Almost half of FTSE 100 companies restate climate scores

Investors and employees are finding it difficult to work out if their companies are hitting their net-zero targets after almost half of Britain’s biggest publicly quoted companies had to restate their scores for last year.
Forty-six constituents of the FTSE 100, the “premier league” of the London stock market, have had to adjust their previously reported climate and sustainability metrics this year, according to an analysis by Deloitte.
About half of the restatements were made because of changes in how companies collected and recorded their data, although almost a third were made because boards needed to correct errors.
The vast majority of the restatements were related to a company’s greenhouse gas emissions, which are the biggest focus for most businesses. Deloitte found that companies especially struggled with their “scope 3” emissions, indirect emissions that occur in the activities of an organisation such as business travel, commuting and waste disposal.
With environmental, social and governance standards becoming increasingly important for businesses, Steve Farrell, a partner and the head of sustainability assurance at Deloitte, said that more people had “started to look a lot more closely at what is in the front half of the annual report” and not merely at the financials at the back. People might decide which company to work for based on their green credentials, while some shareholders may make investment decisions based on the data.
“UK plcs and a large number of our big unlisted firms, they all have net-zero targets, they all have sustainability targets and goals,” Farrell said. “What’s really important is how they’re monitoring those because there are decisions that will be taken [based on companies’ ESG data]. Consider things like sustainability-linked loans: the interest rate that’s attributable to some of those products actually depends on what [emissions have] been produced and what’s been reported.”
Drax Group, the owner of Britain’s biggest power station in North Yorkshire, was the latest to fall foul of reporting standards. Last week Drax was hit with a £25 million penalty from Ofgem, the energy regulator, after it failed to accurately report the profile of wood pellets burnt to generate electricity in its plant, such as their forestry type.
Financial restatements are rare, in part because companies and auditors have been reporting and checking how they report those numbers for decades. By contrast, ESG reporting is relatively new. Farrell said that in many cases the fact that so many companies had been forced to restate their scores from last year could be viewed as a positive.
“You can read this analysis in a multitude of ways,” he said. “You can take it and say, ‘Oh no, we’ve got a problem with prior-year reported numbers.’ Or you can say, ‘Actually, they demonstrate firms taking an interest in trying to get this right.’ ”
Deloitte expects the restatement of sustainability scores to become “more commonplace” as new reporting rules come in, as recording practices improve and as companies try to keep tabs on even more data points.
“It’s really important that firms focus on the transparency around what they’re able to do and what they’re not able to do,” Farrell said. “This stuff’s hard. It will take time, but through transparency we can get there.”