.
The FRC told IPE earlier this year in a statement that it needed additional powers to police compliance.
The spat comes as investors are demanding better disclosures about climate risk. Observers expect to see a greater alignment between risk reporting in the area and the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD).
A report from the TCFD is due to be presented to the G20 in July.