Audit committees may face revolts over climate omissions
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A coalition of 34 investors, representing $7.1 trillion in assets, sent letters to leading European companies warning of increased opposition towards auditor appointments where companies fail to disclose net-zero-aligned accounting.
Members of the Institutional Investors Group on Climate Change (IIGCC) wrote letters to major European companies in November 2020, outlining their expectations governing corporate climate-related accounting.
Investors sought affirmation that boards were taking into account a company’s commitment to reduce its greenhouse gas (GHG) emissions in its accounting assumptions.
Where boards chose not to adjust their accounting assumptions, IIGCC members asked for an explanation and sensitivity analysis to provide visibility into what a Paris-aligned pathway would mean for the company’s financial position.
On April 5, IIGCC members, including BMO Global Asset Management, Rathbones, and Sarasin & Partners, wrote to 17 European companies, asking why their boards were “unable to make the requested disclosures and what steps will be take[n] to address this omission in forthcoming audited accounts.”
“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 altogether,” Stephanie Pfeifer, IIGCC CEO said in a press release. “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.”
In response to this “market-wide problem,” IIGCC members revealed that their request for climate-related accounting disclosure will be added to Climate Action 100+’s net-zero company benchmark as an alignment assessment indicator, forming part of the climate initiative’s future engagement processes.
Where companies fail to provide requested disclosure they should “expect” to see this reflected in investor voting on the reappointment of their auditors, the letters warned.
The 17 companies that received letters include BMW, BP, Enel, Equinor, Glencore, Renault, Rio Tinto, Shell, TotalEnergies, and Volkswagen.