Obviously, it’s important to vote. When we get an Administration and Congress who align with our opinions of how a next chapter should run, great. We have a shot at getting some important baselines established.
But it’s not all there is, and sometimes, it’s not even the most important driver of change.
On Friday, I talked about how local government - cities and counties - are often the leaders of climate action, along with organizations and nonprofits supporting foundational professional shifts, and all sorts of meaningful action.
But there is (at least) one other area where climate leadership matters a whole lot: business.
We think of corporate America and corporations in general, as being the main culprit in stalling action and funding a fossil-fuel-based economy. And in some ways, of course, they are. Trillions (yep, trillions with a ‘t’) of dollars flow from corporations into fossil fuel-heavy investments, and corporate bankrolling of anti-climate campaigns is legendary: politicians who are ‘anti-climate’ get about twice as many corporate donations as those who favor some climate policies. And of course, the companies themselves are heavy polluters. Since 1998, the top 100 corporations globally have produced around 70% of all emissions.
However….this is all changing. Or at least most of it is.
Pressure is building from all sides for corporations to be part of the solution, and they are well-placed, financially, to contribute more to solutions than many governments. Some of that pressure is ‘negative pressure’, e.g. requirements from governments to report on carbon emissions, and some of it is ‘positive pressure’, e.g. consumers choosing to support more responsible companies, and investors choosing to the put their money in more climate-aligned companies.
So let’s look at what all that pressure is doing:
Consumer Pressure:
Lots of surveys in different parts of the world reveal that millennials and GenZ (everyone under about 40 years old right now) are putting their money where their mouth is in support of sustainability and climate-friendly companies. In a recent study in Japan, where researchers looked at the commitment of younger Japanese people to support the international Sustainable Development Goals (SDGs), they found that:
“….younger people are willing to dispense income to work for SDG-minded companies. In 2030, the younger generation will be the central working force in society and is expected to make real efforts to create a sustainable future and likely play a substantial role in achieving the SDGs,"
"Corporations wanting to attract younger people to buy their products or services or to work for them should incorporate the SDGs into their strategies and seriously contribute to SDGs."
Well, that’s Japan, you say. But the same is true everywhere. According to Forbes Magazine:
“79% of millennial employees are loyal to companies that care about their effect on society. They believe that corporate social responsibility is key to alleviating poverty and improving life outcomes”
Millennials, globally, are already the largest cohort in the workplace.
This is making a huge difference. Companies want to attract and retain the most educated, diverse, and socially conscious generation we’ve ever had. They want to do that because, well, they’re the largest pool of applicants of course, but they’re also a hard-working, action-oriented generation with social integrity, by and large. This is making companies wealthier as well as more sustainable.
Take for example, the big data companies: Google, Facebook and the like. They are competing like crazy to be as climate-friendly and green as possible. And it’s certainly partly about attracting and retaining talent as well as appealing to socially- and environmentally-conscious consumers (which is now most consumers).
Google has committed to make all its data centers run on carbon-free energy 24/7 by 2030. That’s a massive commitment (and very challenging), but they’re putting it out there publicly to force themselves and their stakeholders to take that ‘moonshot’ as they call it. The implications of a move like this are very far-reaching - including forcing utility providers to operate a ‘clean grid’. If Google is to meet its goal, it has to locate its centers in places with a low carbon grid. Judging by the way communities compete for a Google data center now, there will be lots more incentive to upgrade the grids to run on non-carbon sources.
If we all chose our employers and bought products like many people under 40, the pace of change would be even quicker. This is a genuine power we possess.
Investor pressure:
Investors are, by nature, risk averse. And it turns out that when companies ignore climate risk as a part of their business strategy, investors are increasingly unwilling to put money in. On the flip side, companies who take climate risk (and contributions to climate solutions) seriously, are attracting more investors (and more market share, which also attracts more investors).
A way that investors - individual as well as large investment firms and banks - have begun to evaluate potential investments is through the lens of ESG (environmental, social and governance) principles. Highly rated ESG companies are those that have committed to responsible management according to environment and social considerations. It also turns out that they do better financially. Again from Forbes:
“According to Marc Lansonneur, Head of Singapore Wealth Investment & Treasury at DBS Bank, high ESG-rated companies tend to show higher profitability, higher dividend yield and lower risks and volatility. “This is not all about doing the right thing, it is also about gaining extra value and higher returns,” he says. This emphasis on ESG is even more critical in emerging markets, where governance may not be as robust compared to developed markets.”
This investor-pressure has also recently been reflected in the way that US regulations are evolving for publicly-traded companies.
The Securities and Exchange Commission (SEC) has issued more specific guidance on how companies must disclose climate risk and carbon emissions. This is to give investors more standardized information to judge the risk profile and corporate responsibility of companies. This is not a top-down government requirement, but rather an investor-led plea. This is creating real change too. You can bet that large companies with billions of dollars of investments at stake are not going to want to appear ‘risky’ or dismissive of their ESG and climate contribution opportunities.
Which brings us to Government Pressure:
The European Union will be one of the first governments, or multi-government coalitions in this case, to impose climate and sustainability reporting requirements for large (and also soon, medium and small) companies.
Starting in 2023, the 'EU Taxonomy' (weird name, I know), will require companies to track and (beginning in 2024) report on two main areas: how they are helping (or hindering) Europe meet its goal of net-zero emissions by 2050, and how much individual risk the companies face from climate change. (The SEC will use the same basic reporting approach in the US by the way, though that is more driven by investors rather than a national goal of emissions reduction).
Again, this impact is significant because no company will want to be ‘left behind’ or given a ‘bad’ rating, and there is significant advantage to showing how a company is contributing positively to Europe-wide goals.
Other governments will have to follow suit too if they are to meet their Paris Agreement goals AND if they want to attract responsible companies with lots of investment dollars. The impact is compounding.
So, there are a lot of good reasons to look at corporations and businesses of ALL scales as a large and growing part of the global solution. We (the people!) have an important role to play in that - supporting the most aggressive climate-focused and sustainable companies, and turning away from the laggards. Our investment portfolios make a difference too (likely making us more money if we switch to ESG anyway!)
So based on Friday’s and today’s posts, I hope you’re a little bit hopeful and even a bit inspired by the leadership happening in cities, counties, organizations, and in business. Our governments can and must do more, but plenty of organizations and institutions are not waiting on them to lead us down a better path. Yay.