IIGCC Updates Investor Expectations on Climate-related Risks in Financial Statements

London, Wednesday 10 December 2025 – The Institutional Investors Group on Climate Change (IIGCC) has published an updated paper, Investor Expectations: Integrating Climate-related Risks and Uncertainties in Financial Statements, building on its 2020 guidance. The paper responds to significant developments in accounting standards, regulatory oversight, and investor practice aimed at improving how climate-related risks and opportunities are reflected in financial reporting.

Addressing Critical Gaps in Financial Reporting

Financial statements remain a key basis for investment decisions, yet many companies fail to adequately incorporate the financial impacts of climate change, including those arising from the transition to a low-carbon economy and from physical impacts of climate change. This gap can undermine investors’ ability to assess value and allocate capital effectively. Despite progress among some sectors, notably European oil and gas, the pace of change is insufficient.

Evidence of Progress and Areas for Continued Engagement

Recent Carbon Tracker analysis shows that most companies and auditors still lack meaningful disclosure of climate considerations in financial statements and audits, underscoring the need for sustained investor engagement. The Investor Expectations paper highlights Shell as an example of successful engagement leading to improved transparency.

Advancing Standards and Regulatory Expectations

The update reflects pivotal changes including:

• The IASB’s new illustrative examples clarifying IFRS requirements for reporting uncertainties in financial statements including those created by climate-related matters.
• Increased regulatory focus by ESMA and the UK FRC on climate-related financial disclosures.
• The introduction of new frameworks such as the ISSB’s IFRS S1 and S2 and the EU Corporate Sustainability Reporting Directive (CSRD), emphasising the need for consistency between sustainability disclosures and financial statements.

Clear Expectations for Market Participants

The paper set out investor expectations in relation to three key stakeholder groups:

• Companies are expected to confirm climate considerations in financial statements, ensure consistency with narrative reporting, disclose critical assumptions quantitatively, and provide sensitivity analyses.
• Auditors are expected to verify the inclusion of material climate risks, confirm alignment between commitments and reported figures, and scrutinise sensitivity disclosures.
• Audit Committees are expected to oversee the integration of climate factors, challenge assumptions, and evaluate climate impacts on dividends and viability.

Supporting Investor Action

Developed with IIGCC’s Accounting and Audit thematic working group, the paper offers investors:

• Practical guidance on engagement questions for companies, auditors, and audit committees.
• Examples of emerging practices from FY2024 reporting.
• Guidance to support constructive dialogue with companies and regulators.

The paper is available here.

Peter Taylor, Corporate Programme Director at IIGCC: “Climate change is already shaping cash flows, asset values and business models. Integrating climate-related risks into financial statements is therefore essential for enabling investors to make informed decisions that drive efficient capital allocation and sustainable economic growth. This updated Investor Expectations paper equips investors with clear, practical ways to set expectations with companies, auditors and audit committees so that financial statements better capture the economic realities of climate risk. By bridging the gap between narrative disclosures and financial figures, we can help ensure capital is allocated in a manner that supports more resilient markets and long-term value creation.”

Natasha Landell-Mills, Partner and Head of Stewardship at Sarasin & Partners LLP: “Investors depend implicitly on the accuracy of company financial statements. Because these embed key forward-looking assumptions, it is vital that companies integrate emerging structural changes that will shape the markets they operate in. Climate change and decarbonisation are two such structural changes that must not be ignored. Whether it’s an auto manufacturer faced with the electrification of transport; an oil and gas company forecasting future demand for gas to power grids; or a bank considering whether to offer long-lived mortgages in flood prone regions, a failure to consider Global Warming and accelerating electrification will result in hidden risks building in company balance sheets. As long-term investors we want to send a clear message to finance directors, audit committees and auditors – we expect you to embed material climate-related consequences into your financial reporting to ensure investor capital is properly protected.”

Justin Bazalgette, Senior Engager – Europe at EOS at Federated Hermes Limited: “We continue to emphasize to companies and auditors the critical importance of transparent treatment of climate-related commitments in financial statements. The recent IASB guidance, illustrating how uncertainties such as climate should be treated, represents a significant step toward the clarity investors need. However, it is equally vital that regulators set clear expectations that companies should enhance their disclosures in line with this IASB clarification in their upcoming annual reports.”

Claire Berthier, CEO at Trusteam Finance: “For the past five years, the previous Investor Expectations have provided a practical basis for engagement with companies, auditors and regulators. Yet climate impacts remain insufficiently embedded in the accounts, while physical risks in particular are becoming increasingly material for investors. The updated Investor Expectations reinforce the need for audited financial statements to align with sustainability disclosures, and for visibility into the assumptions that shape cash flows and business model resilience - with auditors playing their gatekeeper role in testing those assumptions. Clear expectations are the foundation of meaningful long-term dialogue.”

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For further information, please contact IIGCC Media Relations Senior Manager: Tommaso Mazzanti tmazzanti@iigcc.org