Disclose climate risks or face divestment, investors warn Europe’s largest companies

A coalition of investors representing more than $9trn of assets has asked some of Europe's largest and highest-emitting companies, like Shell and Maersk, to prove they are aligning with the Paris Agreement and to improve climate risk disclosure.

Disclose climate risks or face divestment, investors warn Europe’s largest companies

Oil and gas majors

In an open letter to 36 companies, the Institutional Investors Group on Climate Change (IIGCC) is calling for better climate risk disclosure and more robust proof that companies are acting in line with climate science.

The open letter asks recipients to “properly reflect” the implications of the net-zero movement in their financial statements – both in terms of stranded assets in the future, and the costs businesses will have to incur as carbon pricing requirements get tougher.

Recipients of the open letter include EDF, Engie, E.ON, Equinor, Iberdrola, BP, Shell, Total, Eni in the energy sector. In the materials sector, the letter has been sent to the likes of BASF, BHP, Glencore and Lafarge-Holcim. Transport giants to receive the letter include Airbus, BMW and Volkswagen.

The IIGCC said it selected the companies due to their exposure to transition-related and reputational climate risk. Collectively, the recipients have a total combined value of $1.7trn by market capitalisation and combined revenues of $3.2trn.

As well as the letter, each company received a copy for the IIGCC’s Investor Expectations for Paris-Aligned Accounts. The framework outlines the climate expectations of investors and the ways on which investors will penalise companies whose accounts are not ‘Paris-Aligned’ and do not have robust plans to change.

“We are at a crossroads in our battle against climate change – either we get serious and start shifting capital flows towards activities aligned with the Paris Agreement, or we continue to talk about it,” the framework’s author, Natasha Landell-Mills, said.

“Paris-aligned accounts are amongst the most important changes that will drive system-wide capital redeployment. Put simply, we need Paris-aligned accounts to drive Paris-aligned behaviour, thereby protecting capital for all. This is hopefully something that all companies and their shareholders can coalesce around.”

Banking on change

In related news, think-tank the New Economics Foundation has this week sent a letter to chancellor Rishi Sunak and Bank of England Governor Andrew Bailey, urging changes to the bank’s mandate in light of the UK’s net-zero target.

The letter calls for the government to give the bank more powers to cut the emissions of companies it invests in – and for further regulation around unified climate risk disclosure and action. Sunak confirmed earlier this month that the Financial Conduct Authority (FCA) will require all publicly listed UK companies with a premium listing to “comply or explain” with the TCFD’s requirements by 2023. Rules will then be tightened and extended further in 2025, subject to consultation.

While the letter praises this measure, it warns that more must be done to join up climate risk reporting and resulting action.

“The 2008 global financial crisis served as a wake-up call to the reality that financial markets left to their own devices are prone to excessive risk-taking,” the letter states.

The letter also recommends that the UK launches a national investment bank with the net-zero transition as a core remit – a request that has been made by many green groups including UK100 since the Brexit vote. Once the transition period is complete, UK-based projects will not be able to apply for funding from the European Investment Bank (EIB), which is striving to become a ‘climate bank’ for the bloc’s transition to net-zero by 2050.

Sunak may signal his intentions on such a bank at the Spending Review later this month. Alternatively, Boris Johnson may confirm the government’s stance as he announces his ten-point green recovery plan. The plan is expected to be unveiled this week.

Sarah George

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