Are Auditors Flying Blind on Climate Risk?

Are audit reports showing how auditors consider climate risks in financial statements? 

Carbon Tracker’s new report, Flying Blind: Disabling Autopilot for Audit Reports, finds that most audit reports still fail to show how auditors account for climate and energy transition risks. Despite growing investor demands and clear regulatory guidance, 80% of audit reports reviewed offered little to no evidence of considering climate impacts, and only 4% showed strong disclosure. This lack of transparency leaves investors unsure if company financials fully reflect climate-related risks.

Why This Matters 

• If investors can’t see how climate risks are addressed, they can’t trust reported numbers 

• If audit forms are inconsistent across regions, it creates uneven standards for global investors. 

• If companies face climate risks, but audits don’t reflect them, financial statements may overstate value. 

• If transparency improves, investors can make smarter capital allocation decisions.  

• Scenario: A utility company’s assets may face early retirement due to transition policies. Without clear audit notes, investors could underestimate financial risk. 

Key Findings from the Report 

• Minimal climate references: 80% of audit reports reviewed lacked any meaningful explanation of how climate was considered. 

• Pockets of best practice: A few audits—such as BP’s by Deloitte and Shell’s by EY—offered clear detail on assumptions like future carbon prices or asset lives. 

• Inconsistent within the same firm: Some audit offices produced strong disclosures, while others, under the same global firm, provided almost none. 

• Unmet investor needs: Despite engagement by institutional investors and clearer accounting guidance, transparency remains stagnant. 

• Long tenure concerns: Many companies have retained the same audit firms for decades, raising questions about independence and fresh scrutiny. 

What this Means for ESG and Financial Markets 

This lack of climate disclosure in audits undermines confidence in the data investors use to make decisions. As regulators like the ISSB and CSRD push for climate-related financial reporting, investors expect auditors to keep pace. If audit opinions fail to show how climate risks are evaluated, it creates a disconnect between sustainability disclosures and financial statements. 

Auditors play a critical role in validating whether company assumptions (like future demand for oil, gas, or coal) are reasonable. If these assumptions ignore transition risk, reported profits may not be sustainable. Strong audit disclosures could help bridge that gap and signal to markets which companies are preparing for a low-carbon economy. 

Challenges and Consideration 

Despite rising investor pressure and improved accounting guidance, climate transparency in audit reports still faces major hurdles. Many audit frameworks don’t clearly require detailed climate disclosures, leaving auditors to interpret requirements differently across regions and firms. This inconsistency makes it hard for investors to compare companies and assess real risk. Long auditor tenures can also reduce fresh scrutiny of critical assumptions, and regulators are only beginning to consider mandatory climate commentary. 

Key challenges include: 

• Wide variation in disclosure practices between countries and even within the same audit firms. 

• Limited visibility into how climate risks affect asset values and assumptions. 

• Ongoing uncertainty about when or if regulators will enforce clearer standards. 

Without stronger, consistent disclosures, markets remain vulnerable to hidden transition and physical risks. 

Strengthen Your Audit Transparency: Action Items  

Clearer audit disclosures on climate risks are essential for building investor confidence and ensuring that financial statements reflect real‑world challenges. Audit firms should explain how climate risks influence key assumptions and apply consistent practices across all regions. Companies can play their part by requesting explicit climate commentary in audit reports and aligning internal processes with frameworks like ISSB and CSRD. Investors, meanwhile, should actively question boards and audit committees about how climate risks are being reviewed and consider audit transparency when making investment decisions. Taking these steps now helps reduce hidden risks and positions organizations as leaders in credible, climate‑aware reporting. 

Bottom Line  

Audit reports are a cornerstone of market trust. But when they fail to show how climate risks are considered, investors are left in the dark. Flying Blind calls for auditors, companies, and regulators to take action: turn on transparency, strengthen climate disclosures, and make audit reports a reliable guide—not a guessing game—in the transition to a low-carbon economy.