Transition Plans: Implications for Auditors Paul Klumpes, AAUBS Overview of presentation Introduction and background Prior literature review Theoretical antecedents Development of hypotheses Research approach Empirical results (pre!)
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Presentation Transcript
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Transition Plans: Implications for Auditors Paul Klumpes, AAUBS<br>
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Overview of presentation Introduction and background
Prior literature review
Theoretical antecedents
Development of hypotheses
Research approach
Empirical results (pre!)
Conclusion and further research<br>
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1. Introduction and background Transition plans are “an aspect of the undertaking’s overall strategy that lays out the entity’s targets and actions for its transition towards a lower-carbon economy, including actions such as reducing its GHG emissions and with the objective of limiting climate change to 1.5°C and climate neutrality” (ESRS E1, p. 20) Mandatory under ESRS 1, optional IFRS S2
Initially proposed by GFANZ, subsequently detailed guidance provided by Transition Planning Taskforce UK
Climate change litigation NL
Climate-related commitments and constructive obligations IAS 37 IFRIC?
Implications for auditors and attestation service providers?<br>
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2. Prior Research TCFD climate related reporting practices
TCFD’s own analysis
GFANZ studies
Empirical evidence:
Asset owners and asset managers
Pension funds<br>
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3. THEORETICAL ANTECEDENTS Supply of, and demand for auditor quality reputation (Copley et al. 1995)
Assume that audit-attestation of climate transition plans is a differentiated product sold in a non-arbitrageable market.
Unlike homogenous product situations, differentiation requires the simultaneous estimation of both supply and demand-related determinants.<br>
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4. Development of hypotheses H1: firms have exogenous characteristics that create variations in the demand for transition plan attestation services. These characteristics, or demand shifters, measure the level of agency costs faced by the firm in managing, mitigating and remediation of climate transition risks.
H2: auditors-service providers have exogenous characteristics that enter the supply of transition plans reputation as supply shifters
Assumption: The supply of and demand for reputation in audit-attestation service quality is inter-related and simultaneously determined<br>
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5. RESEARCH APPROACH Forbes 500 global companies
Publicly owned, subject to CDP ratings
High-emitting sectors (1) oil and gas (2) mining (3) food retail and processing (4) power-utility
Financial institutions scope 3 emissions (1) banks (2) insurers (3) asset managers (4) pension
Analysis of audit-attestation reports
Empirical variables:
Agency costs: investment risk, Tobins Q, ROA, ATO
Audit reputation: audit fees (+/-) non-audit services, quartile analysis<br>
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6. EMPIRICAL FINDINGS Demand: quality of climate transition risk reporting is related to:
Whether the firm has a transition plan
Investment risk (industrial firms)
Firm size (financial institutions) Supply: propensity to produce credible transition plan reporting related to:
Audit fee
Investment risk
Tobins’ Q<br>
