Big Business and Climate Change – Craig Anderson

One thing that has become clear during the debate on how to respond to climate change is that prioritizing profit over the environment, or ignoring social consequences, is not only morally unacceptable, it is is more and more difficult. Big companies are under pressure to take concrete action on the emissions or risk the wrath of protesters, investors and even shareholders.

At COP26, former Bank of England Governor Mark Carney led the Glasgow Financial Alliance for Net Zero (GFANZ) initiative as part of the UN Net-Zero Banking Alliance. Membership now includes 450 organizations that control a total of $ 130 trillion (115 trillion euros) in assets. This represents around 40 percent of global assets.

These companies have pledged to reduce their contributions to greenhouse gases and climate change to net zero by 2050 by combining action and responsibility, with signatory banks setting an interim target for 2030 or earlier, using strong guidelines and scientists.

A new kind of company

There is now a range of ‘goal and impact’ businesses. This means that organizations actively try to solve social and environmental issues as part of their core business activities.

These range from social enterprises helping with environmental and social causes at local and national level, to certified B companies, allied with a non-profit organization set up by three business and private equity experts to ” accelerate a global culture change to redefine business success and build a more inclusive and sustainable economy ”. B companies are legally required to consider the impact of their decisions on their workers, customers, suppliers, the community and the environment.

Companies now have a range of means to ensure that their activities provide social or environmental benefit. Trying to solve social and environmental problems sets a new goal for organizations and in doing so, these companies want their solutions to have an impact.

So now even the biggest companies are embracing the goal and impact trend. Publicly traded companies want to attract investment and give investors confidence that their business will deliver an above average return on investment.

The investment objective and impact can be captured by environmental, social and governance (ESG) investments that report and track these factors as well as financial performance. In the US S & P500 index (which tracks the performance of the 500 largest companies on US stock exchanges), 16 of 27 ESG investments outperformed the market in 2021. In Europe, a sample of 745 ESG funds based in Europe shows that the majority did. better than non-ESG funds over three, five and 10 years.

Finance and business finally align with social and environmental goals– Craig Anderson

Empower large companies

The strong performance of ESG investing is turning heads for companies and investors. The idea that fossil fuels are a foolproof investment has also been questioned, as future returns are expected to be lower.

Earlier this year, major petrochemicals ExxonMobil and Chevron suffered shareholder uprisings over their failure to demonstrate strategies to reduce emissions, while Shell suffered defeat in Dutch courts in a citizen-led case and has been ordered to expand its plans to reduce its emissions levels. .

The ability to ignore social and environmental risks in investment portfolios is clearly diminishing. Meanwhile, the benefits of investing in socially and environmentally responsible businesses are becoming clearer and more attractive.

The 2017 working group on climate-related financial information (TCFD) is moving towards a more in-depth examination of Scope 3 greenhouse gas emissions. Scope 3 emissions are the indirect emissions induced by the activities of a business such as transportation, employee commuting, waste disposal, etc., which are created as part of the business value chain.

For the financial sector, this typically includes issues from companies receiving investments and loans. This initiative will probably be further strengthened by the Science Based Targets Initiative (SBTi), which launched the world’s first net zero standard at the end of October. This initiative will help organizations measure contributions to greenhouse gases and climate change in all of their activities.

This means that the customers of the banks themselves will also have to be net zero if the banks are to meet their own commitments. So if a small business is looking for a commercial loan, its lending bank will expect that business to also have net zero commitments on greenhouse gases and climate change.

Financial companies registered with GFANZ also have huge investments in stocks and stocks.

Large publicly traded companies looking for investment will need to convince banks that they too will move towards net zero on greenhouse gas emissions and climate change. Companies that cannot demonstrate clear commitments to net zero will have far fewer lenders and investors to choose from.

Eight years after the creation of the G8 working group on social impact investing, finance and businesses are finally aligning themselves with social and environmental objectives. Companies that pay particular attention to their social and environmental impact will have more opportunities to secure their investments.

Socially and environmentally responsible companies that place sustainability at the center of their activities are already seeing success in the market. And developments in financial markets would indicate that investing in sustainable development will only continue to bear fruit.

Craig Anderson is Senior Lecturer in Strategic and Sustainable Business at the University of Stirling.

This article is republished from The conversation under a Creative Commons license. Read it original article.


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