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Promoting action to combat climate change

Climate change poses physical risks to our investments, and the scientific evidence shows that this risk is increasing. Moreover, the economic analysis of climate change is increasingly highlighting the heavy costs that society will pay from delayed action, as well as the relatively moderate costs of immediate action.

For investors to act on the scale required to limit warming to 2°C above pre-industrial levels – the internationally agreed target – governments must provide a long-term regulatory framework that incentivises lower carbon investments.

We are thus calling on governments to show leadership and implement robust action. In our view, the following three policy actions are vital to catalyse greater and faster investment in this area:

  1. Implement a carbon price or tax that reflects the real economic cost of emissions;
  2. Accelerate the phase-out of subsidies to fossil fuel consumption; and
  3. Set meaningful energy efficiency targets and emission requirements for buildings, industry and transport

Where are we now?

We are currently engaging with regulators to ensuring proper reporting on material climate risks, how they could impact the long-term delivery of value for shareholders, and how the stated long-term strategy ensures the business navigates these risks. This is a prerequisite for prudent and long-term capital stewardship, and crosses over with our work on audit and accounts.

Long-term stewardship

We have been leading the way, alongside like-minded investors, in engaging with both fossil fuel companies and those who are dependent on fossil fuels.

December 2019 - Chevron announces decision to lower long-term price assumptions

We believe that long-term price assumptions made by fossil-fuel-extractive companies in their reports and accounts need to be carefully scrutinised to ensure that they give consideration to a decarbonising world.

We therefore welcome the news that oil and gas company Chevron has announced its decision to lower the long-term commodity price assumptions used in its accounts, in a press release about its capital and exploratory budget for 2020. It reported that this reduction resulted in a $10-11bn impairment on gas and other assets. Chevron further stated that it would be applying increased capital discipline going forward.

This announcement comes just a few days after the Spanish oil and gas company Repsol set out its decision to cut the long-term commodity price assumptions used in its accounts, resulting in a EUR4.8bn impairment.

These announcements are significant. They reflect oil and gas companies’ growing realisation that they face structural reductions in long-term oil and gas prices, rather than merely cyclical lows. Repsol explicitly linked its accounting adjustment to the need to align with the Paris goals and the new economic reality of decarbonisation.

We have been calling on oil and gas companies to review these long-term commodity price assumptions used in financial statements for the past two years (see below), and believe that these announcements are just the beginning of what is to come. Based on our analysis, oil and gas companies have generally used between $70-85 per barrel for impairment testing. And yet Carbon Tracker, a climate research firm, and Aurora, a market intelligence firm, have both suggested Paris-aligned commodity prices closer to $30-40 per barrel.

It is vitally important that audit committees and audit firms act sooner rather than later to ensure prudent assumptions are used, despite the risk of impairments. Overstatement may encourage excessive investment into new fossil fuels. This will not only increase the risk of assets being stranded in the future but work against efforts to combat climate change.

December 2019 - We commend Repsol SA for aligning itself with the Paris goals

We have been pressing fossil fuel companies to commit to align with a net zero emissions pathway by 2050 for some time. It is good to see energy company Repsol showing this leadership, including clear milestones along the way.

Critically, it is aligning its financial statements with this goal, by lowering the long-term oil and gas price assumptions that underpin asset valuations on the balance sheet. Bringing these assumptions down to levels that reflect the anticipated structural reductions in demand linked to decarbonisation has resulted in a EUR4.8bn impairment.

Repsol taking this step should cause other large oil and gas companies and their auditors to ask themselves whether they may also be using excessively optimistic oil price assumptions when drawing up their balance sheets. Alongside several other investors we have recently written to audit committee chairs at leading oil and gas companies Shell, Total and BP to seek comfort that these price assumptions are prudent. This comes on the back of our letters to audit firms in January, published last week below, on the same topic.

In the end shareholders need to know their companies are looking forward, not back, when it comes to the energy transition.

Read Repsol SA's announcement

November 2019 - We urge auditors to incorporate climate risks into company accounts

As the world decarbonises, companies are beginning to recognise the potentially material headwinds they face. Yet few of them are reflecting these risks in their financial statements. Likewise, hardly any of them detail the extent to which they might be affected by physical impacts from climate change in their annual reports to shareholders. This needs to change.

In January this year, we worked with other investors to send letters to the managing partners of the UK arms of the Big 4 audit firms: PWC, KPMG, EY and Deloitte. The letters set out expectations that auditors ensure material climate risks are incorporated into company accounts, alongside more detailed disclosures in the narrative reports to shareholders as recommended by the Task Force for Climate-related Financial Disclosures (TCFD).

