Members of the IIGCC demand improved transparency on economic impacts of climate change and associated policy action.
Institutional investors managing a collective US$7.1 trillion in assets are challenging corporate audit committee chairs on their continued omission of climate risks in financial reporting ahead of the 2022 annual general meeting (AGM) season.
The 34 members of the Institutional Investors Group on Climate Change (IIGCC) sent letters to 17 of Europe’s largest companies, warning of the possibility of increased voting against audit committee directors’ appointments if their expectations of climate-related accounting disclosure are not met.
The companies – including Enel, Glencore, TotalEnergies and Shell – need to be clear as to how regulatory and legal changes aimed at delivering decarbonisation will change their business operations and processes, as well as how assets and liabilities are valued based on company balance sheets, the investors said.
Investor signatories include Nest, the Local Authority Pension Fund Forum and Danica Pension.
“We lack the required visibility to give us confidence that the economic impacts from climate change and associated policy action are being properly accounted for,” the letter noted, adding that investors have little understanding how companies’ financial positions may be impacted by accelerated decarbonisation associated with limiting global warming to 1.5 degrees Celsius.
These latest letters are part of an ongoing campaign by investors seeking more transparency around the impact of accelerating decarbonisation on companies’ financial positions, both now and in the future. In November 2020, investors sent letters outlining their expectations to 36 companies.
Katharina Lindmeier, Senior Responsible Investment Manager at Nest, said: “Last year, we challenged carbon-intensive companies about making changes. We’re now escalating and writing to their audit committees, calling for climate change to be considered in their financial statements.
“The threat climate change poses to companies is real and, as a global investor, with billions of pounds in some of the largest companies in the world, we want that risk taken seriously.”
Reports by UK and US NGOs recently highlighted that climate risks and disclosures will be a key source of tension between asset owners and investee companies during AGMs this year.
In the US, 110 climate-related resolutions have been proposed by shareholders of US firms, according to a report by shareholder advocacy group As You Sow.
ShareAction also identified seven key climate-related resolutions in the UK which should be a priority for investors this voting season.
“Climate change poses a material risk to companies all around the world, but when it comes to their financial statements it is frequently understated or completely ignored,” said Stephanie Pfeifer, CEO of the IIGCC.
“Important matters, such as physical impacts or the potential for further regulatory change and what this could mean in terms of stranded assets or any other material outcomes, are routinely failing to be disclosed. How can companies who are fundamentally intertwined with the long-term fallout of climate change, such as those in the fossil fuel industries, be missing such a material risk in their financial reporting? Investors are waking up to this question and appear increasingly prepared to use their votes in reappointing audit committee directors to make their point.”