{"id":682,"date":"2020-06-22T11:39:06","date_gmt":"2020-06-22T11:39:06","guid":{"rendered":"https:\/\/www.esgtoday.com\/?p=682"},"modified":"2020-06-22T11:53:23","modified_gmt":"2020-06-22T11:53:23","slug":"institutional-investors-fossil-fuel-companies-must-align-numbers-with-paris-agreement","status":"publish","type":"post","link":"https:\/\/www.esgtoday.com\/institutional-investors-fossil-fuel-companies-must-align-numbers-with-paris-agreement\/","title":{"rendered":"Institutional Investors: Fossil Fuel Companies Must Align Numbers with Paris Agreement"},"content":{"rendered":"\n

A group more than 20 institutional investors and pension funds has released details of a campaign they have embarked on calling on major fossil fuel-linked companies to adjust accounting assumptions and disclosures to account for the effects of the Paris Agreement.<\/strong><\/p>\n\n\n\n

The Paris Agreement is a multi-nation pact developed by parties to the United Nations Framework Convention on Climate Change (UNFCCC) to combat climate change. The agreement\u2019s main goal is to limit the global temperature increase in this century to below 2 degrees Celsius above pre-industrial levels, and to work toward limiting the increase to 1.5 degrees. The Paris Agreement was drafted in December 2015, and went into effect as of November 2016.<\/p>\n\n\n\n

Clearly the implementation of the agreement will have a major impact on energy companies<\/strong>, as it implies a major transition over the coming decades in the world\u2019s primary energy sources, from those that rely on carbon-based fossil fuels to cleaner, renewable sources. Companies who businesses rely heavily on fossil fuels will need to undergo major transformations, impacting their operations and the valuation of their primary assets<\/strong>.<\/p>\n\n\n\n

In an investor \u00a0statement released today, Natasha Landell-Mills, Partner and Head of Stewardship at investment manager Sarasin & Partners, one of the signatories of a letter sent to the companies wrote that last week\u2019s announcement by energy major bp that it would record a financial impairment of $13 – $17.5 billion<\/strong> represents a major milestone in this campaign. bp\u2019s impairment was driven by the change in its oil and gas price assumptions to $55 per barrel and $2.90 per million British thermal units, respectively, and represent 13% – 17% of the company\u2019s net assets.<\/p>\n\n\n\n

Landell-Mills praised bp\u2019s actions, writing,<\/p>\n\n\n\n

\u201cThis move by BP should be commended. It is hugely important, not just to BP shareholders who now have greater clarity over climate risks embedded in the business, but it has far-reaching implications for the world\u2019s ability to deliver on its commitment to the Paris Agreement.\u201d<\/p><\/blockquote>\n\n\n\n

The group of investors engaged bp in its campaign in November, and sent parallel letters to other energy majors, including Royal Dutch Shell and Total<\/strong>. While Shell and Total have also lowered their oil and gas price assumptions, the statement notes that most other companies have yet to bring their assumptions in line with the Paris Agreement, and calls on them to do so:<\/p>\n\n\n\n

\u201cOther fossil fuel dependent companies need to sit up and take note. Based on our analysis of major European fossil fuel companies\u2019 2019 financial statements\u2026 it is clear that almost none have aligned their critical accounting assumptions with the Paris Agreement. The level of BP\u2019s impairments demonstrates the potential materiality of this risk hidden in companies\u2019 balance sheets.\u201d<\/p><\/blockquote>\n\n\n\n

The engagement letters sent to the companies asked for the issuance of the following specific disclosures (source: Sarasin & Partners<\/a>):<\/p>\n\n\n\n