Global investors call for the Paris Agreement to be factored into financial reporting

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19 Nov, 2020

The Institutional Investors Group on Climate Change (IIGCC), the European membership body for investor collaboration on climate change, has published 'Investor Expectations for Paris-aligned Accounts'.

The publication notes that companies can no longer afford to ignore what climate change means for their business as climate change is material and investors need visibility about the effects in company accounts. The group is therefore, not calling for sustainability disclosures or reports but for reflecting climate change effects in IFRS accounting. In an article published in November 2019, IASB Board member Nick Anderson had already explained how IFRS requirements can be used to report on climate and other emerging risks.

Investor Expectations for Paris-aligned Accounts sets out investor expectations in five clear steps companies can take in preparing ‘Paris aligned’ company accounts:

  • An affirmation that climate risks are incorporated into the accounts;
  • Adjustments to critical assumptions and estimates;
  • Sensitivity analyses and their results linked to variations in judgements or estimates;
  • Dividend resilience and implications for dividend paying capacity of Paris-alignment; and
  • Confirmation of consistency between narrative reporting on climate risks and the accounting assumptions.

The publication also outlines specific investor expectations for auditors to call out where accounts are ignoring material climate risks; making it clear they should say when accounts are not ‘Paris-aligned’.

Where these expectations are not met, three courses of investor action are identified: engagement (engage with boards and audit committees to press for Paris-aligned accounting), vote (vote against reappointments where performance is inadequate) and divestment (sell shares in companies that fail to provide reliable 'Paris-aligned' accounts).

Please click to download Investor Expectations for Paris-aligned Accounts from the IIGCC website.

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