New Deloitte Global report shows audit committees unprepared for climate change

SINGAPORE, 5 November 2021 – Deloitte Global has launched the first issue of its Frontier Topics for the Audit Committee series, which focuses on climate change and the role of the audit committee. Surveying audit committees globally, Deloitte found that nearly 60% vs 69% in APAC do not discuss climate on a regular basis and 47% vs 59% in APAC do not consider themselves “climate literate.” As a result, half of audit committees surveyed worldwide do not believe they are well-equipped to fulfill their climate regulatory responsibilities.

The survey of audit committee members spanning 40 countries revealed several obstacles standing in the way, each of which point to a broader sense of uncertainty surrounding climate and sustainability in the boardroom and companies at large. The report also details potential solutions for audit committees struggling to help their organisations address climate change.

“The business community must address the urgent challenge of climate change. Through greater education and engagement, audit committees can help their organisations take more decisive climate action,” says Sharon Thorne, Deloitte Global Board Chair. “This means ensuring their organisations are assessing their own environmental risk profiles, establishing mitigation plans to reduce their carbon footprints, ushering in global environmental, social and governance (ESG) standards, and accurately reporting on their progress.”

Key obstacles to prioritising climate

Deloitte Global’s survey tracked both internal and external challenges audit committees are facing when it comes to addressing climate change. The top internal obstacle cited by surveyed audit committee members was a lack of clear strategy (Global: 65%; APAC: 66%), followed by poor data quality, which can lead to a shortage of actionable insights for climate decision-making. Regarding external issues, 60% of respondents called out the lack of global reporting standards.

Deloitte Global’s research reveals that there is work to be done internally for organisations to prepare for the regulatory outcomes that could come to fruition as 42% of respondents say they are currently disappointed in the strength and speed of their organisation’s climate response. The vast majority of respondents (70%) said that they have not completed a comprehensive climate change assessment, and as a result, financial statements in many cases do not reflect the consequences of this impact assessment. This indicates a clear need to accelerate corporate activity and prioritise climate challenges.

Recommendations moving forward

In the survey, respondents recommend the following top three needs for climate progress: improving climate education for audit committees (Global: 87%; APAC: 81%); ensuring good management information as part of regular reporting to the board (Global: 79%; APAC: 79%); and having internal alignment between the corporate strategy and the climate strategy (Global: 78%; APAC: 77%).

“While audit committees are beginning to address how assumptions about the future should be reflected in financial statements and risk assessments, there are steps that can be taken now to improve the decision-making process and put boards and their organisations on a successful track to respond to the climate crisis,” says Jean-Marc Mickeler, Deloitte Global Audit & Assurance Business Leader. “Deloitte recognises the urgency around climate change and continues to invest in its capabilities to assist clients globally with the knowledge and resources to make effective climate-informed business decisions and disclosures.”

“By equipping board of directors and executives with the right set of knowledge and tools, they can put climate risks and opportunities as a priority agenda item in all boardrooms, and to be able to embed a rapid yet viable transition strategy into their business models,” shares Seah Gek Choo, Deloitte Southeast Asia's Centre for Corporate Governance Leader. “In its review of its own effectiveness, the audit committee will want to include assessment of its own climate competence as part of its regular review of skills and knowledge requirements,” adds Ms Seah.

To learn more about Deloitte Global’s Frontier Topics for the Audit Committee series, please visit: global.corpgov.deloitte.com.

Methodology

The first in Deloitte Global’s Frontier Topics for the Audit Committee series is based on a global survey of over 350 audit committee members, across several countries, conducted in September 2021. The majority of respondents (56%) serve as audit committee chairs. Responses are distributed across the Americas, Asia-Pacific (APAC), and Europe, Middle East, and Africa (EMEA).

With respect to company type, 67% of respondents serve on audit committees at publicly listed companies, and 17% serve at privately owned companies, including family businesses.

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