Home Business framework $7 billion investor coalition pressures high-carbon companies to disclose climate risks

$7 billion investor coalition pressures high-carbon companies to disclose climate risks

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Image: BP

The corporate cohort, which also includes major automotive, industrial and mining companies, is being accused by investors of “continued omission” of climate risks from reporting. A total of 34 investors co-signed letters to the chairs of each company’s audit committees, with this group of investors representing more than $7.1 billion in assets under management (AUM).

All investors signing the letters are members of the Institutional Investors Group on Climate Change (IIGCC).

Sent today (April 5), the letters say investors need more reassurance that high-emitting companies are considering the impact of the global low-carbon transition on their future economic performance. Around 90% of global GDP is now covered by the net zero goals of nations and regions. In particular, all mail recipient companies are based in Europe. The EU has set a net zero target for 2050 and an intermediate ambition to reduce emissions by 55% by 2030.

The companies receiving the letter today have already been contacted by the IIGCC about the climate disclosures last November and have not yet made the requested information public. Investors want companies to assess and disclose likely risks under a 1.5C temperature trajectory scenario.

The companies that received a letter are Air Liquide, Anglo American, ArcelorMittal, BMW, BP, CRH, Daimler, Enel, Equinor, Glencore, Renault, Rio Tinto, Saint-Gobain, Shell, ThyssenKrupp, TotalEnergies and Volkswagen.

The letter states: “We understand that [your company] faces challenges in transitioning to a net zero business model. However, the longer the Board delays making the net zero accounting adjustments, the longer it will delay the necessary shift of capital to a low-carbon business model. Any misallocation of capital today increases the risk of larger write-downs – and associated destruction of shareholder capital – in the future.

He then warns companies that other investors will take a similar stance to prioritize the transition to net zero and as such companies can increasingly expect investors to vote against them when general assemblies unless they provide credible climate plans and solid information.

The letter also highlights that a cohort of companies far larger than those receiving a copy are lagging behind in climate disclosure, in a trend that carries growing risks for the future. A 2021 analysis of the annual reports of 107 listed companies in carbon-intensive sectors, conducted by Carbon Tracker, found that 70% did not include climate-related risks in their financial documents.

TCFD time

The letters notably come the same week as the UK government introduces mandatory climate risk disclosure for some large businesses and financial firms. It is the first major economy to introduce such a mandate, with countries like New Zealand, Switzerland and France set to follow suit in the coming years.

From Wednesday April 6, listed companies and certain other large businesses will be required to measure and report climate-related risks and opportunities in line with recommendations from the Taskforce on Climate-related Disclosures (TCFD). The TCFD framework covers governance, strategy, risk management and climate objectives.

A key and unique facet of the TCFD framework is that it encourages companies to undertake scenario analysis. This involves mapping likely risks and opportunities for the company’s value chain across a range of global warming trajectories, including those defined in the Paris Agreement.

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