Serious business: Michael Bloomberg’s star power helped bring big names (such as Alibaba boss Jack Ma, left) together. But it’s climate urgency that unites them.
The New York Climate Week, an international summit launched in 2009, is always busy, and security, especially around the United Nations, is always insane. But this year, it was at a whole new level.
Part of the reason was that President Trump was in town and speaking at the UN. But New York was also hosting heads of state, heads of business, and investors—many of whom represented balance sheets larger than the GDP of some of the visiting states. While President Trump has withdrawn the U.S. from the Paris Climate Accord, their attendance underscored the fact that support for the accord and for action on climate is growing stronger and stronger.
The “We Are Still In” movement, for example, established as a reaction to the U.S. president’s Paris withdrawal, is now a coalition of American businesses, educators and local government leaders that represents 120 million Americans and $6.2 trillion of the U.S. economy that are taking action to combat climate change.
Along with their presence, Michael Bloomberg, the former mayor of New York City, used Climate Week as an occasion to initiate another testimony to show how serious the world’s business leaders, investors and governments are about climate action. The iconic business leader sent a special invitation for a meeting of many of those heads of government, business and investment funds—a very powerful triangle that can make or break every deal. Among those who showed up: our Prime Minister Justin Trudeau, who spoke to around 225 CEOs, and other country leaders such as Emmanuel Macron, president of France; CEO of Apple, Tim Cook; chairman and CEO of BlackRock Laurence Fink; managing director of the International Monetary Fund Christine Lagarde; CEO of Unilever Paul Polman; chairman of Mahindra Group Arnand Mahindra; executive chairman of Alibaba Group Jack Ma, and many, many more.
The most powerful outcome of this gathering of leaders for climate action is, in my mind, the mutual accountability and opportunity to use their power, including their procurement power, for future financial, social and environmental stability. Another major theme is that the investors see investing in climate action as a real financial stability risk that needs to be managed closely, in order not to lose money on their investments. Further, heads of state are trying to avoid the major financial crisis that will happen if companies’ balance sheets need to be cleaned for stranded assets while clean-up liabilities are being increased. The latter would impact most of our pension funds and leave many people with a lot less when they retire.
It is therefore logical that institutional investors have been vocal in requiring companies and directors to prepare for the proxy season and for a future of climate action accountability. It is no secret that both BlackRock and State Street Global Advisors have pointed to climate risk as one of their highest engagement priorities for 2017. A bit more unknown might be that Vanguard in August took the same stance. This happened after asset management companies like Walden Asset Management had asked them to report on proxy-voting policies related to climate policies. Further, the influential California Public Employees’ Retirement System (CalPERS) has now changed its principles for corporate governance to make it an explicit requirement that board members of companies it invests in must have knowledge and experience in management strategies for climate change. The same goes for the California State Teachers’ Retirement System (CalSTRS). It has announced a focus on climate change risk management expertise, board diversity, as well as holding corporate directors accountable to represent and protect the interests of long-term shareholders.
The questions for many of the companies that were not invited to the Bloomberg meeting should be: “Is our board climate competent?” and “What do we do to get our own house in order?” Some might also ask: “Will this go away?”
I can only provide my answer to the last question—and that is “No.” The Financial Stability Board (FSB), led by Canadian Mark Carney, governor of the Bank of England, and based on a request of G20 leaders, established the Taskforce on Climate-Related Financial Disclosure (TCFD) in 2015. The TCFD, chaired by Bloomberg, sent its final recommendations to Carney in late June. Following them is not an easy task for all, but necessary in order to recognize and disclose climate-related risks material to operations, and yes, to report to the investors and get the board ready to be climate competent. This is a task that is better done proactively and it is better to have a baseline and a plan rather than no answers to the overall recommendations.
So, what are the recommendations? They are divided into four areas:
Governance: The governance recommendations include disclosure of the organization’s governance around climate-related risks and opportunities. This comprises recommended disclosures describing the board’s oversight of climate-related risks and opportunities, and a description of management’s role in assessing and managing climate-related risks and opportunities.
I have the pleasure of discussing climate change and sustainability with many C-suites and boards. Many are more prepared than they know; however, the board and C-suite are not always aligned in their views and responses. And that will be a key aspect to work at.
Strategy: Disclose the actual and potential impacts of climate-related risks and opportunities on the organization’s businesses, strategy and financial planning where such information is material. This includes a description of the climate-related risks and opportunities the organization has identified over the short-, medium- and long-term; and a description of the impact as well as the resilience of the organization’s strategy, taking into consideration different climate-related scenarios, including a 2-degree Celsius or lower increase scenario.
As strategy aligns with governance, I strongly suggest that the C-suite and the board plan a focused session to discuss climate-related risks and opportunities. Prior to such a session, it would be beneficial to have prepared climate-related scenarios.
Risk Management: Disclose how the organization identifies, assesses and manages climate-related risks. This includes describing the organization’s processes for identifying and assessing climate-related risks, processes for managing the risks, as well as a description of how processes for identifying, assessing and managing climate-related risks are integrated into the organization’s overall risk management.
These recommendations clearly need to be discussed with the board’s risk management committee.
Metrics and Targets: Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material. This includes a disclosure of the metrics used by the organization to access climate-related risks and opportunities in line with its strategy and risk management process. Disclose Scope 1, 2 and, if appropriate, Scope 3 greenhouse gas emissions, and the related risks—and a description of the targets used by the organization to manage climate-related risks and opportunities and performance against targets.
Most companies would be familiar with the terms Scope 1, 2 and 3. If not, it is time to ensure that the relevant functions, including the board, are climate competent.
I STRONGLY ENCOURAGE all listed companies to read the recommendations and take action. As it is written in the conclusion of the report: “Improving the quality of climate-related financial disclosures begins with organizations’ willingness to adopt the Task Force’s recommendations.”
Many organizations are already reporting climate-related information under other frameworks such as CDP. These organizations may be able to disclose immediately. Other organizations in early stages of evaluating the impact of climate change on their businesses and strategies can begin by disclosing climate-related issues as they relate to governance, strategy and risk-management practices.
Michael Bloomberg and his task force are clearly using their powers to move climate-related issues into mainstream annual financial filings and, ultimately, support more appropriate pricing of risks and allocation of capital in the global economy.
And my simple advice would be to listen and take action. Now.
Photography by Brendan McDermid/Reuters