Investors urge European companies to include climate risks in accounts

More than 30 of Europe’s largest companies, including Anglo American, BMW, EDF and Lufthansa, have been urged to include climate change risks in their financial statements as concerns grow that corporate accounts no longer reflect the longer-term outlook.

A group of 38 investors overseeing more than $9tn in assets have written to the chair of the audit committee at each of the companies, calling on them to ensure their financial statements reflect the implications of the Paris Agreement, which aims to limit temperature increases to well below 2 degrees Celsius.

Investors are concerned that corporate accounts have become disjointed from businesses’ public statements on climate change, with many groups setting out plans to cut their carbon emissions but not reflecting this position in their financial outlook.

The investor letter, which was signed by JPMorgan Asset Management, Fidelity International and M&G Investments, said: “The 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.”

Some companies have already changed their financial outlook because of climate risks, following investor pressure. Earlier this year, BP said it would slash up to $17.5bn from the value of its oil and gas assets on the expectation of lower long-term oil prices. Royal Dutch Shell and Total also adjusted accounting judgments, resulting in material impairments.

“Companies can no longer afford to ignore what climate change means for their business. Investors need financial impacts of getting on to a net zero pathway to be booked and acted on,” said Stephanie Pfeifer, chief executive of the Institutional Investors Group on Climate Change, which brought the investors together.

The letter also called for adjustments to critical accounting assumptions and estimates to ensure they are consistent with achieving so-called net zero carbon emissions by 2050. It said board directors should explain whether they had room to pay dividends if investments were needed to meet environmental goals.

Natasha Landell-Mills, head of stewardship at UK asset manager Sarasin and Partners and author of the investor expectations, said the world had reached a “crossroads in our battle against climate change” and financial statements that took account of the Paris agreement would “drive system-wide capital redeployment . . . thereby protecting capital for all”.

Insight Investments, the big fixed income asset manager, the Church of England’s investment funds and DWS, the asset manager that was spun out of Deutsche Bank, also signed the letter, as well as several pension funds.

Last week, UK chancellor Rishi Sunak said the UK would become the first country in the world to force big public and private companies to provide climate-related information in their financial accounts.

A separate review by the Financial Reporting Council, the UK audit watchdog, last week found that few listed companies currently made any reference to climate change in their financial statements.