FTSE 100 corporates are having to rectify errors in their climate reporting disclosures. And observers warn errors are likely to increase as EU rules begin to affect UK companies.

Research from professional services firm Deloitte shows that nearly half of FTSE 100 members (46) have made restatements in their sustainability metrics in the current year: most of these (44%) related to methodology but a significant proportion (29%) related to errors.

But with EU corporate reporting rules (the Corporate Sustainability Reporting Directive, or CSRD) about take effect, Deloitte expects errors to climb in number.

Most (85%) of the restatements related to greenhouse gas emissions, with a host of other sustainability topics—waste, water, diversity and inclusion, health and safety—accounting for the rest.

A matter of confidence

Steve Farrell, partner and head of sustainability assurance at Deloitte, says sustainability reporting is important for investor confidence, while changes should be considered important because restatements in financial reporting are usually prompted by “material changes”.

While corrections might mean sustainability reporting is improving, Farrell says “it equally demonstrates the volatility of ESG reporting in the market today”.

He adds: “With the introduction of a new regulatory framework for sustainability reporting—which some firms will report against in December 2024—the market should expect to see even more adjustments, across an even broader range of metrics, appearing in UK plc reports.”

Large companies have had to adjust to the demands of reporting under guidelines drafted by the Taskforce for Climate-related Financial Disclosures (TCFD).

Brussels rigour

However, Brussels recently passed into law the CSRD, which demands sustainability reporting across a diverse range of issues. It affects large companies with operations in the EU.

CSRD asks companies to make disclosures on environmental, social and governance issues, as well as how sustainability issues affect business strategy.

CSRD is a double materiality rule, unlike many other sustainability standards: companies must report on how sustainability affects their business prospects but also on how a business impacts the environment and society.

While companies are braced for that change, sustainability reporting in the US remains highly controversial.

Earlier this year, watchdogs at the Securities and Exchange Commission postponed the introduction of new climate risk disclosure rules after they were challenged in court.

The challenge questions whether regulators have the “statutory authority” to introduce the new rules; whether they “acted reasonably” when they adopted the rules and “reasonably assessed” their impact; and whether the climate rules breach the First Amendment.

In August, the SEC lodged its response with the court, rebutting all the claims. Lawyers anticipate the case will eventually end up in the Supreme Court.

Law firm Fenwick & West this week warned US companies that, regardless of what happens with the SEC’s new rules, many big companies are likely to still face climate reporting demands from elsewhere. Companies, Fenwick & West says, “should prepare themselves”.