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UK accounting watchdog tightens scrutiny of ESG in company audits

FILE PHOTO: A worker arrives at his office in the Canary Wharf business district in London

By Huw Jones

LONDON (Reuters) - Britain's accounting watchdog said on Monday it will monitor whether auditors were making spot checks on their compliance with environmental, social and governance (ESG) reporting requirements in company audits.

Regulators across the world are seeking to prevent 'greenwashing', or exaggerated sustainability claims from companies to attract investors.

The Financial Reporting Council (FRC) said it will continue to pay attention to work by auditors on climate-related risks faced by the companies whose books they check.

In an updated statement on ESG reporting, the watchdog said in 2023 it will focus on the use of ESG data and the link between investors and ESG reporting by companies.

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"Improving transparency on climate and wider ESG risks and opportunities, and related governance activities and behaviours, is a key priority for our work," Mark Babington, FRC executive director of regulatory standards, said.

There will be targeted work including 'hot' or 'in-flight' reviews - internal checks at auditors as an audit progresses. The FRC said it will look at how and to what extent these reviews consider ESG matters.

The watchdog said it will also consider selecting listed companies with significant environmental risk and monitor whether their senior auditor has completed appropriate and relevant training.

It will also introduce requirements for actuaries to take account of climate and other ESG-related risks in their work.

The UK Corporate Governance Code, which the FRC polices, will be revised this year to recognise the growing importance of ESG reporting by companies in the work of company boards.

(Reporting by Huw Jones; Editing by Arun Koyyur)