London: Investors are pushing major European companies to ensure that the “lost” costs of climate change are properly reflected in their financial statements, a move that could wipe billions of dollars off the value of sectors from energy to aviation.
European and American investors managing $ 9 trillion in assets have sent 36 carbon heavy companies a document outlining how they should explain the potential impact of the 2015 Paris climate agreement on their future earnings.
Investors suspect that current balance sheets are based on assumptions about variables such as oil prices, carbon taxes, and the life span of fossil fuel assets that do not align with the shift to net carbon emissions under the Paris Agreement.
JPM Morgan Asset Management (part of JP Morgan Chase & Co), DWS, Fidelity International and M&G Investments were among the 38 asset managers to support the document, according to a copy of an accompanying letter shared with Reuters by the climate change investment group, an industry consortium. .
In a statement released on Monday, investors called on companies to “address the costs of climate change lost in the financial accounts.”
Natasha Landell Mills, head of oversight at Sarasin & Partners, a London-based asset manager, who has written the 23-investor expectations page document.
“The Paris-aligned accounts are among the most important changes that will drive the redistribution of capital at the system level,” said Landel Mills.
Among the companies that investors have written to are the German letters Ion, Oneper, Iberdrola, Spain’s Endesa, France’s Air Liquide, Austria’s OMV and London-listed Anglo American.
When contacted for the comment, the companies variously referred Reuters to current commitments on sustainability and climate risk disclosure, emphasized that they welcomed investor participation, and said they needed time to study the requirements.
The campaign builds on a previous initiative led by Landell-Mills and an initial core group of investors to challenge major European oil companies and their auditors about their accounting assumptions in light of the Paris deal.
Landell-Mills said the participation was acquitted in June when Britain’s major BP said it would write off up to $ 17.5 billion in the value of its assets after revising its long-term forecast for oil and gas prices. The English-Dutch competition Royal Dutch Shell and France’s Total recorded smaller declines.
Regulators have been increasingly encouraging companies to voluntarily disclose how they expect climate change to affect their business, and some countries, including Britain and New Zealand, are making these disclosures mandatory.
But investors say accountants and auditors may fail in their current legal duties to deal with the anticipated risks associated with both the potential for rapid decarbonization and the material impacts of climate change, which means companies may overestimate their capital.
“Many corporate accounts ignore the material impacts related to climate, and this not only puts shareholder capital at risk; it can have dire consequences for our planet,” according to the investor document.
The document said that investors can exert influence on this issue by directly engaging with audit committees and company boards of directors, voting on board members and auditors, and by selling shares.
Among the asset managers supporting the campaign, Bruce Dujwid, head of oversight in the governance advisory arm at Federated Hermes, said investors would review the 2020 accounts to obtain “clear evidence” of response from both board members and auditors.