Climate Action – The dilemma
Here’s the dilemma, the paradox, the cross roads we are at: I have been reading and compiling a lot of credible, objective, indisputable facts on Climate action. The urgency could not be greater, but it does not seem to be seriously taken at many Board levels. Here we go (most “quotes” from several sources):
In 2018, two major reports underscored the scope and scale of the climate challenge, sounding the alarm for the entire global economy: a) The National Climate Assessment warned that climate change could wipe out 10% of the US economy, costing $500bn per year by the turn of the century; b) Earlier, the landmark Intergovernmental Panel on Climate Change (IPCC) report revealed an astonishingly small window of opportunity to avoid the worst impacts of climate change, prescribing nothing short of an overhaul of the world economy to protect against the devastation that lies in wait should we stay the course.
In recent years, investors have woken up to the need for sustainability-competent boards like never before. In 2015, the Bank of England’s Mark Carney sent a shot heard round the world when he proclaimed climate change a financial risk that threatened the stability of the entire global market.
BlackRock’s Larry Fink doubled down in his 2018 and 2019 letters to investors, insisting that companies must have a sense of purpose in order to be sustainable in the long term.
Last year, nearly 400 investors representing $32trn in assets supported "The Investor Agenda" to provide disclosure on climate change risk, while just under 300 investors with $31trn in assets under management launched Climate Action 100+, a five-year initiative to engage the most carbon-intensive companies in the world on their climate change strategies, governance and disclosure.
In the last two seasons, we’ve seen major asset owners (including BlackRock and Vanguard) deliver historic majorities during shareholder votes on climate risk proposals at fossil fuel companies like Exxon and Occidental Petroleum.
Whether through direct engagement or the shareholder resolution process, many investors are making it clear that they want their assets protected by corporate boards that incorporate considerations of climate change into their decision-making.
Despite of all these facts, most company directors don’t currently see sustainability issues as board-relevant:
53% say environmental and sustainability expertise is “not very” or “not at all important” to have on their board, according to a 2018 PwC Annual Corporate Directors Survey.
39% think climate change should not impact company strategy at all, according with the same survey.
74% say disclosure of sustainability issues is not important to understanding a company’s business or helping investors make informed decisions, according to a 2018 BDO Board Survey.
the 2017-2018 USA National Association of Corporate Directors (NACD) Public Company Governance Survey asked directors to choose what top trends they think will have the biggest impact on their companies in the coming year. Just 6% put climate change in the top five.
We still have a long way to go. The question is: what will we find when we finally get there? I am an optimistic, I truly believe 2019 is the year that will definitely put businesses in the right path.