Investors urge companies to account for climate-related risks

The impact of climate change risks on company profits and assets is now so high that it should be included in their financial reports, according to a group of investors.

The investors, who hold over $100tn in assets, want companies to publish their financial reports and accounts in line with guidance from the International Accounting Standards Board (IASB), which wants information about climate-related risks included in financial statements.

The group says that companies drawing up accounts need to consider material climate change effects and be in line with the 2016 Paris Agreement to limit global warming to well below two degrees Celsius. Auditors should only sign off financial statements which meet these standards, the group adds.

Incorporating climate into financial reporting will provide shareholders with a much more comprehensive picture of how material an impact such risks have on their business. The investors believe that many companies will have to revaluate their assets to ensure they are sustainable in the future.

The move is being led by the Principles for Responsible Investment (PRI), the world’s biggest industry body for responsible investing.

Other investors in the group include the UN Environment Program Finance Initiative, the UN-convened Net-Zero Asset Owner Alliance initiative, the Institutional Investors Group on Climate Change, Investor Group on Climate Change, the Asia Investor Group on Climate Change and the Pensions and Lifetime Savings Association.

Companies that have understated the effect of climate-related risks could see their profits severely dented, with those in oil and gas, utilities and transportation the most impacted.

BP recently declared a $16.8bn loss after recognising that the values it had placed on its assets were inconsistent with climate and other considerations. The energy major also began a review of its future capital expenditure.

The effects of understating climate change risks are potentially huge, with many other companies facing potential write-offs of similar magnitude to those at BP.

“The world cannot afford business as usual, but that is what too many companies are currently pricing in with regards to climate change risks,” says PRI chief executive Fiona Reynolds.

“In order for us to invest properly for the long term, a sustainable future needs to be factored in when calculating any company’s profits and assets. That is what the IASB statement demands - and so do investors,” she adds.