1. 1 See definition of Paris-alignment used for the purposes of this study in Section 4.3 Overall Approach.
2. 2 See Appendix 3 – List of companies. These companies have been selected by investors for engagement. The majority of the companies that we reviewed form part of the 167 Climate Action (CA)100+ focus companies, which are key to driving the global net-zero emissions transition. In total, CA100+ companies account for “over 80% of corporate industrial greenhouse gas emissions”.
   https://www.climateaction100.org/whos-involved/companies/
3. 3 The Global Public Policy Committee (GPPC) is made up of senior representatives from BDO, Deloitte, EY, Grant Thornton, KPMG, and PwC. Its objectives include participating in global public policy matters and enhancing confidence in the [audit] profession. It is also a forum for communication with regulators and stakeholders. See Global Public Policy Committee | Deloitte | Audit, and full text of letter at gx-audit-climate-related-matters-gppcletter-to-iasb.pdf (deloitte.com).
4. 4 A group of 38 long-term investors and members of the Institutional Investor Group on Climate Change (IIGCC). See full list of these investors here:
   https://www.iigcc.org/download/iigcc-letter-to-european-companies-on-parisaligned-accounts/?wpdmdl=4006&masterkey=5fabc9c5af24f
5. 5 See details in Section 3. Background. There is some overlap between the signatories to these two letters.
6. 6 See Investor groups call on companies to reflect climate-related risks in financial reporting | PRI Web Page | PRI (unpri.org) and IIGCC Letter to European Companies on Paris Aligned Accounts, authored by Sarasin & Partners LLP
   https://www.iigcc.org/download/iigcc-letter-to-european-companies-on-paris-aligned-accounts/
7. 7 See definition used for the purposes of our study in Section 2.2 Scope and Approach.
8. 8 Background and Future Development | Climate Action 100+
9. 9 An informal team of accounting and finance experts drawn from the investor community and commissioned by the PRI.
10. 10 94 of the companies that we reviewed form part of the 167 CA100+ focus companies. See Climate Action 100+.
11. 11 See also Ceres' report:
    https://www.ceres.org/resources/reports/lifting-veil-investor-expectations-paris-alignedfinancial-reporting-oil-and-gas
12. 12 Also referred to as ‘inputs’ in this report.
13. 13 See description of rating system in Appendix 1– Approach to reviews and ratings.
14. 14 Note there may be slight differences due to rounding. See description of ratings in Appendix 1-Approach to reviews and ratings.
15. 15 For example, as part of investors’ own risk management policies, stakeholder expectations (such as demands
16. from pension clients) and their own climate commitments. 16 See also IFAC's 'Corporate Reporting: Climate Change Information and the 2021 Reporting Cycle',
    https://www.ifac.org/knowledge-gateway/contributing-global-economy/discussion/corporate-reporting-climatechange-information-and-2021-reporting-cycle
17. 17 Current standards already set expectations beyond what companies (and auditors) are delivering. However additional steps by the SEC, such as a Staff Accounting Bulletin or the IASB such as in their Agenda Consultation and the PCAOB providing clarifications may help facilitate the requisite increase in transparency and consideration of climate matters in financial statements
18. 18 We use financial reporting, financial statements, financials and accounts interchangeably within this report.
19. 19 We refer to matters and issues interchangeably within this report.
20. 20 See further discussion in Appendix 1– Approach to reviews and ratings.
21. 21 We refer to management and companies interchangeably throughout this report.
22. 22 For example, the 2020 financial statements of Rio Tinto and the report of its auditor illustrated this by disclosing that Rio Tinto was still determining the consequences of its 2050 net zero targets when it prepared its financials.
