Investors Urge European Companies to Disclose Financial Impact of Global Climate Action
A group of 38 major global investors, representing over $9 trillion in assets, has issued a call to some of Europe’s largest companies, urging them to properly reflect the implications of global commitments to fight climate change under the Paris Agreement on their financial statements.
The campaign, carried out through the Institutional Investors Group on Climate Change (IIGCC), sent letters to 36 companies, selected due to their exposure to decarbonisation risks, as economies transition away from fossil fuels in line with the Paris Agreement’s goals to limit temperature increases to well below 2°C, and ideally to 1.5°C. The selected companies included the largest listed European firms by revenue across the energy, transport and materials sectors, including Anglo American, BASF, BMW, BP, Deutsche Lufthansa, EDF and Shell, among numerous others. The companies have a total combined value of $1.7 trillion by market capitalisation and combined revenues of $3.2 trillion.
The companies also received the IIGCC’s newly published “Investor Expectations for Paris-aligned Accounts,” outlining the steps investors require companies to prepare Paris-aligned accounts. The Investor Expectations call on companies to include 5 disclosures in their annual reporting, including an affirmation that the goals of the Paris Agreement have been considered in drawing up the accounts, adjustments to critical assumptions and estimates, sensitivity analysis to Paris-aligned assumptions, dividend resilience, and consistency between narrative reporting on climate risks and the accounting assumptions.
According to the IIGCC, in cases where expectations are not met, three courses of investor action are identified, including engagement, voting and divestment.
Stephanie Pfeifer, CEO, Institutional Investors Group on Climate Change, said:
“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.”
The letter also pointed to some early success through investor engagement in getting companies to disclose the financial impact of climate action. Several companies, including BP, CRH, Eni, Rio Tinto, Shell and Total received amended letters, reflecting previous engagement. Following engagement campaigns led by signatory Sarasin & Partners, companies including Shell, BP and Total reviewed their 2019 accounts in light of the Paris Agreement and the accelerating energy transition. Shell reported that it expects impairments in the range of $20 to $27 billion, bp estimated $13 to $17.5 billion, and Total announced $8 billion in asset impairments.
Natasha Landell-Mills, Head of Stewardship, Sarasin and Partners LLP, and author of the Investor Expectations, 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.”