Paris, 17 May 2022.
As a responsible investor, Candriam pays particular attention to the corporate governance policies, structures and practices of the companies in which it invests on behalf of its customers and the funds under management. It is Candriam’s conviction that sound corporate governance practices deliver long-term shareholder value.
At Candriam, we believe that financial statements that leave out material climate impacts misinform shareholders and thus, result in misdirected capital. This could have potential disastrous consequences both for shareholders and our planet.
There is a real need for financial statements to properly reflect the impact of getting to net zero emissions by 2050 for assets, liabilities, profits and losses, for stakeholders to have to the correct information to allocate capital in line with the goals of the Paris Agreement.
Accounting and auditing standard setters are continuingly increasing the pressure for companies to improve their climate-related disclosure. As reiterated by the International Accounting Standards Board (IASB) (1), materiality is not something to be determined by management without reference to investor expectations. At the end of 2021, the European Securities and Market Authority (ESMA) targeted climate-related matters to be amongst priorities for 2022 (2).
Investors shared their expectations for Paris-aligned Accounts at the end of 2020 (3). However recent analysis made by Carbon Tracker (4) showed that, on 107 publicly-listed carbon intensive firms (and their auditors), over 70% of reviewed companies and 80% of auditors fail to disclose climate related risks in the financials.
How Candriam intends to hold companies and auditors to account
Candriam has engaged since 2019 with companies, auditors and other stakeholders in order to improve the disclosure and the Paris-alignment of financial statements. Along with other investors part of a dedicated IIGCC working group in full alignment with CA100+ initiative, we intensified our engagement and actions in 2022.
From 2022 onwards, as stated in our public voting policy (5), Candriam might vote Against resolutions related to accounting and audit when we consider the efforts made by the companies and their auditors to be insufficient. Such decisions will be taken after discussions with the companies as well as with the concerned investors leading such engagement.
Impact on Candriam’s vote at the next AGM of Compagnie de Saint-Gobain.
As of 17 May 2022, we consider Compagnie de Saint-Gobain (Saint-Gobain) to be a company that listens to its investors and as a company who made efforts in recent years to align its business strategies with the goals of the Paris Agreement. We notably commend the company for its recent results in the Climate Action 100+ Net Zero Benchmark. During the last four years, CA100+ lead-investors have established a continuous and productive dialogue from Saint-Gobain’s Net Zero announcement in September 2019 to the disclosing of their Roadmap to Carbon Neutrality in November 2020. Saint-Gobain’s latest score still highlights some gaps they can improve on the next release in September 2022.
Commitments made are going in the right direction, and we hope they will translate into further improvements too on the accounting side.
Candriam actually started engaging with Saint-Gobain on IIGCC – Paris Aligned accounting collaborative engagement in 2020 and has led this engagement since 2021. As the company belongs to a carbon intensive sector, climate accounting disclosure is paramount. Therefore, we believe Saint-Gobain should provide details on how climate-related risks have been embedded in their accounting. The company should also describe the reasons why such risks were considered as material or not and which part of its financial statements were impacted.
In that respect, there is still a lack of demonstration of how climate has been considered in accounting and financial planning, and why the company and its auditors PWC and KPMG concluded that climate should not be considered as particularly material[1].
Through continued engagement with the company, Saint-Gobain is aware of the above shortcomings. Recent exchanges we had with management are promising for 2022 Financial statements.
In that context, considering above listed concerns but also recognizing company’s intentions to progress, Candriam will ABSTAIN on Financial Statements’ approval items at Saint-Gobain 2022 Annual Meeting, when voting for funds applying Candriam Voting Policy.
Consequently, Candriam will be voting as follows at the 2022 AGM, with the stated rationales:
Resolution 1 - Approval of the Company’s non-consolidated financial statements for 2021 – Abstain
Resolution 2 - Approval of the Company’s consolidated financial statements for 2021 – Abstain
In their 2021 consolidated financial statements, Saint-Gobain added a new Note “Climate Issues”, where they state that climate has been considered while preparing financial statements for 4 key areas, plus consideration of company’s CO2 reduction plan for the assets impairment test. We welcome these new references, but we still lack visibility. Indeed, the company and its auditors do not demonstrate how, nor explains why, climate has not been identified as material. The company being responsive to our engagement on the above concerns, we will apply a vote Abstain for this year.
Resolution 15 - Appointment of Deloitte & Associés as Statutory Auditors - For
On the statutory Auditor’s report side, we welcome the reference to the Group’s commitment to carbon neutrality in the first key audit matter “Measurement of goodwill, intangible assets and property, plant & equipment”, and the fact that it has been considered when auditors performed their own sensitivity analysis. But we would have needed more description on what the auditors actually covered, and why they concluded that it has no impact on the financial statements. As new auditors will be appointed this year, we will not sanction the Auditors’ related item but reiterate here our expectations of significant improvement for next year.
[1] A full analysis of Saint-Gobain’s Financial Statements undertaken by the Climate Accounting & Audit Project can be found under the link https://carbontracker.org/wp-content/uploads/2022/04/Saint-Gobain_31Dec21_AcctgAssessment_2022AGMs.pdf. This assessment is provided by Carbon Tracker Initiative (CTI) and the Climate Accounting Project (CAP) as a supportive analysis to CA100+.