Climate Risk Scorecard
Significant Progress
Some Progress
No Progress
Not Applicable
Public Company Accounting Oversight Board
No Progress
Reasoning
Ceres is not aware of any progress in this category.
Next Steps
Publicly acknowledge the systemic nature of climate risk and the implications of that risk on the auditors it oversees.
*This recommendation, all within the PCAOB’s mandate and authority, are designed to address climate-related financial risks, protect investors, and further the public interest in the preparation of informative, accurate, and independent audit reports.
Methodology
We assessed the extent to which the agency has publicly affirmed the systemic nature of the climate crisis individually in official agency communications (outside of the FSOC report).Â
Some Progress
Reasoning
The PCAOB’s June Spotlight: Staff Overview for Planned 2022 Inspections notes that the agency’s target team focused in 2022 on interim financial information and audits of public companies that include risks related to climate change that would affect a company’s financial statements, initial public offerings, /de-SPACs, and the use of shared service centers. However, it is unclear how the PCAOB is supporting staff training or whether the target team, who are not solely designated to focus on this area, has continued to work on climate risk issues. Â
Next Steps
Establish permanent, internal working groups and/or committees to identify, monitor, and report on climate-related risks to the auditing profession, and made recommendations based on its assessment of those risks.Â
Assign staff and appoint senior staff to the internal working groups and/or committees.Â
Provide training, education, and resources to staff assigned to the internal working groups and/or committees to enable them to better identify, monitor, and report on climate-related risks to the auditing profession.Â
Invest in technological and analytical capabilities and financial resources that support staff on the internal working groups and/or committees.Â
*These recommendations, all within the PCAOB’s mandate and authority, are designed to address climate-related financial risks, protect investors, and further the public interest in the preparation of informative, accurate, and independent audit reports. Â
Methodology
We assessed the extent to which the agency has expanded and established sustainable, well-resourced capacity “to define, identify, measure, monitor, assess, and report on climate-related financial risks and their effects on financial stability.” (FSOC 1.3).Â
This includes investments in staffing, appointing senior staff, forming internal working groups and/or committees, staff training, investments in technological and analytical capabilities, and financial resources provided to staff working on these issues.Â
No Progress
Reasoning
Ceres is not aware of any progress in this category.
Next Steps
Establish a designated page on its website to provide updates on completed and ongoing climate risk-related activities, announce other staff assigned to work on these issues, disclose budgets and resources, and other recommendations in this section.Â
*These recommendations, all within the PCAOB’s mandate and authority, are designed to address climate-related financial risks, protect investors, and further the public interest in the preparation of informative, accurate, and independent audit reports.Â
Methodology
We assessed the extent to which the agencies have made information and data available to the public.Â
“[I]nclude descriptions of their activities related to climate-related financial risks in their annual reports and consider incorporating climate-related financial risks in relevant risk reports that they publish, as appropriate ... [and] within the context of each member’s mandate and authority.” (FSOC 1.4).Â
“[M]ake climate-related data for which they are the custodians freely available to the public, as appropriate and subject to any applicable data confidentiality requirements.” (FSOC 1.5).Â
Not Applicable
Reasoning
This assessment category is not within the PCAOB’s mandate or authority.Â
Methodology
We assessed the extent to which the agency - consistent with its mandate and authorities and its membership in the Financial Literacy and Education Commission (FLEC) - has assessed and made progress on addressing climate risks to financially vulnerable communities. Â
“[C]oordinate the analyses of climate-related financial risks ... with their efforts to understand impacts on communities and households. FSOC members should, as applicable, integrate these analyses into the[ir annual] public reports.” (FSOC 1.6).Â
“[E]valuate climate-related impacts and the impacts of proposed policy solutions on financially vulnerable populations when assessing the impact of climate change on the economy and the financial system.” (FSOC 1.8). Â
“[FLEC members should] analyze and understand the impact of climate change on the financial well-being of financially vulnerable populations. FSOC members that are also FLEC members should actively participate in this analysis.” FLEC members include the Fed, OCC, FDIC, NCUA, SEC, CFTC, and FHFA. (FSOC 1.9). Â
Some Progress
Reasoning
The PCAOB’s June Spotlight: Staff Overview for Planned 2022 Inspections notes that the agency’s target team focused in 2022 on interim financial information and audits of public companies that include risks related to climate change that would affect a company’s financial statements, IPOs/de-SPACs, and the use of shared service centers. It is unclear what information and data the PCAOB obtained from this review, or whether the review is ongoing.
