Two family-owned banks in Europe have backed a heavyweight campaign to force large European companies into adjusting their financial statements for climate costs, pointing out their directors could face regulatory consequences if they fail to act.
Öhman of Sweden and J. Safra Sarasin of Switzerland have each signed a letter sent to 36 companies by the Institutional Investors Group on Climate Change (IIGCC)
Öhman is a banking group set up by Emric Öhman in 1906, although control of the moved to the Dinkelspiel family in 1934. The group is co-owner of Nordnet, a digital bank, currently undergoing a $1.1 billion IPO.
J Safra Sarasin has emerged from the 2013 merger of separate banks owned by the Safra banking dynasty and Sarasin family of Basel, Switzerland. It has a reputation for taking a strong interest in sustainable issues, as does Öhman.
The signatories to the IIGCC letter include churches, institutional managers and pension schemes jointly controlling $9 trillion of assets. The Johnson family’s Fidelity International has also signed it, as well as DWS, controlled by Deutsche Bank.
The letter represents a significant move towards carbon reporting in company reports, representing a more detailed approach than using Environmental, Social and Governance benchmarks in investment funds.
In due course, environmental accounting is likely to lead to carbon benchmarks being used for executive pay, as has been suggested for the banking sector by former Bank of England governor Mark Carney.
Earlier this year, Alan Schwartz, co-founder of Australia’s Trawalla Group family office, said company accounting needed to take account of environmental issues.
The letter points out to recent guidance by the International Accounting Standard Board which explains how climate change risk would be considered by auditors.
“If accounts leave out material climate risks, too much capital will go towards activities that put shareholder capital at risk. Worse still, this puts all our futures at risk.”
The IIGCC letter asks companies to account for how they are taking steps to hit net zero carbon emissions by 2050, in line with the Paris climate change agreement of 2016. If they choose not to comply, they need to explain why, while explaining the impact of climate change on their operations.
IIGCC also asks companies to consider the resilience of their dividend-paying capacity as levels of carbon dioxide rise and regulations to control the situation take effect.
The letter points out that oil majors like BP and Shell are already aligning their statements with climate issues. “There is no need for new regulatory requirements. Indeed, a failure to act may expose directors to regulatory scrutiny.”
The 36 companies receiving the letter operate in the carbon-heavy energy, materials and transport sectors. They would include companies such as Endesa, EDF, Air Liquide, Anglo-American, Glencore, Airbus, Maersk, Groupe PSA (Peugeot) and Renault.