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Investors tell Big-4 auditors they risk AGM rebellion over climate accounting

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November 2, 2021

By Simon Jessop and Carolyn Cohn

GLASGOW/LONDON (Reuters) – Major investors have warned the world’s top four audit firms they will vote to stop the firms working for the companies they invest in at AGMs from next year if audits do not integrate climate risk.

The challenge, laid out in letters from an investor group managing around $4.5 trillion that were seen by Reuters, marks an escalation in the group’s efforts to ensure investors were armed with robust information.

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The investors have been pushing auditors to improve for several years amid concern they were misrepresenting the true health of companies by not factoring in potential hits from the impact of climate change and associated policy changes.

Ahead of the COP26 climate talks in Scotland, the group had called for governments to force companies and auditors to file accounts in line with the world’s goal of limiting global warming by mid-century.

The letters dated Nov. 1 and sent to Deloitte, EY, KPMG and PwC by the investor group pointed to recent research showing more than 70% of assessed 2020 audits had fallen short.

The group includes asset managers Sarasin & Partners, Pictet and Aviva Investors and pension schemes including RPMI Railpen. The investors said that after three years of discussions with the firms, they “cannot afford to wait another three years” for audits to improve.

At the next season for corporate annual general meetings, the auditors could “increasingly expect to see” investors vote against their reappointment if they failed to meet expectations, the letters said.

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In the letter to Deloitte, for example, the group said the auditor was responsible for 19 of the companies assessed in the research, including oil major BP, miner Glencore and building materials company CRH.

“While we have identified some welcome signs of leadership, notably at BP, based on our analysis overall these audits have not met our expectations,” the letter said.

“Outside the UK, the picture is worse. Of the remaining 16 audits undertaken by Deloitte, only three mention climate risk. None provides the visibility we seek on the potential financial implications of a 1.5C pathway, which global leaders have committed to delivering.”

Paul Stephenson, managing partner audit & assurance at Deloitte, said the auditor agreed that “climate-related risks should be accounted for and disclosed appropriately in annual reports and financial statements.

“We are clear that along with investors, professional bodies, regulators, standard setters and audited entities we have an important role to play in enhancing confidence in the information provided to markets,” he said.

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CHALLENGING

Cath Burnet, Head of Audit at KPMG UK, said the firm had trained all its auditors last year on the impact of climate change risk on companies, in addition to the accounting and reporting implications.

“Our role as auditors includes challenging the recognition and measurement that climate has on the financial statements, as well as challenging narrative where it is misleading or inconsistent,” she said.

A PwC spokesperson said that “to increase transparency in this area, our future audit opinions on larger UK listed companies will further explain how material climate-related risks have been addressed. 

“We welcome investor engagement in this area which will help drive company disclosure and the setting of clear climate related goals.”

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EY said in an emailed statement that the firm’s audit teams “continue to consider the risks that climate change brings to the companies we audit, where it relates to financial reporting.

“We are actively involved in developing standards and are supportive of ongoing work to establish a framework that companies and auditors can report against which would provide more consistent reporting for investors.”

The world’s leaders meet in Glasgow this week aiming to accelerate climate action in an effort to cap global warming at no more than 1.5 degrees Celsius above pre-industrial norms by mid-century.

After first writing to the Big Four audit firms in 2019, the investors said structural changes linked to climate change and associated policy action were accelerating, citing a recent United Nations report that issued “code red for humanity” over climate change.

“This is driving a more robust policy response globally,” the latest letters said.

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“Auditors that fail to test accounting assumptions taking these structural shifts into account are, in our view, failing in their duty to shareholders.”

(Reporting by Simon Jessop; editing by Philippa Fletcher)

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Alibaba overhauls e-commerce businesses, appoints new CFO

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December 6, 2021

(Reuters) -Alibaba Group Holding Ltd said on Monday it was reorganising its international and domestic e-commerce businesses and would appoint a new chief financial officer.

The changes come as Alibaba faces headwinds on multiple fronts, including increased competition, a slowing economy and a regulatory crackdown.

The e-commerce giant’s Hong Kong-listed shares slid 8% in early morning trade.

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Alibaba said it would form two new units to house its main e-commerce businesses – international digital commerce and China digital commerce, in a bid to become more agile and accelerate growth.

