Global investors are pushing for proper account reflection by companies of their costs related to tackling climate change in their accounts. The central aim of the Paris Agreement, signed in 2016 by 194 states and the European Union, is to limit global temperature rises to below 2°C, but aiming for 1.5°C. However, investors worry that companies’ financial statements do not adequately reflect their climate change risks and implications. The issue is that corporations’ public statements on climate change do not align with their actual spendings; many say they plan to cut carbon emissions but do not substantiate this commitment in their financial accounts.
As a result of this, a group of global investors overseeing $9 trillion in assets have written to more than 30 companies, including BP, BMW, EDF Energy, Shell and Deutsche Lufthansa, imploring them to disclose climate-related information in their accounts. According to the Institutional Investors Group on Climate Change (IIGCC), companies need to provide evidence that they are dedicating the necessary proportion of their capital to the long-term goal of decarbonisation and global warming mitigation in order for their financial accounts to be ‘Paris-aligned’.
A recent review by the Financial Reporting Council (the UK audit watchdog) found that very few companies made any reference to climate change costs in their financial statements. However, UK chancellor Rishi Sunak recently announced that the UK would be the first country to require large companies – public and private – to disclose climate-related costs in their accounts. The UK government is committed to net-zero-carbon by 2050, yet large corporations have a responsibility in helping to achieve decarbonisation.
Stephanie Pfeifer, CEO of the IIGCC, has said “companies can no longer afford to ignore what climate change means for their business. Investors need financial impacts of getting onto a net zero pathway to be booked and acted on.”
The drive towards integrity and honesty in tackling climate change is increasingly explored in the current polictical spotlight, with Boris Johnson announcing a withdrawal from investing in oil and gas projects overseas earlier this week. You can read more about the development here!