AP2, PKA and USS Investment Management are among more than 30 major global investors who have written to some of Europe’s largest companies to call on them to properly reflect in their financial statements the implications of global climate change mitigation commitments.

AP Pension, Brunel Pension Partnership, LGPS Central, and RPMI Railpen were among other dedicated pension investors that put their name to the letter.

The intervention comes via the Institutional Investors Group on Climate Change (IIGCC), which in a new guide also set out investor expectations for “Paris-aligned accounts”.

“Investors need financial impacts of getting onto a net-zero pathway to be booked and acted on,” said Stephanie Pfeifer, CEO of the IIGCC.

“Climate change is material and the importance of alignment with the Paris Agreement is beyond doubt, what investors now need is visibility from companies in their accounts. They are making this clear today and expect companies to report in line with existing global accounting standards.”

The investor expectations guide sets out five disclosures that directors should make in their annual report and accounts, including an affirmation that the goals of the Paris Agreement were considered in drawing up the accounts, and explanations about critical assumptions and estimates in relation to achieving net-zero emissions by 2050.

The guide also outlines specific investor expectations for auditors, who are being asked to make clear when accounts are not “Paris-aligned”, and highlights voting and other actions investors will take where their expectations are not met.

The investor letter was sent to 36 companies, selected due to their exposure to decarbonisation risks. The companies include the likes of Airbus, BASF, Iberdrola, and Renault Group.

In it, the investors state that their expectation for Paris-aligned financial statements ”is additional (and complementary) to current demands for narrative reporting in line with the Financial Stability Board’s Task Force for Climate-related Financial Disclosures (TCFD)”.

“Paris-aligned accounts are amongst the most important changes that will drive system-wide capital redeployment”

Natasha Landell-Mills, head of stewardship at Sarasin

The letter was authored by Sarasin & Partners LLP, which has led significant activity in partnership with other investors on the topic of Paris-aligned financial reporting.

“Paris-aligned accounts are amongst the most important changes that will drive system-wide capital redeployment,” said Natasha Landell-Mills, head of stewardship at Sarasin.

“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.”

Last year, BP, Royal Dutch Shell and Total announced material writedowns after adjusting critical accounting judgements. These and a few other companies received an amended letter from the investor group to reflect previous engagement on the topic of Paris-aligned financial accounts.

According to the investors signing today’s letter, the steps taken by BP, Shell and Total showed that aligning financial statements with the Paris Agreement “is not just  feasible but can be done quickly”.

Today’s intervention comes after IIGCC and other investor groups in September backed a briefing note issued by the IASB, which sets accounting standards in the bulk of the world, that material climate change risks must be incorporated in IFRS financial reporting.

The IIGCC guide on ‘Investor Expectations for Paris-aligned Accounts’ can be found here, and the letter to companies here

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