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ESG roundup: Climate risk, decarbonisation

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  • ESG roundup: Climate risk, decarbonisation

GLOBAL – The Asset Owners' Disclosure Project (AODP) has written to the global heads of the big four accounting firms seeking answers on why fossil fuel companies such as Shell are allowed to downplay climate risk in their optimistic reserve valuations.

At its AGM last month, according to AODP, Shell CFO Simon Henry said his company did not use carbon assumptions in its valuations.

He was quoted by ShareAction as saying there was "no valuation provision in Shell accounts, though an assumed carbon price is built into investment decisions".

AODP executive director Julian Poulter said: "These comments show why asset owners are demanding higher disclosure standards for management of climate risk. How can asset owners have confidence that major investment risks are being managed when highly optimistic assumptions remain unchallenged by fund managers, analysts and auditors?"

He continued: "The time has come for Shell's auditors to order a valuation writedown and for analysts to properly reflect longer-term liabilities.

"While Shell was forced by shareholder activism to disclose its forward assumptions on climate risk in 2010, disturbingly, the golden egg of balance-sheet reserves remains untouched."

AODP has called on all leading asset owners to be proactive about climate risk now rather than await shareholder action demanding cuts to capital expenditure to avoid a carbon bubble.

In other news, two of the UK's business and investor associations have stated that a 2030 decarbonisation target for the power sector is essential to stimulate new growth in the economy ahead of a vote in Parliament.

The current lack of certainty is damaging critical investment in the UK's energy infrastructure, they believe.

The Aldersgate Group and the UK Sustainable Investment and Finance Association (UKSIF) have jointly called on MPs to vote in favour of a target in the Energy Bill that would commit the UK to a near-carbon free power sector by 2030.

Both organisations view this as a good opportunity to put the UK on track to becoming a world-leading low carbon economy, boosting employment and stimulating new growth in the economy.

MPs will vote on 4 June on an amendment to the Energy Bill tabled by Tim Yeo MP and Barry Gardiner MP to ensure that a target to decarbonise electricity, and a framework to deliver it, are in place by 2014.

The government's perceived support for the low-carbon transition is being undermined by the possibility of a commitment to unabated gas in the power sector beyond 2030 and the absence of a specific decarbonisation target.

The Committee on Climate Change has warned that uncertainty is already damaging low-carbon business development, capital allocation, infrastructure investment and innovation.

Analysis by the Confederation of British Industry (CBI) finds that – although one-third of the UK's economic growth in 2011-12 is likely to have come from green businesses – current policy uncertainty could result in the UK losing almost £400m in net exports in 2014-15 alone.

The following 55 organisations jointly called on MPs to vote on 4 June in favour of the amendment: SSE, RSA, RES, PZ Cussons, Cisco, Dong Energy, Repsol, Vestas, Mainstream Renewable Power, EDP Renewables, REpower Systems SE, Interface, Harland and Wolff, The Co-operative, Ecotricity, Seajacks, SeaEnergy, Modus Seabed Intervention, Good Energy, Triodos Bank, UK Sustainable Investment and Finance Association (UKSIF), Scottish Renewables, Renewable UK, Carbon Capture and Storage Association, Solar Trade Association, Renewable Energy Association (REA), Anaerobic Digestion & Biogas Association, Carbon Connect, Forum for the Future, RegenSW, Business in the Community, The Church of Scotland, The Methodist Church, the Baptist Union of Great Britain, the United Reformed Church, Quakers in Britain, Operation Noah, CAFOD, 10:10, National Farmers Union, Unison, the TUC, NUS, UNICEF UK, British Association for Sustainable Sport, IPPR, Association for the Conservation of Energy, RSPB, Friends of the Earth, Christian Aid, Greenpeace, Oxfam, Woodland Trust, Women's Institute and WWF-UK.

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