LONDON (UK) – Investors are pressurising major European companies to make sure the “missing” costs of climate change properly reflect in their financial statements.
The European and US investors, who is in charge of managing $9 trillion in assets, have sent 36 carbon-heavy companies a document making it clear as to how they be accountable for the possible impact of the 2015 Paris climate accord on their future profits.
The investors are under the doubt that prevailing balance sheets are based on assumptions over variables such as oil prices, carbon taxes, and the lifespan of fossil fuel assets that are incompatible with a shift to net-zero carbon emissions under the Paris deal.
JPM Morgan Asset Management (part of JP Morgan Chase & Co ), DWS, Fidelity International and M&G Investments were among 38 asset managers to support the document, according to a copy of an accompanying letter by the Institutional Investors Group on Climate Change, an industry coalition.
In a statement published on Monday, the investors called on the companies to “address missing climate change costs in financial accounts”.
Natasha Landell-Mills, head of stewardship at London-based asset manager Sarasin & Partners, who wrote the 23-page investor expectations document, said, “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,” Landell-Mills said.
Among the companies the investors wrote to were Germany’s E.ON and Uniper, Spain’s Iberdrola and Endesa, France’s Air Liquide, Austria’s OMV and London-listed Anglo American.
The companies variously referred to existing commitments on sustainability and climate risk disclosure, emphasised they welcomed investor engagement, and said they needed time to study the requirements.
The campaign builds on a previous initiative led by Landell-Mills and an initial core of investors to challenge European oil majors and their auditors over their accounting assumptions in light of the Paris deal.
Regulators have increasingly been encouraging companies to make voluntary disclosures of how they expect climate change to affect their businesses, and some countries, including Britain and New Zealand, are making these mandatory.
The investors say that accountants and auditors may not able to foresee the risks involved linked to both the prospect of rapid decarbonisation and physical impacts from climate change, meaning companies may be overstating their capital.
According to the investors’ document, “Too many company accounts are leaving out material climate-related impacts, and this is not just putting shareholder capital at risk; it could have catastrophic consequences for our planet.”
Bruce Duguid, head of stewardship at the governance advisory arm of Federated Hermes, among the asset managers supporting the campaign, said investors would be looking at 2020 accounts for “clear evidence” of a response from both board directors and auditors.
