Sarasin & Partners LLP has been a long-standing advocate for ensuring that company accounts incorporate the financial consequences of climate change. In 2018, we published a report setting out our concerns that listed European energy companies were failing to provide transparency over how global decarbonisation was being reflected in critical forward-looking accounting assumptions. In 2022, we worked with the Institutional Investor Group on Climate Change (IIGCC) to publish clear investor expectations for company audit committees and auditors to ensure financial statements and the associated audits address investor concerns. By working with other investors to engage with a number of companies, auditors and accounting regulators, this issue has now gained widespread support.
Notwithstanding examples of leadership by some companies, the overall picture remains one of either boilerplate statements or silence on climate issues in companies’ financials. Carbon Tracker's latest review showed little progress. This is why the IASB’s proposed Exposure Draft is both welcome and important.
As with anything new, it can take time to adjust past behaviours. With climate change, in particular, it is vital we look forward to prepare for structural shifts, and stop relying entirely on past models. To do so would permit the build-up of climate-related risks in companies, undermining investor protection and increasing dangers of market instability. The IASB’s detailed and concrete examples for how decarbonisation and physical climate impacts will likely affect future company cash flows is, therefore, extremely timely for supporting this shift. They help bring to life the reality of the changes we face, so we can sooner act to prepare. It deserves to be supported and implemented as quickly as possible.
Sarasin & Partners' submission can be downloaded here.
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