At this stage, and particularly with the reports coming out of COP26, it is clear that the direction for travel for financial reporting is that it will include ever increasing levels of climate reporting. Basic (although time consuming) disclosures of energy usage and carbon emissions are now common for listed and large private companies, and pressure is on to include net-zero plans and assessments of future risks of climate change.

I'm not saying this is a bad thing - in general, increased transparency is good, and clearly there is appetite for investors and wider stakeholders to know about a company's green credentials - but is it appropriate to keep shoehorning more information into the annual financial statements?

Firstly,  it runs the risk of taking attention away from the financial information, both internally and externally. Internally, timescales to produce annual reports are often very tight and there is a real risk that including too much information will mean not enough due care and attention is applied to any individual area. Possibly removing some of the information from the annual report to a new report published alongside interim results could mitigate this issue - although proponents of the current approach would argue that that would risk the climate information not being picked up by investors, and a reduction in 'big picture' thinking.

Externally, we have all seen examples of big companies producing excessive glossy reports highlighting everything that went well in the year, with the result that the (potentially negative) financial information is effectively relegated to an appendix. The FRC has been increasing pressure to reduce this approach, and ensuring undue prominence is not given to flattering non-statutory information, but this is inevitably more difficult when more reporting requirements are added to the financial reports.

Finally, including the information in the annual report puts in in the remit of the auditors. In general, this is a good thing - it means information is checked by someone independent. However, the role of an auditor - when you boil it down - is to check that the accounts have been prepared in accordance with a set of standards. Fairly straightforward with the numbers in the accounts - but with more general reporting requirements along the lines of "give a balanced and sufficient account of the risk of climate change", the level of judgment increases and the gap between what the auditors are required to do and what stakeholders think the auditors are doing increases.

In conclusion - I don't think theres a clear answer. There is an appetite for increased climate reporting, and the annual report does seem a natural home for it - but it shouldn't be overlooked that that approach comes with issues, and investors need to be increasingly savvy to interpret the glossy reports they are provided.