Read our letter to PWC

Read our letter to KPMG

Read our letter to EY

Read our letter to Deloitte

October 2019 - Asset managers must use their votes to tackle climate change

Head of Stewardship Natasha Landell-Mills writes in the Financial Times, explaining why asset managers have a responsibility to help address the climate crisis. They are tasked with overseeing companies and voting for boards of directors on behalf of millions of savers, giving them the power to make a difference.

Read the article

July 2019 - We write an open letter to Royal Dutch Shell

After a long engagement with Royal Dutch Shell, we wrote an open letter to the Chair in explaining our decision to sell our shares in the business for our clients following our Climate Active strategy. We also urged the Directors to rethink their capital deployment plans in order to demonstrably align with the goals of the Paris Agreement.

The letter was initially endorsed by the following clients: The University of Leeds; St Hugh's College, Oxford; Earthwatch Europe; The Actors' Children's Trust; The Congregation of the Passion of Jesus Christ; The Frank Jackson Foundation; The Royal College of Radiologists; Barrow Cadbury Trust; The Cameron Fund; Hackney Parochial Charities; Milton Keynes Parks Trust Limited; The Sisters of the Sacred Hearts of Jesus and Mary; and West Hackney Parochial Charity.

Since we sent it, the letter has been additionally endorsed by: BMA Charities; The Congregation of Jesus.

Read the letter

June 2019 - Global Investor Statement on Climate Change

We signed the Investor Agenda's Global Investor Statement to Governments on Climate Change, which was sent to governments meeting at the G20 Summit in Japan. It was supported by a record number of investors, and declared strong support for the Paris Agreement and the implementation of its goals, calling on governments to:

  • Achieve the Paris Agreement's goals
  • Accelerate private sector investment into low carbon transition
  • Commit to improve climate-related financial reporting

Read the Investor Agenda's press release

May 2019 - Funds uncertain on oil and gas path

Head of Stewardship Natasha Landell-Mills is quoted by Investors Chronicle in an article responding to results from the survey conducted by the UK Sustainable Investment and Finance Association. The article holds Sarasin & Partners up as an example of an asset manager that is committing not just to engage, but then to act through voting, speaking out and ultimately divesting to drive change in companies who are ignoring the Paris goals.

Read the article (registration required)

Read our Climate Pledge

February 2019 - Climate change and green finance

Further to a request for feedback on the discussion paper entitled 'Climate change and green finance', we made a submission to the FCA in concert with the Local Authority Pension Fund Forum (LAPFF).

This submission incorporates several strands of our prior climate risk reporting and accounting representations.

Read our submission

December 2018 - Power companies must accelerate decarbonisation and support ambitious climate policy

Sarasin & Partners is pleased to support the call to action for power companies, led by the CA100+ initiative, as shown in a letter published in the Financial Times. Power companies play a particularly important role in driving decarbonisation, and need to show leadership if the world is to meet the Paris Accord’s goal of keeping temperature increases “well below 2C."

Read the letter (subscription required)

November 2018 - We urge G20 leaders to end fossil fuel subsidies

We, along with eight other investors, signed a joint statement urging G20 governments to set a concrete timeline to end all forms of government support to fossil fuels by no later than 2020. The statement also warns how continued government support for fossil fuels increases the risk of creating stranded assets within the energy sector and can also decrease the competitiveness of key industries, including low-carbon businesses.

Read the statement

August 2018 - Optimistic oil price forecasts 'over-value' majors' assets

Inspired by Natasha Landell-Mills' article, the Financial Times write about how the world's biggest oil companies are systematically over-valuing their assets.

View the article (subscription required)

August 2018 - Oil companies must come clean about their price estimates

Natasha Landell-Mills, Head of Stewardship, writes in the Financial Times on the issues raised by our latest paper on oil and gas companies' long-term oil price estimates.

Read the article

August 2018 - Are oil and gas companies overstating their position?

We believe that oil and gas company financial statements may be using overly optimistic price assumptions.

Read our paper

April 2018 - Keep fossil fuel companies inside climate change tent

Natasha Landell-Mills' article about selling extractive industry stocks was published in FTfm. Natasha asks for those concerned about the environment to engage actively to drive change rather than simply selling as a blunt instrument.

Read the article

December 2017 – A framework for pension fund action on climate change

The PLSA launched its guidance on ensuring climate risks are accounted for in pension investments. The paper highlights the pressure pension funds are under to respond to climate risk, and thus how the Sarasin Climate Active strategy could offer a solution.

Read the report

December 2017 – Climate Action 100+

In line with our Climate Active strategy, we have signed up to Climate Action 100+.This initiative brings together institutional investors from around the world to coordinate engagements with companies in support of the Paris Climate Agreement to hold temperature increases to “well below 2°C”. The five-year effort will target the largest listed corporate emitters, taking into account not only direct emissions from operations, but also emissions from the supply chain and product/service consumption.

