A group of assets managers representing $9.3trn (€7.8trn) has written to some of Europe’s largest companies calling for financial accounts to reflect the climate risks they are taking.
In Climate Action Week, a letter, authored by Sarasin & Partners and backed by 27 signatories has urged companies to ensure the Paris Climate Agreement is factored into financial reporting.
Supporting the letter are JP Morgan Asset Management, EOS at Federated Hermes (on behalf of stewardship clients), Aegon Asset Management, Northern Trust, the UK’s Local Authority Pension Fund Forum, the Church of England pension funds and numerous others.
It was written to companies through the Institutional Investors Group on Climate Change (IIGCC), the European body for investor collaboration on climate change.
Companies that received the letter include Anglo American, BASF, BMW, BP, Deutsche Lufthansa, EDF and Shell, all chosen due to their exposure to decarbonisation risks.
IIGCC chief executive Stephanie Pfeifer commented: “Companies can no longer afford to ignore what climate change means for their business. Investors need financial impacts of getting onto a net zero pathway to be booked and acted on.
“Climate change is material and the importance of alignment with the Paris Agreement is beyond doubt, what investors now need is visibility from companies in their accounts. They are making this clear today and expect companies to report in line with existing global accounting standards.”
Instruction manual
The letters were accompanied by a copy of Investor Expectations for Paris-aligned Accounts, published on 16 November by IIGCC and authored by head of stewardship at Sarasin and Partners and editorial panellist for our sister publication ESG Clarity Natasha Landell-Mills, which sets out step-by-step detail on the actions investors require companies to take in their accounts and financial statements to address the issue.
It outlines specific investor expectations for auditors to call out where accounts are ignoring material climate risks and ensuring transparency when accounts are not ‘Paris-aligned’.
Where these expectations are not met, three courses of investor action are identified: engagement, voting and divestment. Audit Committee directors and auditors are specifically identified to be held accountable for delivering on the investor expectations.
The letter explained: “[…] accounts are key to how capital is deployed by management as well as investors. If the accounts leave out material climate risks, too much capital will go towards activities that put shareholder capital at risk. Worse still, this puts all our futures at risk.”
Landell-Mills said:“We are at a crossroads in our battle against climate change. Either we get serious and start shifting capital flows towards activities aligned with the Paris Agreement, or we continue to talk about it.
“Paris-aligned accounts are amongst the most important changes that will drive system-wide capital redeployment. Put simply, we need Paris-aligned accounts to drive Paris-aligned behaviour, thereby protecting capital for all. This is hopefully something that all companies and their shareholders can coalesce around.”
Brunno Maradei, global head of responsible investment at Aegon AM, also commented: “Addressing climate change is an urgent matter, and one that must be addressed with action. Ensuring that the Paris Agreement is considered in financial statements is one way to ensure that the firms most exposed to carbon will be held truly accountable against this important global commitment, while also protecting long-term value for investors.”
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