23. 23 https://www.iea.org/reports/net-zero-by-2050
24. 24 (Real Terms USD 2019) For crude oil: 2020: $37/bbl, 2030: $35/bbl, 2040: $28/bbl and 2050: $24/bbl. For natural gas: United States – 2020: $2.1/MBtu, 2030: $1.9MBtu, European Union – 2020: $2.0/MBtu and 2030: $3.8/MBtu. “Net Zero by 2050: A Roadmap for the Global Energy Sector”, Chapter 2, Table 2.1: “Fossil fuel prices in the NZE” (IEA NZE 2050). p. 51,
    https://www.iea.org/reports/net-zero-by-2050
25. 25 As required by FASB Accounting Standards Codification 932 Extractive Activities – Oil and Gas and the SEC’s reported value requirements or “PV-10”.
26. 26 Including, but not limited to, the inclusion of probable/possible reserves in the calculation of future cash flows for impairment accounting, and the use of a different discount rate for calculating the recoverable amount versus the 10% rate required by the SMOG methodology, which would likely reduce the estimated ‘impairment loss’. Finally, asset retirement costs are not generally included when calculating expected future cash flows in testing for impairment.
27. 27 Used in over 140 countries, with some applying limited modifications. See
    https://www.ifrs.org/use-around-theworld/use-of-ifrs-standards-by-jurisdiction/#use-of-ifrs-standards-by-jurisdiction.
28. 28 Some national auditing standard setters will apply limited modifications to these standards. For more information on adoption status see: Global Impact Map | IFAC
29. 29 The Public Company Accounting Oversight Board (PCAOB), which oversees auditing standards in the United States, has not published additional guidance on climate-related risks. However, the guidance on addressing risks in financial statement audits does not significantly differ between the International Standards on Auditing (ISAs) and the PCAOB Auditing Standards.
30. 30 In-brief-climate-change-nick-anderson.pdf (ifrs.org) (November 2019), effects of climate related matters on financial statements (ifrs.org) (November 2020), FASB Staff Educational Paper—Intersection of Environmental, Social, and Governance Matters with Financial Accounting Standards (March 2021), IAASB-Climate-Audit-PracticeAlert.pdf (ifac.org) (October 2020)
31. 31 Effects of climate related matters on financial statements (ifrs.org) (November 2020), p.1.
32. 32 FASB Staff Educational Paper – Intersection of Environmental, Social, and Governance Matters with Financial Accounting Standards (March 2021), p. 3.
33. 33 IAASB-Climate-Audit-Practice-Alert.pdf (ifac.org) (October 2020), p. 4.
34. 34 Financial Reporting Council, “Climate Thematic”, November 2020, Summary-FINAL.pdf (frc.org.uk), p. 4.
35. 35 For example, Sarasin & Partners started engaging on this topic in 2017 and subsequently published “Are oil and gas companies overstating their position? Underpinning Company Balance Sheets” in which it reviewed eight oil and gas company 2017 financial statements and highlighted the accounting inconsistencies and flaws therein.
36. 36 A group of 38 long-term investors and members of the Institutional Investor Group on Climate Change (IIGCC). See full list of these investors here:
    https://www.iigcc.org/download/iigcc-letter-to-european-companies-on-parisaligned-accounts/?wpdmdl=4006&masterkey=5fabc9c5af24f .
37. Some of these overlap with the signatories of the investor group letter.
38. 37 IIGCC Letter to European Companies on Paris Aligned Accounts, authored by Sarasin & Partners LLP
    https://www.iigcc.org/download/iigcc-letter-to-european-companies-on-paris-aligned-accounts/
39. 38 IIGCC, November 2020, “Investor Expectations for Paris-aligned Accounts”,
    https://www.iigcc.org/download/investor-expectations-for-paris-alignedaccounts/?wpdmdl=4001&masterkey=5fabc4d15595d, p. 4.
    See also Ceres' report on investor expectations for oil and gas companies at:
    https://www.ceres.org/resources/reports/lifting-veil-investor-expectations-paris-aligned-financial-reporting-oil-andgas
40. 39 Background and Future Development | Climate Action 100+
41. 40 As noted, 94 of the 107 companies that we reviewed were part of the Climate Action 100+ focus companies. The remaining 13 companies were companies with obvious energy transition related financial risks.
