Investors managing more than $ 2.5 trillion have called on governments to force companies and auditors to file financial accounts aligned with the global goal of net zero emissions, a letter viewed by Reuters showed.

Writing to Britain’s climate czar Alok Sharma ahead of the next round of global climate talks in Glasgow in November, the group said this was crucial in clarifying the financial impact of climate change and spurring investment accordingly.

Governments should demand that companies make clear the financial consequences of a net zero trajectory and that auditors call in companies that have not, the investor group said in the September 14 letter.

It follows a recent study by Carbon Tracker and the Climate Accounting Project which found that more than 70% of the world’s highest-emitting companies did not disclose all risks in their 2020 disclosures, with 80% of audits not showing no evidence that the risk had been assessed. .

“Most (companies) continue to use assumptions that assume little or no decarbonization, and therefore report financial results based on governments failing to implement their stated commitments and, in some cases, targets. legal, ”the letter reads.

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

The upcoming climate conference, dubbed COP26, is considered the most important since governments initially reached an agreement to limit global warming in Paris in 2015, with all parties now urged to step up their efforts.

The UK accounting watchdog has already warned businesses and auditors to do a better job, while global accounting and auditing standard-setters have reaffirmed the need to assess material risks, which may include climate risk.

Although investor organizations with $ 100,000 billion in assets called for Paris-aligned accounts in September, inaction by businesses and auditors meant government action was needed, the group said. investors.

“If we choose to wait for companies to respond to investor pressure, it could take years to provide the numbers we need to invest in a manner aligned with the Paris targets,” the investor letter reads.

Signatories to the letter include a body representing UK local government pensions, the Swedish pension scheme AP2 and investors, including Sarasin & Partners, who coordinated the letter and an accompanying position paper, as well as Candriam and Federated Hermes.

For countries like Britain, which have made achieving net zero emissions a legal obligation, changing the accounting and auditing law would be “very consistent” with other government efforts, said said the group of investors.

The stakes are high. Companies like BP BP.L wrote off billions of dollars last year after lowering their long-term oil price assumptions. Without proper accounting, the money needed to finance the transition to a low-carbon economy could end up in the wrong place.

“Accounts that do not take into account material climate impacts mislead executives, shareholders and creditors and, therefore, result in misdirected capital,” the investor group said.
Source: Reuters (Reporting by Sion Jessop; Additional reporting by Nina Chestney; editing by Greg Roumeliotis and Philippa Fletcher)