Investors call for companies to disclose financial risks of climate change

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Investors call for companies to disclose financial risks of climate change

LONDON Reuters - Investors managing more than $2.5 trillion have called on governments to compel companies and auditors to file financial accounts aligned with the global net zero emissions target, a letter seen by Reuters.

Writing to UK Climate Czar Alok Sharma ahead of the next round of global climate talks in November in Glasgow, the group said doing so was crucial to clarify the financial impact of climate change and give an incentive to invest accordingly.

Governments should mandate a requirement for companies to call out the financial consequences of a net-zero pathway and auditors to make clear where companies have failed to do so, the investor group said in the Sept. 14 letter.

It follows a recent study from Carbon Tracker and the Climate Accounting Project found that more than 70% of the world's biggest emitters did not disclose the full risks in their 2020 disclosures, with 80% of audits showing no evidence that the risk had been assessed.

Most companies continue to use assumptions that presume little or no decarbonization and therefore report legal results predicated on governments failing to implement their stated commitments and, in some cases, an administrative target, the letter said.

Sharma's office did not immediately respond to a request for comment.

The new climate conference, dubbed COP 26, is seen as the most important since governments originally reached a deal in Paris to limit global warming in 2015, with all parties now being told to accelerate their efforts https://www.reuters.org/. The UK Accounting Watchdog has already warned companies and auditors to do a better job, while Global Accounting and Auditing Standards setters have restated the need to assess material risks, which can include climate risk.

Despite investor bodies representing $100 trillion in assets calling to Paris reported accounts in September, the inaction from companies and auditors meant government action was needed, the investor group said.

If we choose to wait for companies to respond to investor pressure, it could take years to deliver the numbers we require to invest in a way that is aligned with the Paris goals, the investors' letter said.

The gfs signatories to the letter include a body representing Sweden's AP-2 pension scheme, and investors including Sarasin Partners, which coordinated the letter and an accompanying position paper as well as Candriam and Federated Hermes.

For countries like Britain, which have made attaining net zero emissions a legal obligation, changing the law around accounting and auditing would be entirely consistent with other government efforts, the investor group said.

The stakes are high. Companies such as BP got inflated, wrote off billions of dollars last year after they lowered long-term oil price assumptions. Without proper accounting, money needed to fund the transition to a low-carbon economy could end up in the wrong place.

Accounts that levy material climate impact misinform executives, shareholders and creditors and reduce capital, the investor group said.