42. 41 Carbon Tracker also reviewed the 2019 reports for 53 of these companies.
43. 42 The CAP company analyses are publicly available at
    https://www.unpri.org/accounting-for-climatechange/climate-accounting-analyses/7906.article .
44. 43 The Emerging Markets ex-Asia grouping comprises Brazil, Colombia, Mexico, Nigeria, and Saudi Arabia while Asia includes China, Indonesia, South Korea, and Taiwan.
45. 44 Sector classification is based on the Companies | Climate Action 100+Climate Action 100+ sector and sector cluster classification.
46. 45 The individuals that performed these reviews have financial market experience; some previously worked as accountants, auditors, analysts and/or investors.
47. 46 Task Force on Climate-related Financial Disclosures.
48. 47 Also referred to as ‘inputs’ in this report.
49. 48 Reference to IFRS herein includes those companies that have followed local versions of IFRS and IFRS – EU.
50. 49 EOG 10-K 2020, p. 38.
51. 50 BHP Annual Report 2020, p. 182.
52. 51 bp Annual Report and Form 20-F 2020, pp. 178, 184.
53. 52 bp Annual Report and Form 20-F 2020, p. 98.
54. 53 Exxon 10-K 2020, p. 38.
55. 54 TOTAL Universal Registration Document 2020 p. 330.
56. 55 Ibid, p. 331.
57. 56 Airbus Universal Registration Document 2020, p. 70, 71 and Airbus’ Decarbonisation Strategy at
    https://www.airbus.com/company/sustainability/environment/climate-change/decarbonisation.html
58. 57 Continental Resources, Inc., Form 10-K for the year ended December 31, 2020, p. 20.
59. 58 Management Report, Repsol Group Annual Financial Report 2020, p. 15.
60. 59 (Real terms 2020). We noted that these average to $58.2/bbl for that five-year period. Financial Statements 2020, Repsol Group Annual Financial Report 2020, p. 52.
61. 60 See further discussion in Appendix 1 - Approach to reviews and ratings.
62. 61 There were no US company audit reports which referenced climate-related issues.
63. 62 These exclude the US audit reports for Europe/UK SEC registrants. For these companies we only counted the local audit reports, which are included in the percentages for the ISA audits.
64. 63 The auditors of BHP, Eni and Rio Tinto.
65. 64 We noted other differences between PCAOB and ISA audit reports. For example, auditors of two companies included KAMs on control matters that did not appear in the US CAMs, as in the US control matters tend to be addressed in a separate report provided by the auditor. Others had topics such as revenue recognition that were only in the KAMs, but not in the US CAMs
66. 65 These ratings exclude the audit report for NextEra Energy, Inc. which was assessed according to PCAOB Auditing Standards. Nearly all of NextEra’s fossil fuel generation capacity is rate-regulated and NextEra recently wrote down a substantial portion of the book value of a new pipeline. Accordingly, its financial risk is mostly dependent upon whether regulators disallow cost recovery for accelerated retirement. Although the auditors did not reference consideration of climate-related matters in their audit report for NextEra, we rated them with “some concerns” instead of “significant concerns” based on the remaining financial risks.
67. 66 Due to their 30 June and 30 September year-ends, Carbon Tracker did not review the 2019 reports for BHP and Thyssenkrupp, respectively. Accordingly, this comparison omits the audit reports relating to these companies.
68. 67 Shell Annual Report and Accounts 2020, p. 202.
69. 68 References to ISAs include those auditors that followed a local version of ISAs.
70. 69 Chevron Corporation, Form 10-K for the year ended December 31, 2020, p. 57.
71. 70 bp Annual Report and Form 20-F 2020, p. 137.
72. 71 Glencore, Annual Report 2020, p.123.
73. 72 Shell Annual Report and Accounts 2020, p. 203.
74. 73 As under the French audit regime
75. 74 Such as the International Energy Agency’s Stated Policies Scenario (STEPS) or Sustainable Development Scenario (SDS).
