After BP takes a hit, investors widen climate change campaign
Investors managing £1.8 trillion ($2.2 trillion) in assets
are widening a campaign pressing oil majors to better reflect climate risks in
their accounting, and will soon target other businesses with heavy fossil fuel
exposure, the group said on Monday.
The investors believe their campaign is working, noting the
"hugely important" news of BP joining other oil majors in lowering
the value of its assets amid a global transition to cleaner energy, said
Natasha Landell-Mills, head of stewardship at asset manager Sarasin &
Partners.
"The question all company directors and their
shareholders now need urgently answered is, 'Where else might company positions
be overstated?'" the group of more than 20 leading funds said in a joint
statement seen by Reuters.
BP declined to comment on the campaign.
The investor group can't be certain whether its efforts
played into BP's decision to reduce the value of its assets by up to $17.5
billion, announced on June 15.
But they have already begun lobbying building materials
company CRH and plan to write to Anglo-Australian miner Rio Tinto, which
supplies the steel industry. Along with cement, steel is a major source of greenhouse
gases.
"We will be rolling out similar engagements with other
fossil fuel-dependent companies," Landell-Mills, who is coordinating the
campaign, told Reuters in an interview.
The investors were also planning to include European and
U.S. banks financing fossil fuel projects, Landell-Mills added.
Rio Tinto and CRH declined to comment.
Early last year, the investors began lobbying the Big Four
accounting firms - EY, Deloitte, PwC and KPMG - to do more to ensure
climate-related risks are adequately reflected in company financial statements
they audit.
The campaign is one of a number of efforts by investors to
push companies on environmental policies, amid concerns many businesses are
both contributing to the planet's warming while also failing to take full stock
of the risks they face.
Major fund managers including BlackRock have issued
increasingly strident public statements about climate change, while other
investors have threatened to pull money out of Brazil unless Amazon
deforestation is curbed.
The campaign led by Sarasin & Partners emphasizes the
legal duty companies have to ensure their financial statements fully reflect
how government moves to ratchet up climate action and the falling costs of
renewable energy are likely to affect future profitability.
"It's a very serious thing from their
perspective," said Landell-Mills. "This is a matter of ensuring there
is no misrepresentation going on."
Accounting for potential future losses can weaken a
company's balance sheet, making it harder to finance new investment in
carbon-intensive activities such as oil exploration, the investors argue.
The coalition includes Sarasin & Partners, M&G
Investments, Jupiter Asset Management, NN Investment Partners and pension funds
such as the Brunel Pension Partnership and Denmark's PKA.
"POTENTIALLY OVERSTATING"
Although it was difficult to independently assess the impact
of the campaign, Landell-Mills pointed to a series of moves that align with the
investors' demands in letters
https://sarasinandpartners.com/stewardship-post/paris-aligned-accounting-is-vital-to-deliver-climate-promises
sent to BP, Anglo-Dutch major Shell and France's Total in November.
In the letters, seen by Reuters, the investors questioned
whether the companies' oil price assumptions, which form the bedrock of their
accounts, were aligned with the 2015 Paris climate accord, which implies sharp
cuts in fossil fuel use.
Before BP's writedown, the group's letter to the British oil
major said: "We have concerns that, at present, BP's accounts may be
overlooking material climate considerations, and consequently potentially
overstating both performance and capital." The same language was used with
Shell and Total.
Total did not immediately respond to a request for a
comment. Shell said it had "comprehensively responded" to similar
demands by the investor group, and included climate risks in its accounts.
"Since that time, Shell has also published an ambition to be a net zero
energy company by 2050, or sooner," Shell said in an email to Reuters on
Sunday.
Last week, BP cut its benchmark Brent oil price forecasts to
an average of $55 a barrel until 2050, from $70, saying it expects a collapse
in oil demand during the coronavirus pandemic to accelerate a low-carbon
transition.
BP also said it would have to review some plans for early
stage oil and gas exploration projects.
Meanwhile, Shell also lowered its long-term Brent crude
expectations to $60 a barrel, from the 2018 price of $70, in its 2019 annual
report published in March. Total also reduced its price assumptions at about
the same time.
While majors often adjust price assumptions, the investors
noted that Shell's auditor's report contained substantially more references to
climate risks than the previous year.
"It's tip of the iceberg," Landell-Mills said.
"And investors will have to understand that they (oil majors) are not
going to be able to pay dividends like they did before."
($1 = 0.8102 pounds)
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