The international digital commerce unit will house Alibaba’s overseas consumer-facing and wholesale businesses, and include AliExpress, Alibaba.com and Lazada. The unit will be headed by Jiang Fan, whose past roles include president of the Taobao and Tmall marketplaces.

Alibaba will house its domestic commerce businesses in the China digital commerce unit which be led by Trudy Dai, a founding member of Alibaba, it said.

The company’s deputy chief financial officer, Toby Xu, will succeed Maggie Wu as the company’s chief financial officer from April, it said, describing his appointment as part of the company’s leadership succession plan.

Xu joined Alibaba from PWC three years ago and was appointed deputy CFO in July 2019.

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Wu, who helped lead three Alibaba-related company public listings as CFO, will continue to serve as an executive director on Alibaba’s board.

Last month the company slashed its forecast for annual revenue growth to its slowest pace since its 2014 stock market debut and saw sales at its banner event, online shopping festival Singles Day, grow at their slowest rate ever.

(Reporting by Akriti Sharma in Bengaluru and Brenda Goh in Shanghai; Editing by Edwina Gibbs)

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China Evergrande shares hit 11-year low after firm says no guarantee it can meet repayments

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December 6, 2021

By Clare Jim

HONG KONG (Reuters) – Shares of China Evergrande Group tumbled 12% to an 11-year low on Monday after the firm said there was no guarantee it would have enough funds to meet debt repayments, prompting Chinese authorities to summon its chairman.

The shares fell as a 30-day grace period on a coupon payment of $82.5 million due on Nov. 6 comes to an end on Monday.

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Evergrande, once China’s top-selling developer, is grappling with more than $300 billion in liabilities. A collapse could send shockwaves through the country’s property sector and beyond.

In a filing late on Friday, Evergrande, the world’s most indebted developer, also said it had received a demand from creditors to pay about $260 million.

That prompted the government of Guangdong province, where the company is based, to summon Evergrande Chairman Hui Ka Yan, and it later said in a statement it would send a working group to the developer at Evergrande’s request to oversee risk management, strengthen internal controls and maintain normal operations.

In a series of apparently coordinated statements late in the evening, China’s central bank, banking and insurance regulator and its securities regulator sought to reassure the market that any risks to the broader property sector could be contained.

Short-term risks caused by a single real estate firm will not undermine market fundraising in the medium and long term, the People’s Bank of China said, adding that housing sales, land purchases and financing “have already returned to normal in China”.

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Evergraned’s stock fell more than 12% to HK$1.98, its lowest since May 2010.

(Reporting by Clare Jim; Editing by Anne Marie Roantree and Christopher Cushing)

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Oil gains more than $1/bbl after Saudi price hike

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December 6, 2021

By Florence Tan

SINGAPORE (Reuters) – Oil prices rose by more than $1 a barrel on Monday after top exporter Saudi Arabia raised prices for its crude sold to Asia and the United States, and as indirect U.S.-Iran talks on reviving a nuclear deal appeared to hit an impasse.

Brent crude futures for February gained $1.69, or 2.4%, to $71.57 a barrel by 0033 GMT while U.S. West Texas Intermediate crude for January were at $67.92 a barrel, up $1.66, or 2.5%.

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On Sunday, Saudi Arabia raised January official selling prices for all crude grades sold to Asia and the United States by up to 80 cents from the previous month.

The price hikes were implemented despite a decision last week by the Organization of the Petroleum Exporting Countries and their allies including Russia, a group known as OPEC+, to continue increasing supplies by 400,000 barrels per day in January.

Prices were also buoyed by diminishing prospects of a rise in Iranian oil exports after indirect U.S.-Iranian talks on saving the 2015 Iran nuclear deal broke off last week. European officials voiced dismay on Friday at sweeping demands by Iran’s new, hardline government. The talks are expected to resume middle of this week.

Both benchmarks rebounded after falling last week for their sixth week in a row for the first time since November 2018 on concerns that the new coronavirus variant Omicron could impact global economic growth and fuel demand.

In another sign of the turmoil unleashed by the ever-changing pandemic, the head of International Monetary Fund said the global lender is likely to lower its global economic growth estimates because of the new variant.

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Omicron has spread to about one-third of U.S. states as of Sunday.

(Reporting by Florence Tan; Editing by Stephen Coates)

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