76. 75 bp Annual Report and Form 20-F 2020, pp.160, 166.
77. 76 International Energy Agency, “Net Zero by 2050: A Roadmap for the Global Energy Sector” (IEA NZE 2050),
    https://www.iea.org/reports/net-zero-by-2050
78. 77 This forms part of the IIGCC, November 2020, “Investor Expectations for Paris-aligned Accounts”,
    https://www.iigcc.org/download/investor-expectations-for-paris-alignedaccounts/?wpdmdl=4001&masterkey=5fabc4d15595d.
79. 78 bp Annual Report and Form 20-F 2020, pp. 138, 160
80. 79 Glencore Annual Report 2020, p. 122.
81. 80 Shell Annual Report and Accounts 2020, p. 203.
82. 81 As defined for the purposes of our review in Section 4. Scope, coverage and approach
83. 82 Such as the International Energy Agency States Policies Scenario (STEPS) or Sustainable Development Scenario (SDS).
84. 83 See definition that was used for the purposes of our study in Section 4. Scope, coverage and approach.
85. 84 We applied a colour-coded, four-tiered rating system to facilitate comparison of the results of the six assessments across company financial statements (and the audit reports thereon). See description of rating system in Appendix 1 - Approach to reviews and ratings. Note that there may be slight differences in the percentages due to rounding.
86. 85 For example, as part of investors’ own risk management policies, stakeholder expectations (such as demands from pension clients) and their own climate commitments.
87. 86 See also IFAC's 'Corporate Reporting: Climate Change Information and the 2021 Reporting Cycle',
    https://www.ifac.org/knowledge-gateway/contributing-global-economy/discussion/corporate-reporting-climatechange-information-and-2021-reporting-cycle
88. 87 Current standards already set expectations beyond what companies (and auditors) are delivering. However additional steps by the SEC, such as a Staff Accounting Bulletin or the IASB such as in their Agenda Consultation and the PCAOB providing clarifications may help facilitate the requisite increase in transparency and consideration of climate matters in financial statements.
89. 88 Or the local equivalent thereof.
90. 89 Or the local equivalent thereof.
91. 90 See definition for the purposes of our reviews in Section 4. Scope, coverage and approach.
92. 91 IASB guidance: in-brief-climate-change-nick-anderson.pdf (ifrs.org) (November 2019), effects of climate related matters on financial statements (ifrs.org) (November 2020) and FASB guidance: FASB Staff Educational Paper—Intersection of Environmental, Social, and Governance Matters with Financial Accounting Standards (March 2021)
93. 92 For example, see International Accounting Standard (IAS) 36 Impairment of assets, IAS 37 Provisions, Contingent Liabilities and Contingent Assets, SEC Staff Accounting Bulletin (SAB) Topic 5.CC.Impairments and Topic
    *** 5.Y.Accounting and Disclosures Relating to Loss Contingencies (Codification of Staff Accounting Bulletins - Topic 5: Miscellaneous Accounting (sec.gov).
94. 93 The September 2020 Investor group letter and November 2020 IIGCC letters.
95. 94 IAS 1 Presentation of Financial Statements, paragraph 7. See also IFRS Practice Statement 2: Making Materiality Judgements.
96. 95 FASB Statement of Financial Accounting Concepts No. 8, As Amended, August 2018, QC11. Additionally: “…magnitude by itself, without regard to the nature of the item and the circumstances in which the judgment has to be made, generally is not a sufficient basis for a materiality judgment.” QC11A. See also SAB Topic 1. M.
97. 96 IAS 1 Presentation of Financial Statements, paragraph 112 and effects of climate related matters on financial statements (ifrs.org) (November 2020) p.1.
98. 97 SEC SAB Topic 1.M., Codification of Staff Accounting Bulletins - Topic 1: Financial Statements (sec.gov
99. 98 ISA 320: Materiality in Planning and Performing an Audit, ISA 450: Evaluation of Misstatements Identified during the Audit, and “The Consideration of Climate-Related Risks in an Audit of Financial Statement [sic]”, *IAASBClimate-Audit-Practice-Alert.pdf (ifac.org), pp. 6-7.
