ACCOUNTING ASSUMPTIONS
The campaign builds on a previous initiative led by Landell-Mills and an initial core of investors to challenge European oil majors and their auditors over their accounting assumptions in light of the Paris deal. Landell-Mills said that engagement was vindicated in June when British major BP said it would write off up to $17.5 billion from the value of its assets after revising down its long-term oil and gas price forecasts. Anglo-Dutch rival Royal Dutch Shell and France’s Total booked smaller impairments.
Regulators have increasingly been encouraging companies to make voluntary disclosures of how they expect climate change to affect their businesses, and some countries, including Britain and New Zealand, are making these mandatory. But the investors say that accountants and auditors may be failing in their existing legal duties to factor in foreseeable risks linked to both the prospect of rapid decarbonisation and physical impacts from climate change, meaning companies may be overstating their capital. “Too many company accounts are leaving out material climate-related impacts, and this is not just putting shareholder capital at risk; it could have catastrophic consequences for our planet,” according to the investors’ document. The document said investors could exert leverage on the issue by engaging directly with audit committees and company boards, by voting out directors and auditors, and by divesting shares. Bruce Duguid, head of stewardship at the governance advisory arm of Federated Hermes, among the asset managers backing the campaign, said investors would review 2020 accounts for “clear evidence” of response from both board directors and auditors.
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