Dividends and European investors call for tougher climate scrutiny by top auditors

Particularly in Europe where climate change and how to do something about it is more important but from the general public and politically, in North America we still see some high ranking politicians ask if climate change is changing because of humans. In Europe, according to an article by Matthew Green and Simon Jessop of Reuters, European investment funds managing over $1.5 trillion in funds have asked the big 4 accounting firms to ensure part of their analysis of companies includes climate-related risks.

It is rare for investors to be proactive, because with investments if you do not like what management is doing, it is easier to sell your holdings and buy into companies that do what you think is better for both the short term and long term. As investors, we either want capital gains and/or profits to pay dividends. How the company does that, is management’s concerns, as long as they do, investors tend to vote for management during the annual meeting.

Thus it is rare for investment funds to get together to ask for something. Natasha Landell-Mills head of stewardship at asset manager Sarasin & Partners is spearheading the campaign. Letters were sent to the Big Four accounting groups – Ernst & Young, Deloitte, KPMG and PricewaterhouseCoopers. All 4 companies noted they have giving their auditors training into how to factor climate change in their audits.

Linking to dividend paying stocks, usually the auditors take their marching orders from the most risk adverse group – the insurance industry. If the industry loses money, you can be assured they want rules to change to limit their losses and make others pay. As investors you will continue to see greater metrics to examine your company, not just whether it makes a profit and pays a dividend. You will need to decide which is more important and whether you should look for alternatives.

There are more questions than answers, till the next time – to raising questions.

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