Investor Expectations: Integrating Climate in Financial Statements

IIGCC’s updated paper builds on our foundational 2020 guidance, reflecting significant developments in standards, regulation, and investor practice over the past five years.

Why This Matters

Financial statements are fundamental to investment decision-making, providing insight into a company’s financial health and outlook. However, climate-related financial impacts, whether from the transition to a low-carbon economy or rising physical climate risks, are often absent or only partially considered in these statements. This gap can lead to mispricing, capital misallocation, and ultimately undermine long-term value creation.

These updated expectations provide companies, auditors and audit committees with clear and practical steps to accelerate credible integration of material climate factors into financial reporting.

Key Developments Since 2020

• Enhanced standard-setter guidance: The International Accounting Standards Board (IASB) has issued illustrative examples applying existing IFRS requirements to climate-related risks.
• Increased regulatory focus: Regulators such as ESMA and the UK Financial Reporting Council (FRC) have identified climate-related financial disclosures as key enforcement priorities.
• Emerging reporting frameworks: The ISSB’s IFRS S1 and S2 standards alongside the EU’s Corporate Sustainability Reporting Directive (CSRD) highlight the need for strong alignment between sustainability disclosures and financial statements.

Updated Investor Expectations

The paper sets clear expectations in relation to three key stakeholder groups:

• Companies to demonstrate consideration of climate impacts in financial statements, ensure connectivity with narrative climate reporting, disclose key climate-related assumptions, provide scenario sensitivity analyses, and consideration of potential dividend impacts.
• Auditors to verify inclusion of climate risks in audits, assess consistency between narrative climate disclosures and the financial assumptions, highlight climate factors in audit matters where material, and critically review sensitivity analyses.
• Audit Committees to oversee climate risk integration in financial reporting, ensure management’s assessments of climate-related materiality, challenge assumptions rigorously, and evaluate implications for dividends and viability.

Progress and Remaining Challenges

Although guidance and regulatory focus have increased, market practice still falls short. A 2024 Carbon Tracker analysis found that over half of 52 Climate Action 100+ focus companies lack meaningful financial disclosure on climate risks, and most audit reports show limited climate considerations.

Nonetheless, sustained investor engagement is producing change, with Shell cited as an example of improved transparency driven by investor engagement.

Supporting Investor Action

This publication also provides investors with practical tools including:

• Detailed engagement questions for discussions with companies, auditors, and audit committees.
• Guidance for effective dialogue with companies and auditors.
• Illustrative examples of emerging practice seen in FY2024 reporting.

This paper is an update of the first Investor Expectations developed with Sarasin & Partners LLP five years ago. It has been prepared by Eda Enginar and Lucia Graham-Wood from IIGCC together with Natasha Landell-Mills from Sarasin & Partners LLP, and with significant contributions from the other accounts working group co-chairs Justin Bazalgette from EOS at Federated Hermes Limited and Claire Berthier from Trusteam Finance as well as Gerrit Dubois from DPAM.