Find out more

December 2017 – Shareholders should help deliver decarbonisation

Together with clients and members of our Climate Active Advisory Panel, we wrote a letter to the Financial Times calling for shareholders to use the levers they have to push for companies to respond to the climate challenge. While divestment has gained considerable traction in recent years, the letter argues that global decarbonisation demands that shareholders proactively engage in driving change.

Read the letter (subscription required)

December 2017 – Climate change and professional liability risks for auditors

ClientEarth has released a report on auditors’ duties to ensure material climate risks are reflected in companies annual reports. It outlines the implications of climate-related risks for auditors’ legal and professional duties and warns of increasing risks of shareholder pressure, regulatory intervention and legal liability if auditors fail to take these duties seriously.

Read the report

July 2017 – Shareholders should hold directors and auditors to account on climate risks

Climate risk is not a SRI or ethical issue alone – it is a threat to capital. In an article for the Financial Times, Head of Stewardship Natasha Landell-Mills calls for investors to vote against annual reports and auditors where disclosures are misleading.

Read the article (subscription required)

March 2017 – Position paper on climate risks reporting

The disconnect between existing company reporting rules and the lack of disclosure of climate risks needs to be urgently addressed. This Position Paper calls on all companies to assess and report their climate-related risks within their annual report to shareholders. This is not only a prerequisite for prudent and long-term capital stewardship; it is also a requirement for listed companies in most jurisdictions. It is time companies and their regulators ensured these rules were being properly implemented.

Read the paper

January 2017 – Climate Risk and the Law Breakfast Seminar

Head of Stewardship Natasha Landell-Mills sat on the panel at this event, discussing the crucial role that regulators and policy makers have in protecting the value of investment portfolios, and minimising climate liability risks.

Find out more

October 2016 – Letter to the FRC regarding ClientEarth's Soco and Cairn complaints

We recently wrote to the the Financial Reporting Council (FRC) lending our support to the formal legal complaints filed by ClientEarth against Soco International and Cairn Energy in August 2016.

Read the letter

August 2016 – ClientEarth reports Cairn and Soco to the Financial Reporting Council

Head of Stewardship, Natasha Landell-Mills, welcomed ClientEarth's recent complaints about failures to report climate risks at Soco International plc and Cairn Energy plc. This complaint builds on work that Sarasin & Partners have been undertaking with ClientEarth and other long-term investors to promote disclosure of material climate risk (see the position paper and letter to the FRC below). The Financial Times reports on the latest claims as the FRC begins to examine ClientEarth's suggestions.

Read the article (subscription required)

April 2016 – Investors vote for climate transparency

ClientEarth reports on the shareholder resolutions we co-filed at Glencore and Rio Tinto as part of the ‘Aiming for A’ investor coalition, requiring the Boards to report to shareholders how they are managing their climate risks. Both resolutions were overwhelmingly approved, meaning that the companies are legally obliged to implement them.

Read the article

April 2016 – Submission to the TCFD

We wrote to the Chairman of the Task Force on Climate Related Financial Disclosures (TCFD) about our concerns with their report released on 1 April 2016.

Read the letter

January 2016 – Letter to the FRC on ensuring companies viability statements address climate risks

We recently coordinated a letter to the UK accounting regulator, the FRC, asking that they consider providing guidance to ensure fossil fuel dependent companies disclose their assessments of climate risks as part of their “Viability statements” that are required from October 2015.

Read the letter

January 2016 – Letter to the International Accounting Standards Board about climate risk

We submitted a letter to the International Accounting Standards Board highlighting the need for research into how companies should assess and disclose any foreseeable losses / impairments / liabilities associated with new climate change regulations or the physical impacts of climate change.

Read the letter

December 2015 - Investors put pressure on coal miners following the Paris climate deal

The Financial Times reports on the resolutions we co-filed at Glencore and Rio Tinto, asking the boards to assess their exposure to climate-related risks and disclose this to shareholders, along with how these risks are being managed.

Read more (subscription required)

December 2015 – Sarasin & Partners sign the Paris Pledge for Action

We joined the Paris Pledge for Action, which is a public statement launched at the Paris Climate Change conference. It affirms our strong commitment to a safe and stable climate, in which temperature rise is limited to less than 2 degrees Celsius.

Read the Pledge

November 2015 – Letter to EC President on auto emissions testing following VW scandal

As a member of the IIGCC, we contributed to a letter to President Juncker stating why we do not support a watering down of emissions requirements or testing procedures for the EU.

Read the letter