The Evolving Role of the Auditor in Climate-Related Disclosures

As the urgency to address climate change escalates, the financial landscape is undergoing a significant transformation. Climate-related risks are no longer peripheral concerns; they have become central to business strategy, operational continuity, and investor decision-making. In response to this shift, auditors are emerging as key players in ensuring that climate-related disclosures are not only accurate and reliable but also capable of supporting informed decision-making.

A recent publication by the Center for Audit Quality (CAQ), The Role of the Auditor in Climate-Related Information (April 2025), offers timely insights into how public company auditors can contribute to transparent, trustworthy climate reporting. For professionals working in finance, auditing, and ESG, this evolution marks a critical juncture.

Climate disclosures are now integral to understanding a company’s long-term value. Investors, regulators, customers, employees, and lenders are increasingly relying on this information to assess business resilience and sustainability efforts. CAQ’s 2024 Institutional Investor Survey reveals that a large majority of institutional investors view climate disclosures as vital to their investment decisions and believe these disclosures should be independently assured.

The regulatory landscape is also evolving rapidly. The European Union’s Corporate Sustainability Reporting Directive (CSRD) and new climate laws in California are requiring more robust and credible climate disclosures. These developments are placing additional pressure on companies—not just within the U.S. but globally—to improve the quality and reliability of their climate-related reporting.

Most large U.S. companies already publish climate-related data. Over 90 percent of S&P 500 companies issue standalone sustainability reports, and approximately 70 percent obtain assurance on certain aspects of these disclosures. Climate-related information is increasingly appearing in SEC filings such as the Form 10-K, where companies disclose relevant details under Risk Factors, Business Descriptions, Management’s Discussion and Analysis (MD&A), and Financial Statements.

These disclosures often include greenhouse gas emissions data, climate-related targets and commitments, financial impacts of climate risks, and scenario analysis aligned with frameworks like the Task Force on Climate-related Financial Disclosures (TCFD) and the IFRS Sustainability Disclosure Standards.

The role of the auditor is evolving in tandem. Traditionally, auditors have focused on financial statements and internal control over financial reporting. However, the growing integration of sustainability into corporate reporting means auditors must also engage with climate-related risks in two meaningful ways.

First, within the financial statement audit itself, auditors are responsible for assessing whether management has adequately considered the financial implications of climate-related risks. This might include evaluating assumptions used in asset impairment analyses, reviewing provisions related to environmental liabilities, or assessing how climate risk could influence revenue and expense recognition. Auditors also examine climate-related narratives in SEC filings to determine whether they are consistent with the audited financial statements.

Second, companies are engaging auditors for separate assurance over climate-related information that appears in sustainability reports or regulatory filings. These assurance engagements can provide either limited or reasonable assurance under AICPA attestation standards. While limited assurance typically involves review-level procedures, reasonable assurance engagements are more in-depth and closely resemble the rigor of a financial statement audit.

Engaging the same independent audit firm to provide both financial and climate-related assurance can lead to increased efficiency, deeper insights, and stronger alignment across reporting processes. With familiarity of the business and its systems, auditors can more effectively identify risks and deliver a cohesive assurance experience. In fact, most companies that obtain climate-related assurance from a public company auditor use the same firm that audits their financial statements.

What sets public company auditors apart is their commitment to independence, objectivity, and professional skepticism. They bring a long-standing expertise in evaluating financial information and systems of internal control, which now extends to sustainability-related data. Many audit firms have also built strong capabilities in climate science and environmental data, leveraging specialized teams to support their assurance work.

As climate-related reporting continues to expand, auditors will play an increasingly vital role in ensuring that this information meets the expectations of investors, regulators, and the broader public. Their work supports not just compliance, but also the credibility and reliability of the information companies present to the world.

In an era where environmental accountability is inseparable from financial performance, the credibility of climate disclosures is paramount—and auditors are rising to meet the moment.

To learn more, visit www.thecaq.org.

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