A coalition of 19 state Attorneys General* announced the publication of a letter to Deloitte, EY, PwC and KPMG, warning the Big 4 accounting firms of potential violations of state laws and duties of independence “by committing to push for climate-related disclosures in financial reporting.”
The letter, led by the AGs of Florida, Texas, Nebraska and Alaska, noted in particular the accounting firms’ participation in climate-related reporting initiatives including the Task Force on Climate-related Financial Disclosures (TCFD) and the Net Zero Financial Service Providers Alliance (NZFSPA), which disbanded earlier this year, as well as their support for the adoption of the International Sustainability Standards Board’s (ISSB) climate-related reporting standard.
The new letter forms the latest in a long string of initiatives by Republican politicians in the U.S. pushing back against the growing adoption of climate-related disclosure frameworks globally. Trump-appointed U.S. SEC Chair paul Atkins, for example, has warned that the agency may reconsider its rules allowing foreign companies to file financial statements using IFRS accounting standards due to the IFRS Foundation’s formation and backing of the ISSB, and state AGs have even warned U.S. companies against complying with the EU’s sustainability reporting regulations.
The AGs raise a series of concerns in the letter, including claiming that the firms’ support for climate-related disclosures may have violated their duty of independence through their commitments to the climate initiative and frameworks, as well as their professional duties of integrity and objectivity by creating conflicts of interest through supporting climate-related disclosures in financial statements that will increase costs for companies to the benefit of accounting and auditing firms.
The letter also warns that the Big 4’s advertising about independence, integrity, and objectivity may violate state unfair and deceptive acts and practices (UDAP) laws due to their support for climate-related reporting and their commitments to the climate disclosure initiatives, and that they may be violating the terms of state and federal contracts, which it said “could result in penalties and termination of the Big Four’s contracts.”
The AGs also include a long list of questions and documentation requests for the firms related to their support for climate-related disclosures and commitments to the initiatives and frameworks, including asking the firms to “explain the impact of your commitments to the TCFD, ISSB, and NZFSPA on small businesses or farmers that are part of the supply chain for public companies,” and questions related to the duty of independence, conflicts of interest, advertising practices, and disclosure of their commitments to the climate and reporting initiatives.
Nebraska AG Mike Hilgers said:
“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. 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.”
Click here to access the letter.
*The letter was signed by the AGs of Nebraska, Texas, Florida, Alaska, Alabama, Arkansas, Idaho, Iowa, Mississippi, Montana, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, and West Virginia.
