Climate change risk reporting should be mandatory for UK asset owners, MPs argue

Josh Mines
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MPs have demanded that large asset owners should by law have to report on the risk to investment posed by climate change (Source: Getty)

Climate change risk reporting should be made mandatory for large companies and asset owners, a group of influential MPs has demanded.

A report released today by the Environmental Audit Committee argues that owners of large assets such as pension funds should have to report their exposure to climate change risks and opportunities by 2022.

The Bank of England has previously warned that climate change can pose a risk to investments through physical impacts, such as flooding harming businesses, as well as liability risks when those who suffer losses take legal action against companies.

Firms including BP, ExxonMobil and Shell face legal action from the City of New York, which is looking to recover the costs of protecting the city from flooding and erosion caused by climate change.

The MPs argue that the government should clarify in law that pension schemes have a duty to protect long-term value, and should be considering environmental risks in reports.

It follows the committee warning last month that pension schemes owned by firms including BP, Lloyds and Aviva were "complacent" over the risk that climate change posed to investments.

Read more: Pension schemes 'complacent' over risk to investments from climate change

FTSE Russell has previously predicted that there are 3,000 listed companies around the world which are exposed to the green economy, up 20 per cent since 2009.Chair

It also found that the green economy, which is an economy which aims to reduce environmental risks and ecological scarcities, represents six per cent of the market capitalisation of global listed companies, valued at around $4 trillion.

Mary Creagh MP, chair of the Environmental Audit Committee said:

We need to fix the incentives in our financial system that encourage short term thinking. Long-term sustainability must be factored into financial decision making.

Climate change poses financial risks to a range of investments – from food and farming, to infrastructure, construction and insurance liability. The low-carbon transition also presents exciting opportunities in clean energy, transport and tech that could benefit UK businesses.

We want to see mandatory climate risk reporting and a clarification in law that pension trustees have a duty to consider long term sustainability, not just short-term returns.

A government spokesperson said: "The UK is a world leader in green finance and since 1990 we have slashed emissions by over 40% while growing our economy by over two thirds.

"Every part of society has a part to play in tackling climate change, including business. We'll consider the findings of this report alongside our review of the Green Finance Taskforce's proposals to encourage companies to put greater emphasis on environmental considerations when making decisions."

"The UK is a world leader in green finance and since 1990 we have slashed emissions by over 40% while growing our economy by over two thirds."

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