A couple years ago, with substantial input from John Jenkins, I blogged about the potential for sustainability/ESG matters to trigger restatements of financial reports in the US:
“What if a publicly-traded company finally took a hard look at potential financial impacts posed by climate risks and realized they are – and perhaps always have been – material? Would such a company risk restatements, enforcement and litigation? Does risk for restatement differ if climate exposure is physical damage to plants, property and equipment (PP&E) or business risks resulting from changes in policy, operating costs and revenue?”
We discussed this matter in the context of SEC financial reporting, but a new Deloitte study shows John and I might have been on to something. The setting of Deloitte’s study is different (UK and not within financial statements), but sustainability report restatements are now indeed becoming a thing:
- 46 of the FTSE 100 made restatements on their sustainability metrics this year;
- Most related to changes in methodology (44%), but over a quarter (29%) related to errors;
- Of these total restatements, 89% related to greenhouse gas metrics;
I quite agree with Deloitte’s conclusion that “with the introduction of new EU reporting rules upcoming, which will also impact a lot of UK corporates, an increasing number of restatements are likely to become more commonplace and cover a broader range of sustainability topics.” Perhaps one important question is whether there will be “little ‘R’ restatements” and “big ‘R’ restatements” that reflect the significance of the change (or misses). The possibility of public restatements also increases pressure on sustainability report assurance providers who will bear at least some responsibility and liability for these restatements.
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