UK investors call on company boards to take climate change seriously and adapt business models

‍Investment Association, a trade body that represents 250 investment managers and asset management firms which collectively manage over £7.7 trillion and own one third of the value of UK listed companies, pronounced itself on the climate crisis for the first time this week. Investment Association announced that climate change will be a priority for investment managers in this year’s annual general meeting (AGM) season. In its new Good Stewardship Guide 2020, the association notes that “[c]limate related risks to companies range from the impact of extreme weather events on business operations and supply chains, to health implications, changes in consumer demand and employee behaviour. As long-term investors in listed companies, investment managers’ ability to create sustainable value on behalf of savers will be driven by how well listed companies identify, manage and mitigate the impact of climate change.”

The association remarks on the need for companies “to explain in their annual report the impact climate change will have on their business model and how these risks are being measured and managed. This will provide essential evidence of how well companies are responding to climate change, and whether they are adapting their strategy to ensure the long-term viability of their businesses.” This announcement comes after the association found that only 30 companies on the FTSE 100 provided relevant climate disclosure.

The association is providing UK listed companies a three-year deadline to provide answers to the following questions (aligned with the Task Force for Climate-related Financial Disclosures (TCFD) recommendations):

1. Does the company describe its governance of climate related risks and opportunities?
2. Does the company describe the actual or potential impacts of climate related risks and how it will assess and manage them?
3. Does the company explain how its strategy takes into account the impact of climate change?
4. Does the company describe climate change related metrics and targets?

“With one-third of the FTSE owned by IA members, our industry is looking to the UK’s largest listed companies to demonstrate that climate change is being taken seriously in boardrooms. Climate change could result in a significant loss of value in companies if risks are not effectively measured and managed, ultimately hitting savers’ pockets. Companies need to be looking at the impact of climate change on their business, products and strategy and set out to investors how they are responding to these risks.”                      

Andrew Ninian, Director of stewardship and corporate governance, Investment Association, Investors Demand Companies Manage Climate Change Risk Ahead of 2020 AGM Season (March 2020)