British companies that fail to thoroughly report the risks they face from global warming will come under intense scrutiny during the upcoming annual meeting season after an influential investor lobby group said it would issue “amber warnings” for climate laggards.
The Investment Association, the UK’s trade body for asset managers with £8.5tn under management, said it will flag for the first time when companies in high-risk sectors fail to report under the Task Force on Climate-related Financial Disclosures, the framework spearheaded by former Bank of England governor Mark Carney.
Companies that are deemed to be falling short will be issued with so-called amber tops by the IA’s Ivis proxy advice service, which is widely used by asset managers ahead of annual meetings. An amber top, which indicates a significant issue for investors to consider, could lead to shareholders voting against either directors or the accounts.
The IA said fund managers needed companies to report on “climate-related risks in a consistent, clear and comparable manner” to ensure investors can make better informed long-term investment decisions and understand how prepared businesses are for the transition to a low-carbon economy.
“As stewards of the economy, investment managers have an important role to play in supporting companies transition to a more sustainable future,” said Andrew Ninian, director for stewardship and corporate governance at the IA.
“Having clear and consistent data on the climate-related risks faced by companies is vital to achieve this, and investors will now be placing additional pressure on those that fail to provide this information.”
He added that the UK was at a “critical juncture” as the country looked to rapidly cut its carbon emissions.
Under plans from the UK government, all businesses will have to report under the TCFDs by 2025 while groups with a premium listing will be required to do so on a comply or explain basis from next year. But the IA says it wants companies to provide this information for the upcoming annual meeting season.
The investment body also warned that even when companies reported climate risks, many were not doing a thorough job. According to its analysis the number of FTSE 100 companies saying they are using the TCFDs more than doubled last year to 77, but only half reported under all four pillars of the framework — governance, strategy, risk management and metrics, and targets.
Research from the UK’s Financial Reporting Council last year found a similar problem, with only a quarter of the 60 UK-listed companies it sampled making any reference to climate change in their financial statements and their disclosures generally not going beyond existing accounting standards.
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The IA’s focus on the TCFDs is being echoed by individual asset managers, including BlackRock and Aviva Investors, which are also piling pressure on companies to report in line with them. Aviva Investors warned last month that it would divest from companies that failed to show they were preparing for a low-carbon economy, including reporting under the framework.
According to the TCFD, 1,500 organisations globally — including more than 1,340 companies with a market capitalisation of $12.6tn — have said they support the initiative. But it warned last year that asset managers were not providing enough information about climate risks at the companies they invest in to enable clients to make informed choices.