Next Steps
Publish findings from the PCAOB’s 2022 target team, which focused on interim financial information and audits of public companies that include risks related to climate change that would affect a company’s financial statements. Â
Conduct research to identify how ESG and climate risk impacts financial statements, how ESG and climate risk is currently disclosed, how auditors currently respond to ESG and climate disclosures, how auditors respond to ESG CAMs, the application of existing auditing standards to ESG and climate disclosures, and current assurance and attestation standards and practices in the auditing profession, including standards set by international bodies. Â
*These recommendations, all within the PCAOB’s mandate and authority, are designed to address climate-related financial risks, protect investors, and further the public interest in the preparation of informative, accurate, and independent audit reports.Â
Methodology
We assessed the extent to which the agencies have advanced research and data collection on climate risk. Â
“Identify[] the data needed to evaluate the climate-related financial risk exposures of regulated entities and financial markets.” (FSOC 2.1).  Â
“Perform[] an internal inventory of currently collected and procured data and its relevance for climate risk assessments." (FSOC 2.1).  Â
“Develop[] a plan for procuring necessary data through data collection, data sharing arrangements and information purchased from data providers or other sources.” (FSOC 2.1).  Â
“[F]acilitate the sharing of climate-related data across FSOC members and non-FSOC member agencies to assess climate-related financial risk, consistent with data confidentiality requirements.” (FSOC 2.2)   Â
“[D]evelop consistent data standards, definitions, and relevant metrics ... to facilitate common definitions of climate-related data terms, sharing of data, and analysis and aggregation of data.” (FSOC 2.5)Â
Not Applicable
Reasoning
This assessment category is not within the PCAOB’s mandate or authority.Â
Methodology
We assessed the extent to which the agencies have begun to assess, develop, and conduct climate scenario analyses at their supervised entities. Â
“[C]ollaborate with external experts to identify climate forecasts, scenarios, and other tools necessary to better understand the exposure of regulated entities to climate-related risks and how those risks translate into economic and financial impacts.” (FSOC 4.1).Â
“[U]se scenario analysis, where appropriate, as a tool for assessing climate-related financial risks, taking into account their supervisory and regulatory mandates and the size, complexity, and activities of regulated entities.” (FSOC 4.3).Â
“[C]onsider using common scenarios that build on existing work, including scenarios developed by NGFS and work at the FSB, as appropriate for the institutions and markets under consideration.” (FSOC 4.4).Â
No Progress
Reasoning
Ceres is not aware of any progress in this category.
Next Steps
Work with the SEC to ensure consistent assurance and attestation standards and expand auditing standards to bridge the gap between material climate disclosures and the financial statements.Â
Issue a request for information to identify how ESG and climate risk is currently disclosed, how auditors currently respond to ESG and climate disclosures, how auditors respond to ESG CAMs, and current assurance and attestation standards and practices in the auditing profession, including implementation by international standard-setters.Â
*These recommendations, all within the PCAOB’s mandate and authority, are designed to address climate-related financial risks, protect investors, and further the public interest in the preparation of informative, accurate, and independent audit reports.
Methodology
We assessed the extent to which the agency has enhanced public reporting requirements for their regulated entities. The market is currently mispricing climate risk. The lack of consistent disclosure by entities supervised by U.S. financial regulators is an obstacle to market efficiency and to the accurate pricing of climate risk. Â
“[R]eview their existing public disclosure requirements and consider, as appropriate, updating them to promote the consistency, comparability, and decision-usefulness of information on climate-related risks and opportunities.” (FSOC 3.1).Â
“[C]onsider enhancing public reporting requirements for climate related risks in a manner that builds on the four core elements of the TCFD.” (FSOC 3.2).Â
“[C]onsider whether such disclosures should include disclosure of GHG emissions.” (FSOC 3.4).Â
“[R]eview banks’ public regulatory reporting requirements to assess whether enhancements are needed to provide market participants with information on institutions’ climate-related financial risks, taking into account a bank’s size, complexity, and activities.” (FSOC 3.7).Â
No Progress
Reasoning
Ceres is not aware of any progress in this category.
