In the context of evolving climate-related regulations, compliance with international accounting standards assumes relevance far beyond technical-financial boundaries. The IFRS Accounting Standards, widely adopted globally and incorporated into national legal systems, represent not only a shared accounting reference but genuine legal obligations, whose breach can generate significant consequences for companies, their management bodies, and reporting process participants.
The proper representation of climate risks in financial statements is integral to the duty to ensure accounts provide a true and fair view of the company's financial position. Where climate risks and Transition Laws materially impact assets, liabilities, or forward-looking estimates, their omission or understatement creates liability exposure.
Consequences of non-compliance
1. reputational consequences
Beyond legal sanctions, non-compliance exposes companies to severe reputational risks. Negative media coverage, erosion of investor confidence, and capital withdrawal represent immediate commercial consequences. Investors, increasingly sensitive to financial transparency and sustainability, classify non-compliant companies as high-risk, compromising market valuations, access to financing, and long-term viability.
2. legal consequences for companies and directors
Failure to properly apply IFRS Accounting Standards, including climate-related aspects, entails multiple legal repercussions. In particular:
- Negligent misstatement – Inaccurate or incomplete financial information may expose the company (and, in certain cases, its directors) to compensation claims where such information formed the basis for investment decisions or extraordinary transactions.
- Misrepresentation – Misleading or untrue statements in financial statements may constitute liability for false representation, either fraudulent or negligent, with potential personal implications for directors.
- Disqualification Directors approving and signing non-compliant accounts may be held directly accountable, even where non-performance stems from underestimating climate risks.
- Fiduciary duties – In cases of serious reporting deficiencies, directors may be deemed unfit for company management, with career and professional reputation consequences.
- Unlawful dividends – Financial statements failing to properly reflect climate risks may overstate distributable reserves, exposing directors to liability for illegitimate profit distributions.
Consequences for auditors
Auditors play a crucial role in safeguarding financial information accuracy. Failure to identify material errors or significant omissions related to climate risks may trigger professional and disciplinary liability. In contentious contexts, directors or companies may seek recourse against auditors where supervisory defects or inadequate assessment of climate-relevant financial information emerge.
From risk to opportunity
While non-compliance consequences can be severe, a proactive and structured approach to climate risk reporting also offers significant opportunities. Accurate, consistent financial statements supported by transparent disclosure strengthen investor confidence, reduce litigation exposure, and position the company as solid and resilient in an evolving regulatory context.
van Berings supports companies, directors, and advisors in the integrated interpretation of Transition Laws and related obligations, assisting governance processes, legal risk management, and alignment between corporate strategy, financial reporting, and fiduciary responsibilities.
