ClientEarth claims Admiral, Lancashire Holdings, and Phoenix Group Holdings have legal obligation to disclose climate risks in annual reports but have failed to do so
The world's second largest reinsurer Munich Re plans to stop offering insurance for new coal-fired power stations and mines in industrialised countries, according to reports.
Moreover, following pressure from campaigners and shareholders, the company said yesterday it would stop investing in bonds and shares of companies which generate more than 30 per cent of sales from coal-related business activities, according to Reuters.
The decision is the latest move from a major investor to reduce exposure coal as firms respond to growing concerns over how the transition to clean energy sources could leave coal assets stranded.
It also comes as three major UK insurers were accused of failing to adequately disclose risks to their business and investments posed by climate change in their annual reports.
Environmental law organisation ClientEarth has sent detailed letters to regulator the Financial Conduct Authority (FCA) regarding Admiral, Lancashire Holdings Ltd and Phoenix Group Holdings, all of which it claims make no mention of climate risk in their annual reports.
ClientEarth argues climate change is a principle risk or uncertainty affecting these companies, and that as a result they are legally obliged to list these risks in their annual report. It therefore wants the FCA to fine or publicly censure the companies, or force them to publish information which rectifies omissions in annual reports.
Specifically, the legal group says insurers face four major risks from climate change - physical, transitional, liability, and reputational - which affect both sides of their balance sheet, and which could result in more insurance claims or reduce the value of investors' assets.
Stephanie Morton, ClientEarth's insurance lawyer, said she was surprised the three insurers were not communicating to their investors the "myriad" climate change risks they are exposed to.
"We think the law is quite clear on this and by omitting financially material climate risks from their annual reports, these companies are not giving the full picture," she explained. "Without this information, how can investors make a fully-formed investment decision?"
It follows a recent report by MPs on Parliament's Environmental Audit Committee (EAC), which called for mandatory climate risk reporting for all large companies and asset owners by 2022.
In response to the EAC report, the FCA said it would seek to "highlight to issuers the need to make adequate disclosures regarding materially important information, including information that allows investors to understand how ESG [environmental, social and governance] matters affect the valuation of a listed company's securities and how these matters are managed by the company".
The FCA confirmed to BusinessGreen it has received the letters of complaint from ClientEarth but declined to comment any further.
Responding in a statement, Lancashire Holdings Ltd said it "considers that it complies with its legal and regulatory obligations, including those under the Disclosure and Transparency Rules, in the preparation of its annual report and accounts".
A Phoenix Group Holdings spokesperson said the firm was reviewing ClientEarth's letter "and the points it makes".
Admiral said it would be discussing the complaint with the FCA "as part of our regular engagement with them".
"We consider a large number of risks, including climate change, within our consideration of principal risks facing Admiral, and make reference to catastrophic weather events as such a risk in our Annual Report," the company explained.
For years environmental legal experts have argued that a failure to recognise that climate risks amount to material risks that should be disclosed in annual reports and other filings could result in both increased pressure from investors and potential regulatory action. It looks as if those predictions are now starting to be borne out. The FCA's response to ClientEarth will provide a fascinating insight into the extent to which the regulator agrees with those investors who want to see climate risks properly disclosed.
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