Exclusives

EXCLUSIVE: Big Four Accounting Firms Under Fire Over Climate Commitments

iMahesh, CC BY-SA 4.0 <https://creativecommons.org/licenses/by-sa/4.0>, via Wikimedia Commons

The four largest accounting firms pushed climate-related financial disclosures that impact America’s energy sector, a coalition of state attorneys general alleges in a new letter.

A coalition of state attorneys general led by Texas, Nebraska, Florida and Alaska is seeking an explanation from Deloitte, Ernst & Young (EY), KPMG, and PricewaterhouseCoopers (PwC) — collectively known as the “Big Four” — about their commitments to international climate initiatives. The 38-page letter alleges the commitments could influence corporate conduct while conflicting with the firms’ professional duties of independence, integrity and objectivity.

“The Big 4’s climate commitments force clients to make burdensome climate-related disclosures that drive up the costs of their services and place onerous requirements on farmers and small businesses,” Republican Nebraska Attorney General Mike Hilgers told the Daily Caller News Foundation. “These costs will ultimately be passed onto consumers, who will be forced to bear the burden of increased prices for food, energy, and other everyday products.”

“The Big Four’s climate commitments hurt the American economy and national security. Climate-related disclosure rules are burdensome and designed to influence company conduct,” the letter read.

The quartet of firms committed to supporting international climate initiatives and reporting frameworks, including the Task Force on Climate-related Financial Disclosures, the Net Zero Financial Service Providers Alliance and the International Sustainability Standards Board, according to the attorneys general’s letter.

“It’s outrageous that these massive firms continue to push climate activism while claiming to be independent and objective,” Will Hild, Executive Director of Consumers’ Research, told the DCNF. “By embracing ESG [environmental, social and governance] and net-zero agendas, they put ideology ahead of shareholders while profiting from the costly requirements they help impose customers. Consumers’ Research applauds these Attorneys General for standing up to these firms and holding them accountable for putting activism ahead of the consumers and the small businesses they are supposed to serve.”

The firms committed to supporting greenhouse-gas disclosures regardless of materiality, aligning relevant products and services with net-zero emissions by 2050 or sooner and advancing climate-related reporting standards globally, the attorneys general argued.

Each of the Big Four accounting companies did not respond to the DCNF’s requests for comment.

A materiality assessment determines whether information is significant enough to potentially affect an investor’s decision. The attorneys general allege the firms committed to supporting certain climate disclosures without first determining whether the information met that threshold.

The Big Four supported a Task Force on Climate-related Financial Disclosures framework that required companies to report Scope 1 and Scope 2 greenhouse gas emissions regardless of whether the information was considered material, according to the letter. The framework also encouraged companies to disclose Scope 3 emissions.

“Furthermore, departures from materiality may be particularly acute for the Big Four’s foreign subsidiaries, implicating Public Company Accounting Oversight Board (‘PCAOB’) and SEC [Securities and Exchange Commission] jurisdiction,” the letter reads.

The alleged departures from materiality are only part of the attorneys general’s concerns about whether the firms’ climate commitments align with professional auditing standards, including requirements governing auditor independence.

Auditor independence requires accounting firms to remain impartial when reviewing a company’s financial statements rather than advocating for a particular outcome.

The attorneys general argue the Big Four’s participation in international climate groups could threaten that independence by exposing the firms to pressure from influential third parties to advance climate-related goals.

“The NZFSPA was one of several industry-specific organizations under the umbrella of the UN-supported Glasgow Financial Alliance for Net Zero (‘GFANZ’), the letter continued. “GFANZ was led by [former New York City Mayor] Michael Bloomberg, Mark Carney (now a Canadian prime minister), and other individuals who appear to exert influence through “reputation or expertise, [an] aggressive or dominant personality, or attempt[ing] to coerce or exercise excessive influence over the [accounting professional].”

The Big Four also provide consulting and assurance services related to climate disclosures, which the attorneys general argue gives the firms a financial stake in expanding the reporting requirements they support.

“It also does not go unnoticed that the Big Four stand to financially benefit from pushing climate-related disclosures and reporting through the for-profit services you offer,” the letter reads.

“As part of the NZFSPA, the Big Four committed to ‘proactively engage with stakeholders and policy-makers on corporate and industry action, as well as public policies, that support a net zero transition of economic sectors in line with science and with regard to social impacts,'” the letter reads.

The letter points to warnings from SEC Commissioner Hester Peirce that climate-related disclosure requirements could burden small businesses and farmers that supply public companies and that the speculative nature of the disclosures could encourage costly litigation.

The attorneys general also argued the effects could extend to America’s energy sector, pointing to the firms’ commitments to promote a net-zero transition across economic sectors.

“Pushing American companies away from reliable sources of electricity like coal and natural gas will threaten America’s electric grid,” the letter reads.

The firms also committed through the Net Zero Financial Service Providers Alliance to align relevant products and services with achieving net-zero greenhouse gas emissions by 2050 or sooner, according to the letter.

“PwC described the NZFSPA as ‘a global consortium of firms that are furthering their commitments to a science-based approach to addressing climate change and establishing a net zero global economy.’ The term ‘science-based’ is commonly understood as supporting the unrealistic net-zero-by-2050 goal and its interim requirements,” it continued.

The firms have also publicly promoted climate and sustainability initiatives on their own websites.

“The climate crisis is a risk to society at large, to our organization, and to our clients across the private and public sectors,” Deloitte states on its website. “Deloitte is helping to lead the way toward a low-carbon future by guiding our clients on their sustainability journeys, advancing meaningful actions and change within our own operations and supply chain, and collaborating with nonprofits and civil society.”

KPMG has also incorporated diversity and environmental justice into its broader net-zero initiatives. The firm created Leaders 2050, a global network of young professionals focused on sustainability, which describes achieving net zero as “the most pressing challenge of our time.”

“Besides ‘practicing what we preach,’ helping our clients reduce their environmental footprint is the most important contribution we at KPMG can make to a net-zero society. Our experts within ESG & Sustainability Services are forerunners in this field and put their experience to full use to achieve this ambition,” KPMG’s website reads.

The firm’s climate efforts also extend to how companies make decisions about reaching their emissions targets. KPMG’s “Diversity for Net Zero” survey argued diversity should be considered in corporate net-zero decision-making.

“Our recent Diversity for Net Zero survey has shown a strong consensus that diversity should be considered when delivering on net zero targets,” KPMG’s website reads. “However, half the respondents believe not enough is being done to ensure diversity is being considered in climate-related decision making.”

The initiatives provide another example of the broader climate-related activities the attorneys general are scrutinizing as they question whether the Big Four’s climate objectives could conflict with their obligations to remain independent and objective when providing professional services.

The attorneys general are asking the firms to explain how their commitments to international climate initiatives comply with professional duties to their clients and whether the firms have safeguards in place to prevent their climate goals from influencing audit work.

The letter also asks the firms to disclose revenue earned from climate-disclosure assurance, sustainability reporting and ESG consulting services over the past five fiscal years.

The attorneys general also requested documents related to the firms’ climate commitments and their advertising of independence, integrity and objectivity — along with information about contracts with state and local governments since 2020.

The letter specifically asks the firms to explain how offering climate-disclosure services while advocating for expanded disclosure requirements does not create a conflict of interest. It also seeks information about any potential conflicts disclosed to audit clients and whether clients consented to them.

“The Signatory State Attorneys General won’t sit back while farmers and small businesses are unfairly burdened by the imposition of costly climate-related busy work that the Big Four push and, comparatively, can profit from,” it concludes.