LETTER TO THE SEC
In October 2024, Sarasin & Partners LLP sent a letter to the US Securities and Exchange Commission (SEC) formally setting out its concerns over energy companies’ lack of disclosures on certain forward-looking critical accounting assumptions. Ruffer co-signed the letter, along with 39 other UK, European and US institutions controlling an aggregate $3.75 trillion in managed assets. The letter was copied to the Financial Accounting Standards Board (FASB) and the US federal audit regulator, the Public Company Accounting Oversight Board (PCAOB).
The letter notes that under SEC regulations, exchange-listed companies are required to provide details of the estimates and ‘critical accounting assumptions’ they use when calculating the assets and liabilities published in their financial statements. Most listed European oil and gas companies provide such disclosure, while their counterparts in the US do not. The letter argues that lack of disclosure of these critical assumptions is likely to impede market efficiency by undermining investors’ ability to assess the reliability of financial statements and to determine companies’ resilience to plausible economic headwinds, such as potential weakening oil demand. These assumptions are often seen as critical by the companies themselves (as per 10-K annual reports) but the numerical assumptions used are rarely provided. The letter asks the SEC for further clarifying guidance to reinforce the existing disclosure requirements for critical accounting assumptions, and for enforcement action where existing requirements are not being followed.
“This letter is important at a time when climate change has become politicised, leading to the potential obfuscation over the real economic consequences that shifting technology, government policies and consumer preferences is having on a range of markets. It is vital that we protect and reinforce the core job of accountants, auditors and regulators in delivering reliable financial reports that are vital for long-term growth”
Natasha Landell-Mills, Sarasin & Partners LLP
The decision to sign the letter was taken following our internal governance process. Drawing on input from stakeholders in our Clients & Distribution team, our Responsible Investment Council considered whether signing the letter was aligned with our interests and if there could be any unintended consequences to signing. Our view was that the letter was consistent with our position on the need for high quality disclosures to help the market better price hard-to-value assets. While what the letter asks for may not directly benefit us or help us achieve our commitments, such disclosures may contribute to the health of the market, which we support.
The full letter is available from Sarasin & Partners. The Financial Times has also written a piece in the Moral Money newsletter (subscription required) focused on the potential for hidden clean up costs, which brings to life a key consequence of the lack of accounting disclosures for US-listed energy companies.
GLOBAL INVESTOR STATEMENT
We signed the 2024 Global Investor Statement to Governments on the Climate Crisis before the UN Climate Change Conference (COP29) at Baku in Azerbaijan. The letter, described by the UN Environment Programme Finance Initiative (UNEP FI) as the most comprehensive investor demand for climate action, calls for policy implementation at all levels of government and was presented to governments at COP29. It was signed by 650 financial institutions, with over $33 trillion in assets under management.
The statement highlights the role of public policy in accelerating investment in sectors such as clean energy to support a climate-resilient, nature-positive, just transition to Net Zero. It calls on governments to implement policies in line with nationally determined contributions (NDCs) that will accelerate private sector action and large scale investment, while recognising the respective capabilities of emerging and developed economies. These requests include
- Enacting economy-wide public policies
- Implementing sectoral strategies, especially in high-emitting sectors
- Addressing nature, water and biodiversity-related challenges contributing to, or stemming from the climate crisis
- Mandating climate-related disclosures across the financial system
- Facilitating further private investment into climate mitigation, resilience and adaptation activities in emerging markets and developing economies
Ruffer’s Responsible Investment Council decided to sign the letter following our internal governance process, with input from stakeholders in our Clients & Distribution team. In our view, the spirit of the statement is aligned with our commitment to the Net Zero Asset Managers initiative. Asset managers set their targets and commitments in the expectation governments will follow through on their commitments to ensure the objectives of the Paris Agreement are met, including increasing the ambition of their NDCs.
We believe policymakers have a key role to play in a successful transition, and more stringent policy is needed to signal support for investments in decarbonisation. Numerous companies we invest in have told us the missing piece in their decarbonisation journey is public policy and, in particular, reliable and stable public policy that supports investment decisions. The statement asks governments to provide incentives to accelerate the development, deployment and dissemination of green technologies, which would give companies the support and assurances needed to take on these projects.
We’ve been vocal about our support for robust disclosures, including science-based climate transition plans aligned with limiting global warming to 1.5◦C. In the past 12 months, we have signed two public statements supporting the adoption of ISSB standards, and we have been a part of the CDP’s non-disclosure campaign for the past four years. The letter calls for mandated climate-related disclosures consistent with ISSB standards, which is aligned with our position.