Next Steps
Provide training and education for auditors on the impacts of climate-related financial risks on public companies, the implications of climate disclosure on auditing standards, and how auditors should assess the adequacy of climate disclosures. Â
Issue guidance on the application of the existing auditing standards (including CAMs), climate risk impacts on financial statements, how auditors should assess the adequacy of climate disclosures, what should be disclosed in a report, and appropriate procedures for relying on reports and confirmations from carbon offset programs. Â
Issue inspection findings on audit deficiencies and other trends relating to ESG and climate disclosure. Â
Issue bulletins and FAQs with detailed examples of best practices and enforcement matters to improve understanding of ESG and climate disclosure, and improve compliance.Â
*These recommendations, all within the PCAOB’s mandate and authority, are designed to address climate-related financial risks, protect investors, and further the public interest in the preparation of informative, accurate, and independent audit reports.
Methodology
We assessed the extent to which the agencies have enhanced supervisory scrutiny of climate risk management at their supervised entities to ensure their resilience and the resilience of our financial system.                Â
“[C]larif[y] or enhanced risk management expectations ... [and] guidance.” (FSOC 4.8).Â
“[R]eview[] regulated entities’ efforts to address climate-related risks." (FSOC 4.6).
“[R]eview[] existing ... guidance ... to identify where clarifications and enhancements are needed.” (FSOC 4.7).Â
No Progress
Reasoning
Ceres is not aware of any progress in this category.
Next Steps
Amend Auditing Standard No. 2710 to require auditors read and consider climate disclosures outside the 10-K for consistency with financial statements.Â
Amend Auditing Standard No. 2601 to provide for service auditor reporting on the validity of carbon offset programs. Â
Develop auditing standards for GHG emissions disclosures, climate-related scenario analysis, and company climate commitments.Â
*These recommendations, all within the PCAOB’s mandate and authority, are designed to address climate-related financial risks, protect investors, and further the public interest in the preparation of informative, accurate, and independent audit reports.
Methodology
We assessed the extent to which the agencies have incorporated climate risk management expectations into their regulatory requirements for supervised entities to ensure their resilience and the resilience of our financial system.
“[C]larif[y] or enhanced risk management ... requirements.” (FSOC 4.8).Â
“[R]eview[] existing regulations ... and regulatory reporting to identify where clarifications and enhancements are needed.” (FSOC 4.7).Â
Not Applicable
Reasoning
Ceres did not assess the PCAOB in 2022.
Methodology
Recognizing that climate change poses a financial stability risk is a critical first step for all financial regulators and will send an important message to all financial market stakeholders. Such statements are particularly important, given the complex nature of climate risks and continuing ambiguities about the extent to which the issue falls under specific agency mandates.Â
We assessed the extent to which the agency has publicly affirmed the systemic nature of the climate crisis individually in official agency communications outside of the FSOC report.Â
Not Applicable
Reasoning
Ceres did not assess the PCAOB in 2022.
Methodology
Producing quality research and data is critical to assessing and addressing climate-related financial risks. As stated in the FSOC report, “Analyzing climate-related financial risks begins with measuring and assessing risks from climate impacts. To do this, data is needed that captures the drivers of physical and transition risks that could impact households, businesses, the economy, and the financial sector (page 48).” We incorporated this new category in the 2022 Scorecard to respond to these critical data gaps.Â
We assessed the extent to which the agency has advanced work to make progress on FSOC Recommendation 2.1:Â Â
“Identif[y] the data needed to evaluate the climate-related financial risk exposures of regulated entities and financial markets within the context of each FSOC member’s mandate and authorities; Â
Perfor[m] an internal inventory of currently collected and procured data and its relevance for climate risk assessments; and Â
Develo[p] a plan for procuring necessary data through data collection, data sharing arrangements and information purchased from data providers or other sources.”Â
Not Applicable
Reasoning
Ceres did not assess the PCAOB in 2022.
Methodology
The FSOC report highlights the imperative to assess climate risks on “financially vulnerable communities,” given that “climate change disproportionately affects financially vulnerable populations potentially including lower-income communities, communities of color, Native American communities, and other disadvantaged or underserved communities.” This troubling reality is further compounded by the fact that vulnerable communities are “less likely to have the resources to protect and guard against damage to their properties or adequately deal with loss of income from an adverse climate or weather event (page 22).” While the significance of this issue is emphasized, it is qualified by an important warning against measures or actions that may unintentionally worsen existing inequalities.Â
We assessed the extent to which each agency, consistent with its mandate, authorities, and its membership in the Financial Literacy and Education Commission (FLEC), has advanced work to make progress on FSOC Recommendations 1.8 and 1.9: Â
“members, consistent with their mandates and authorities, evaluate climate-related impacts and the impacts of proposed policy solutions on financially vulnerable populations when assessing the impact of climate change on the economy and the financial system.” (FSOC 1.8)Â
“Treasury Department engage other members of the Financial Literacy and Education Commission (FLEC) to analyze and understand the impact of climate change on the financial well-being of financially vulnerable populations. FSOC members that are also FLEC members should actively participate in this analysis.” (FSOC 1.9). Â
FLEC members include the Office of the Comptroller of the Currency, Federal Reserve, the Federal Deposit Insurance Corporation, National Credit Union Administration, Securities and Exchange Commission, Commodity Futures Trading Commission. Â
Not Applicable
Reasoning
Ceres did not assess the PCAOB in 2022.
