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When will the business elite walk the talk?

The elite attendees at the Davos forum can talk a good talk on sustainability but, with other business leaders and investors, many are happy to leave actual change to others, writes Rod Oram

“Stakeholders for a Cohesive and Sustainable World” was the wholesome slogan the World Economic Forum adopted for its 50th annual gathering of the world’s business elite at Davos this past week.

While their wealth is in rude health, though, the systems they have used to generate it are not.

“Open borders, liberal democracy and free markets are under threat around the world. Instead, the moment is being shaped by rising nationalism, authoritarianism and a Chinese economic system to rival Western capitalism,” concluded a recent New York Times article reflecting on the Forum and its founder, Klaus Schwab, who is still very much in charge at 81.

“They want to hear about how individuals can change their lives, rather than how structural reform can affect inequality or climate change”

A sense the tide was turning against them caused angst among some of the 2,800 attendees, judging by their earnest comments at the stream of sustainability initiatives launched during the week. But many of them will leave actual change to others.

“They want to hear about how individuals can change their lives, rather than how structural reform can affect inequality or climate change,” said Rutger Bregman, a Dutch writer. Last year he noted in a Davos session that 1,500 private jets had brought delegates to hear David Attenborough lament the failing health of the planet. This year he wasn’t invited back.

Branko Milanovic, the US economist highly respected for his research on global inequality, was recently equally blunt about the elite in his blog: “They are loath to pay a living wage, but they will fund a philharmonic orchestra. They will ban unions, but they will organise a workshop on transparency in government.”

One man who did step up this year was Marc Benioff, the Silicon Valley billionaire who founded Salesforce.com, which provides cloud-based, custom relationship management services. He launched the World Economic Forum’s initiative to plant one trillion trees in the next decade to help save the planet. He pledged an unspecified portion of his wealth to help fund it.

The easy part is done – there’s a website  – now comes the hard part in support, the Forum says, of the UN’s Decade of Ecosystem Restoration 2021-30, led by the UN’s Environmental Programme and its Food and Agriculture Organisation.

While a vast expansion of forests will certainly sequester carbon, it will be phenomenally hard to pull off and we’ll still have to cut our carbon emissions to get the benefit.

Moreover, the global challenge is easier than ours. It is a mere 130 trees per person over the decade. Our goal of 1 billion trees by 2028 works out at 200 per person, or 22 trees per person per year. Clearly, we're over-investing in trees rather than real climate mitigation and adaptation. 

An even more daunting number was delivered to the Davos delegates: US$4 trillion. That will be the cost to the global economy over the next few decades of a carbon price of US$75 a tonne, said Refinitiv, the financial data and systems company spun out of Thomson Reuters two years ago.

“Simply put, this is a cost that global businesses have not factored in. And they need to,” David Craig, Refinitiv’s chief executive, told the gathering.

Only some 20 percent of the 55 gigatonnes of carbon emitted globally last year was taxed at all, and mostly at well below the level the IMF has recommended. Reaching the much more critical goal of 1.5c at which climate change will be damaging but more manageable will cost far more.

While most governments are failing to address this shock to the global economy, regulators are increasingly active. The Bank of England, for example, has begun climate stress testing banks. Across the UK banking sector, loan exposure to fossil fuel producers and other "brown assets" considered detrimental to the environment equal 70 percent of banks’ Tier One, common equity, capital.

As the Bank’s Governor since 2013, Mark Carney has been at the forefront of these issues, notably chairing the G20’s Taskforce on Climate Risk Financial Disclosure. When he retires next month, we will take over the role of the UN’s special envoy on climate change relinquished by Michael Bloomberg when he declared his candidacy for the US presidency.

Similarly, the IMF announced recently it would include climate risks in its regular country assessments. It also plans to push governments to pay more attention to climate factors when they generate national statistics; and it is joining efforts by regulators and financial leaders to thrash out common standards for environmental disclosure.

Back in the early 2000s, the more thoughtful of institutional investors began focusing on climate change risks to the companies in their portfolios. Now, they represent a powerful force. For example, the Institutional Investors Group on Climate Change, has some 200 European members in 15 countries with a total of euro 30 tr in assets ($50 tr).

While many such investors around the world are deeply committed to pushing companies to improve their performance on environmental, social and governance issues progress is still slow. This is particularly true in the financial services sector. It is failing to offer enough products to those retail customers wanting to redirect their investments to more sustainable businesses. That in turn is also partially discouraging their changes in consumer behaviour.

“The amount of coverage that campaigns such as Greta Thunberg’s climate strike have received is hiding the brutal fact that it takes a lot to actually impact behaviour,” says Rob Morgan, an investment analyst at Charles Stanley Direct, a UK platform which helps retail investors select their own portfolios.

“Part of this blame lies at the feet of the financial services industry, but the tide is turning. Self-directed investment platforms are increasingly highlighting [sustainable] choices, enabling investors to more easily discover, invest in, and monitor these options.”

The huge gap between retail investors' awareness of issues and changing their behaviour is shown in this chart from the firm’s analysis.

Here in New Zealand we’re working on all of these issues, to a greater or lesser extent. For example, the Reserve Bank will incorporate climate change risk in the next phase of its revision of its mandate; the Aotearoa Circle is leading the financial sector’s efforts to make the financial system more sustainable; the Government is seeking submissions on requiring companies to disclose their climate change financial risks; and the NZ Super Fund is an international leader in partial fossil fuel divestment, clean tech investment and investor engagement with companies.

We also have a handful of services helping retail investors. For example, Mindful Money helps them make more knowledgeable decisions; and Sharesies and Hatch helps them join the self-directed investment movement.

It’s stark what laggards governments are on all these issues at home and abroad. The public’s lack of trust in governments’ competence and integrity showed up in the Trust Barometer presented to the Davos delegates by Edelman, the US-based, global PR company, for the 20th year running. This chart captures their standing, but reveals the barely better standing of NGOs, media and business.

“A majority of respondents in every developed market [and 56 percent overall] do not believe they will be better off in five years’ time, and more than half of respondents globally believe that capitalism in its current form is now doing more harm than good in the world,” Edelman told the global elite.

Moreover, 66 percent of respondents to the Barometer survey identified with the statement: “I do not have confidence that our current leaders will be able to successfully address our country’s challenges.” (Regrettably, New Zealand was not one of the 28 country’s surveyed.)

Edelman’s news for the wealthy Davos audience was even worse: they were the least trusted of eight categories of leaders.

Given a growing number of chief executives and their companies around the world are exercising leadership on climate and other economic, environmental and social sustainability issues, it’s clearly important to monitor their performance.

To that end, the World Benchmarking Alliance launched at Davos a programme to track 2,000 companies’ contributions to the UN’s Sustainable Development Goals.

The Alliance, based in the Netherlands and backed by some 120 business, government, NGO, academic and research entities, considers those companies are “the most influential in their fields” for driving progress. Their annual revenues total US$43 tr ($65 tr) and they come from 74 countries.

It chose six from New Zealand: Air New Zealand, Fletcher Building, Fonterra, Spark, Zespri and Reynolds Group Holdings.

The last is an anomaly, being one of Graeme Hart’s holding companies for his overseas assets. However, if he chose, as reputedly New Zealand’s wealthiest citizen, to be a substantial leader of sustainable change his inclusion would be justified.

To varying degrees the first five companies are leading. But given our vast sustainability challenges, their task has barely begun.

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