Financial Statements and Greenwashing

Inadequacy of Financial Statements That Omit Climate Risks (2025–2050)

Financial statements—particularly the risk analysis section—are considered inadequate when they fail to include climate-related risks over the 2025–2050 time horizon, for substantive accounting, regulatory, and economic reasons.

The 2025–2050 time horizon is now financially material

The year 2050 is not an abstract political aspiration. It represents:

• the binding Net Zero milestone of the European Union, and

• the policy framework upon which taxes, regulatory bans, investments, and financing decisions are already being designed today.

As a result, climate-related risks do not belong to a distant future. They already affect:

• cash flows,

• the cost of capital,

• asset impairments, and

• the viability of business models within the current reporting cycle.

Failure to disclose these risks constitutes a breach of the principle of materiality.

These considerations are explicitly linked to International Financial Reporting Standards (IFRS), including IAS 1, IAS 36, and IAS 37.7).

Statements regarding Net Zero commitments and green strategies may appear compelling. However, without associated costs, provisions, and investments, they remain empty assertions. The sustainable transition is not cost-free, and financial statements must reflect that reality.

Breach of the “true and fair view” principle

Under IFRS and European accounting legislation, financial statements must present a true and fair view of an entity’s financial position and risk profile.

When:

• known transition risks (such as carbon pricing, regulatory bans, and technological obsolescence), and

• physical risks (including extreme weather events, infrastructure damage, and supply-chain disruption)

exist but are not disclosed, the resulting financial picture is neither complete nor fair.

Inconsistency with assumptions already embedded in the financial figures

In practice, depreciation, impairment testing, provisions, and assumptions regarding asset useful lives frequently incorporate climate-related assumptions implicitly, without explicit disclosure.

Example:If an asset:

• has an accounting useful life extending to 2045,

• but is expected to become non-operational before 2035 due to decarbonization policies,

and this expectation is not disclosed in the risk analysis, the financial statements are internally inconsistent.

Omission of transition risks

The 2025–2050 period includes:

• increasingly stringent carbon pricing,

• mandatory investments in clean technologies,

• declining competitiveness of high-emission products, and

• the risk of stranded assets.

Failure to disclose these factors understates business risk and overstates future profitability.

The inconsistency between narrative and numbers is the clearest indicator of greenwashing. A green transition that does not result in changes to depreciation, impairment assumptions, or business plans does not exist. Numbers—not statements—reveal the truth.

Omission of physical risks with financial consequences

Physical risks arising from climate change:

• increase operating costs,

• cause business interruptions,

• raise insurance costs or result in the loss of insurability, and

• reduce asset values.

When these risks are not described, users of financial statements cannot properly assess the long-term sustainability of the business.

Misalignment with the regulatory and supervisory environment

Supervisory authorities, auditors, and investors now regard climate change as a financial risk rather than merely an ESG disclosure issue. They expect a clear and consistent linkage between financial statements and sustainability disclosures or Net Zero strategies.

The absence of climate risks from the risk analysis increases both audit and litigation risk.

Net Zero 2050 creates an obligation for forward-looking disclosure

Because Net Zero 2050 constitutes an official policy framework that already affects economic reality, financial statements are required to consider risks beyond the short-term horizon.

Failure to do so signals a short-term and unrealistic assessment of risk.

Financial statements are therefore inadequate when the risk analysis ignores climate-related risks for the 2025–2050 period, as Net Zero 2050 is a binding economic milestone that already affects assets, cash flows, cost of capital, and the sustainability of business models.

Greenwashing 

Greenwashing in financial statements represents the exact opposite—yet an equally problematic practice—of the complete omission of climate risks. Instead of “saying nothing,” companies present an overly positive narrative that is not supported by actual financial data.

What constitutes greenwashing in financial statements

Greenwashing occurs when a company:

• presents its exposure to climate change as negligible or fully controlled,

• promotes Net Zero targets or a “green strategy,”

while these claims are not reflected in:

• financial figures,

• accounting assumptions,

• forecasts, or risk disclosures.

In essence, it is a positive narrative without an economic foundation.

Excessive optimism in transition scenarios creates a false sense of security. When adverse scenarios are ignored, risk assessments are distorted, and users of financial statements are led to incorrect conclusions.

How greenwashing manifests in practice

“Net Zero 2050” with no financial footprint

It is common for companies to announce ambitious Net Zero targets while recognizing no transition costs, no related investments, and no provisions.

This constitutes greenwashing, because the transition entails both cost and risk.

Climate risks presented as “non-material”

When climate change is mentioned only in general terms and risk analyses consistently conclude that “no significant impact is expected,” without quantitative evidence or scenario analysis, a known financial risk is deliberately understated.

Inconsistency between narrative and numbers

A classic example is the claim of an “accelerated green transition” while depreciation remains unchanged, impairment assessments are not revisited, and business plans are not updated.

In such cases, the financial statements do not support the green narrative.

Excessive optimism in scenarios

Greenwashing also occurs when optimistic transition scenarios are used, while adverse or realistic scenarios (such as carbon pricing, regulatory bans, or physical damage) are ignored and adaptation is portrayed as “easy and risk-free.”

This approach distorts risk assessment.

Why greenwashing is as serious as omission

Both practices—greenwashing and omission—mislead users of financial statements, undermine the principle of material disclosure, and increase legal and audit risk.

The difference is straightforward: omission conceals risk, while greenwashing embellishes it.

The outcome, however, is the same—an unreliable financial picture.

Auditors are not persuaded by polished ESG statements. They seek evidence in CAPEX, OPEX, provisions, impairments, and cash flows. When there are words but no numbers, greenwashing is revealed.

How auditors identify greenwashing

Auditors identify greenwashing when ambitious ESG claims exist without any corresponding reflection in:

• capital expenditure,

• operating expenditure,

• impairments,

• provisions, or

• cash flows.

In short: words without numbers.

Greenwashing in financial statements involves presenting an optimistic and reassuring portrayal of climate risks and the transition to Net Zero without those statements being supported by accounting assumptions, forecasts, or financial impacts—resulting in a picture that is just as misleading as the complete omission of those risks.