Methodology
It is urgent that agencies establish sustainable, well-resourced capacity at the political and technical levels to address climate risk to meet the scale of the challenge and deliver on the administration and FSOC commitments.
We assessed the extent to which the agency has appointed dedicated staff to address climate risk to execute the agency’s climate commitments and FSOC recommendations. We assess, for example, the role, authority, and human and financial resources provided to staff dedicated to work on climate risk.Â
Not Applicable
Reasoning
Ceres did not assess the PCAOB in 2022.
Methodology
The market is currently mispricing climate risk. The lack of consistent disclosure by entities supervised by U.S. financial regulators is an obstacle to market efficiency and to the accurate pricing of climate risk. In response, the FSOC recommended that members:Â
“review their existing public disclosure requirements and consider, as appropriate, updating them to promote the consistency, comparability, and decision-usefulness of information on climate-related risks and opportunities, consistent with their mandates and authorities.” (FSOC 3.1) Â
“consider enhancing public reporting requirements for climate related risks in a manner that builds on the four core elements of the Task Force on Climate-Related Financial Disclosure (TCFD)” (FSOC 3.2)Â
“consider whether such disclosures should include disclosure of GHG emissions” (FSOC 3.4)Â
Following on FSOC Recommendations 3.1, 3.2, 3.3, and 3.4, we assessed the extent to which the agency has enhanced public reporting requirements, consistent with its statutory mandates.Â
Not Applicable
Reasoning
Ceres did not assess the PCAOB in 2022.
Methodology
Supervision and regulation of climate risk is urgently needed to ensure the resilience of supervised entities and our financial system. Â
Following FSOC Recommendations, we assessed the extent to which the agency has “clarified or enhanced risk management expectations, guidance and requirements (FSOC 4.8).” We will also consider if agencies have:Â
“reviewed regulated entities’ efforts to address climate-related risks (FSOC 4.6)Â
“reviewed existing regulations, guidance and regulatory reporting to identify where clarifications and enhancements are needed” (FSOC 4.7)Â
The Public Company Accounting Oversight Board (PCAOB) is a nonprofit corporation established by Congress in 2002 to oversee the then-self-regulated audit profession following the financial crisis and numerous accounting frauds at large public companies and audit firms. The PCAOB oversees accounting professionals who audit publicly traded companies, as well as brokers and dealers registered with the Securities and Exchange Commission (SEC), in order to protect investors and further the public interest by providing accurate and independent audit reports. To this same end, the PCAOB establishes auditing and related attestation, quality control, ethics, and independence standards for these auditors. Â
The PCAOB registers public accounting firms and inspects those registrants’ audits and quality control systems. It also has the power to investigate and discipline registered accounting firms and their auditors for violations of PCAOB rules and standards. In support of its mission, it conducts economic research and risk analysis, and engages with stakeholders and other domestic and international regulators.Â
Each of these authorities is subject to oversight and approval by the SEC, including the Board's rules, standards, and budget. PCAOB-regulated entities and individuals may appeal Board decisions to the SEC, which has the power to modify and overturn those rules and decisions. Â
The PCAOB’s stated goal of protecting investors’ interest in high quality audits warrants auditors’ review of climate-related financial risk. Investors are increasingly looking for climate-related disclosures, and it is widely understood that firms are at increasing climate-related physical and transition risk. Auditors must be aware of, understand, and review climate-related disclosures to ensure data provided by companies they audit is accurate and appropriately reflects the company’s risk. Global counterparts including the Financial Accounting Standards Board and International Auditing and Assurance Standards Board have already issued educational papers and guidance. As the standard-setter for U.S. auditors, the PCAOB must develop auditor guidance for assurance on sustainability and climate risk reporting, equipping investors with information about uncertainties and judgements on the impact of climate risk on a company’s financial statements and business strategy. Â
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