100. 99 “The Consideration of Climate-Related Risks in an Audit of Financial Statement [sic]”, *IAASB-Climate-AuditPractice-Alert.pdf (ifac.org), p. 4.
101. 100 The most notable difference between international and PCAOB standards is that, under the Sarbanes-Oxley Act of 2002, PCAOB standards provide for an integrated audit over internal control over financial reporting in addition to the financial statement audit. Both sets of standards require the auditor to obtain reasonable assurance that the financial statements are free of material misstatement, whether due to error or fraud, based on the auditor’s judgment in planning and performing the audit to assess and address risks of material misstatement. For example, see AS 1101: Audit Risk. AS 1101: Audit Risk | PCAOB (pcaobus.org).
102. 101 ISA 320: Materiality in Planning and Performing an Audit, and “The Consideration of Climate-Related Risks in an Audit of Financial Statement [sic]”, *IAASB-Climate-Audit-Practice-Alert.pdf (ifac.org), p. 6.
103. 102 AS 2105: Consideration of Materiality in Planning and Performing an Audit | PCAOB (pcaobus.org).
104. 103 ISA 701: Communicating Key Audit Matters in the Independent Auditor’s Report.
105. 104 AS 310: The Auditor's Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion.
106. 105 ISA 620 Using the Work of an Auditor’s Expert.
107. 106 PCAOB Staff Guidance: Supervising or Using the Work of an Auditor’s Specialist.
108. 107 Financial Reporting Council, “Climate Thematic”, November 2020, Summary-FINAL.pdf (frc.org.uk), p. 9.
109. 108 IFRS Practice Statement Exposure Draft ED/2021/6 Management Commentary,
     https://www.ifrs.org/content/dam/ifrs/project/management-commentary/ed-2021-6-managementcommentary.pdf
110. 109 The SEC staff also expect that “forecasts made for [impairment testing] purposes be consistent with other forward-looking information prepared by the company, such as that used for internal budgets, incentive compensation plans, discussions with lenders or third parties, and/or reporting to management or the board of directors.” SAB Topic 5.CC, Codification of Staff Accounting Bulletins - Topic 5: Miscellaneous Accounting (sec.gov)
111. 110 “The Consideration of Climate-Related Risks in an Audit of Financial Statement [sic]”, *IAASB-Climate-AuditPractice-Alert.pdf (ifac.org), p. 13.
112. 111 ISA 720 (Revised): The Auditor’s Responsibilities Relating to Other Information, p.10.
113. 112 AS 2701: Auditing Supplemental Information Accompanying Audited Financial Statements.
114. 113 Carbon Tracker also examined audit committee reports, when available, to ascertain if the audit committees took steps to “ensure material climate risks are properly considered in the accounts and by the external auditor.” See IIGCC, November 2020, “Investor Expectations for Paris-aligned Accounts”,
     https://www.iigcc.org/download/investor-expectations-for-paris-alignedaccounts/?wpdmdl=4001&masterkey=5fabc4d15595d.
115. 114 Defined for the purpose of our reviews in Section 4. Scope, coverage and approach.
116. 115 This forms part of the IIGCC’s “Investor Expectations for Paris-aligned Accounts”,
     https://www.iigcc.org/download/investor-expectations-for-paris-alignedaccounts/?wpdmdl=4001&masterkey=5fabc4d15595d
117. 116 IIGCC, November 2020, “Investor Expectations for Paris-aligned Accounts”,
     https://www.iigcc.org/download/investor-expectations-for-paris-alignedaccounts/?wpdmdl=4001&masterkey=5fabc4d15595d, p. 12.
118. 117 The 25 O&G companies were part of the 55 companies reviewed by Carbon Tracker.
119. 118 Ibid.

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