By Simon Jessop

LONDON – 34 investors managing more than $7 trillion in assets have warned 17 of Europe’s biggest companies, including BP and Volkswagen, that they could challenge board members over their climate risk accounting.

The move is the latest push by investors to pressure companies and their auditors, accusing them of not adapting quickly enough to the world’s transition to a low-carbon economy or being sufficiently aware of the potential impact.

In letters sent between December and February and viewed by Reuters, investors told the companies their accounts did not reflect the impact of climate change on their assets and liabilities. For example, some assets may depreciate more quickly while demand for certain products may fall.

The need for faster action to limit global warming to 1.5 degrees Celsius and mitigate its worst extremes was reiterated by UN climate scientists in a landmark report on Monday.

“Investors cannot understand the true value of a company without knowing the climate risks embedded,” said Natasha Landell-Mills, partner and head of stewardship at investment manager Sarasin & Partners, one of the letters’ signatories, in an interview.

Others to sign are the fund arm of HSBCFrench public pension system ERAFPand BMO Global Wealth Management EMEAPart of US wealth manager Columbia Threadneedle.

Investors have previously tried to pressure the companies on the issue. In 2020, through the Institutional Investors Group on Climate Change, they laid out a set of steps panels needed to take to align their accounts with the Paris Climate Agreement, including changing key accounting assumptions.

Investors found that most companies failed to respond appropriately, leading to a recent spate of letters warning panels they were facing opposition at their upcoming annual general meeting.

“Starting next voting season, you should increasingly expect investors to vote against the reappointment of audit committee directors if high-risk companies fail to meet expectations,” the letters read.

Shareholder votes could also be cast against companies’ decisions to hire their auditors or against a request for approval of their financial statements, Landell-Mills said.

AUDITORSEVENCONTACTED

Air Liquide, Anglo American, Arcelor Mittal, bmwDaimler, Enel, Equinor, Glencore, Rio Tinto, Saint Gobain, Shell, Renault, CRHAlso , ThyssenKrupp and TotalEnergies received letters.

The letters were copied to the companies’ lead audit partners. Separately, the investors also contacted the largest auditors in the UK, US and France regarding the issue.

Landell-Mills said the vote was influenced by the latest financial statements and that Sarasin had decided to vote against Rio Tinto’s financial statements and auditors general assemblyand abstain from voting in the re-election of the Chair of the Audit Committee.

She added that she was pleased to see that Shell included a “sensitivity analysis” in notes on its accounts, released after the letter was sent, showing impairments ranging from $27 billion to $33 billion based on the average prices of four 1.5-2C climate change scenarios. Landell-Mills said she still wanted to know what a pure 1.5C impairment scenario would mean.

Air Liquide and Saint Gobain both said they were connected IIGCC, a European membership organization for investors working on climate change, and that climate risks have been included in their accounts. Anglo American said it was engaged IIGCC.

Mercedes Benz, formerly Daimler, said it is in “continuous and constructive” dialogue with investors and will update its sustainability strategy on April 11. Equinor described its energy transition plan as a Paris-centric path.

Enel said it would not comment on discussions with shareholders. Glencore declined to comment on the letter, but its 2021 annual report includes a sensitivity analysis.

ThyssenKrupp shared a letter of reply IIGCC Member Rathbones Investment Management, in which it said it understands investors’ need for more detailed information and is “currently evaluating how we can accommodate your request”.

The rest of the companies did not respond to requests for comment.

While many companies have committed to achieving net-zero emissions and are under increasing pressure from regulators to disclose their efforts, most have yet to align their business practices, including their accounts, with that goal, investors say.

“During the energy transition, we cannot rely on business-as-usual calculation assumptions. Along with our commitment to being a net zero investor, ensuring corporate accounts are aligned for a 1.5 degree future is a critical first step,” said Matt Crossman, stewardship director at Rathbones.