Connected Conversation - Climate Leadership

12 May

This event, Connected Conversation - Climate Leadership was held by Business Declares on 31st March 2022, as part of our March climate leadership campaign in the Financial Times.

You can catch a video replay of the event here

Introduction – Ben Tolhurst, Director; Business Declares

The event was introduced by Ben Tolhurst, who gave an overview of Business Declares - a network organisation, whose purpose is to inspire, support and connect businesses to accelerate action to address the climate, ecological and social emergency.

Purpose

In conjunction with Business Declares’ campaign in the Financial Times on climate leadership, the purpose of this event was to catalyse meaningful conversations and explore how businesses can take much greater leadership and inspire action when tackling the climate, ecological and social crises. Ben further added that it will be our generation who plays a pivotal role in the future of humanity and the planet, which is both a challenge, but also an opportunity to accept the reality of the crises, take bold and far-reaching decisions and act upon these, at an individual and professional capacity. He then introduced our 4 panellists, alongside our moderator for the event, Pilita Clark (Associate Editor and business columnist, Financial Times). Pilita then took interviewed each of the panellists in turn and a summary of the ensuing discussions is below.

Margaret Heffernan (Entrepreneur, CEO, Author & Keynote Speaker)

In her book, Wilful Blindness: Why We Ignore the Obvious at Our Peril, Margaret Heffernan refers to various disasters throughout history, before which many experts and non-experts alike have warned about these imminent risks and were routinely ignored. Pilita Clark also highlighted the danger of wilful blindness being played out in climate change:

Has wilful blindness been easing in the business world, due to leaders facing increasing pressure from investors, employees and clients to take authentic action against climate change?

Margaret went on to say that business leaders and CEOs on the whole are aware of the climate crisis and its risks on business, but ‘wilfully’ choose to turn a blind eye to this and are still continuing with business as usual. Some reasons from business leaders for not taking action are: denial that their business is part of the problem, fear of the costs required or customers disliking the transition, and a demand in regulation from government to ensure a level playing field for businesses, to avoid being at a disadvantage for taking action ahead of competitors.

She also pointed out that there’s a lack of knowledge in where to start. However, there are widely available, useful resources from businesses who are already taking effective action e.g. Brad Smith’s blog post on Microsoft's sustainability commitments for 2030.

Although these resources, experience and case studies can be from another company, CEO or sector and are not enough alone, they are a valuable starting point of how sustainability can be incorporated operationally, such as Microsoft including a carbon tax on their expenditures and treating carbon in the same way as money within a company.

Above all, Margaret emphasised that there is a hesitance of taking immediate climate action, due to business leaders waiting for the perfect climate solution to avoid criticism from stakeholders. This results in business leaders ‘letting perfection be the enemy of the good’ and being paralysed by their own expectations and efforts to make their climate actions ‘perfect’, so they choose to do nothing.

How would companies with a legacy portfolio of carbon-intensive or environmentally taxing projects decarbonise their operations and value chains?Alongside connecting with experts in this field, Margaret also recommended that, with a challenge as complex as climate change within the context of a company with legacy processes or machinery, it is impossible to solve this by purely thinking of solutions. Instead, one should take practical action and conduct experiments or pilots to obtain preliminary findings on the costs and opportunities for decarbonisation going forward. This will change one’s perspective of the problem and will in turn present many more solutions.

The climate crisis itself is a huge challenge, let alone solving it perfectly, so there will inevitably be challenges and mistakes along the way, and taking action now is better than waiting for the perfect solution:

“Taking action is how you learn, which in turn, is how you take even better action.”

Emma Pinchbeck (CEO; Energy UK)

The climate crisis won’t go away until global dependence on fossil fuels for energy diminishes and we adopt a green and efficient energy transition. The crisis in Ukraine has revealed the cost of heavy dependence on fossil fuels, but the response from governments has instead been to increase domestic oil and gas production, which is not compatible for climate.

Do you think governments are doing this because they suspect that renewable energy sources are not reliable enough to displace oil and gas?

In the short term, yes. The crisis in Ukraine has exposed to governments the energy security risks around a fossil fuel-based economy and the need to have acted quicker in moving away from an international volatile commodity. Governments and businesses are also starting to realise that, in the long term, moving to renewable energy is good for energy security, is green and has also become cheaper. In the short term, there is a disconnect between the need for urgent climate action according to the scientific trajectory and what is technically possible towards achieving this, including the physics of energy systems, e.g. wind farms take time and investment to build. Governments therefore have to compromise between providing energy security and quality of life for people using North Sea oil, whilst taking time to build renewable energy infrastructure. Likewise, there will inevitably be compromises for businesses in the short term.

Do you think anti net-zero campaigns (about net zero being expensive and fuelling energy poverty) will be a problem, or is the idea of net zero targets so firmly ingrained in boardrooms that these campaigns will not have an effect?

Over the last decade, the economic dynamics have evolved, and renewables have turned from something being done to satisfy climate policy into being the most cost effective, cheapest way to run our energy system, meaning that businesses will continue to run these technologies. However in a highly regulated environment, there is a risk of governments hindering this progress, e.g. onshore wind was initially banned in the UK, despite the market economics predicting this to be the cheapest form of power, as some MPs didn’t want this being built in their constituencies. Although the market economics of renewables was powerful enough to reverse this decision, 5-10 years of progress in taking urgent action had been lost.

The public genuinely care about climate action, and to prevent this from becoming a wedge issue, we need to ensure a fair, sustainable energy transition. On the one hand, electric vehicles are cost-prohibitive and not everyone can afford them. In contrast, having open conversations about how the energy transition can be funded fairly across the economy and how expensive trade-offs for taking faster action will be paid to ensure that it doesn’t affect the poorest, will pave the way for a just energy transition that resonates with the general public.

Kees Vendrik (Chief Economist; Triodos Bank)

Triodos Bank was established in the Netherlands in 1980 to invest in companies and projects which benefit people and planet with a positive long-term return and without financial loss. The name Triodos roughly translates as ‘3 ways’ – people, planet and profit.

Last year, Triodos’ profits have increased sharply – is this because of a bounce back from 2020 and the pandemic, or a growth in demand and popularity for Triodos’ sustainable products and services?

Kees explained that, in 2020, the pandemic caused an economic downturn, which negatively impacted all banks, including Triodos’ performance. Last year, Triodos have been emerging from this and have had strong, stable growth of assets under management (AUM) and growing appetite in the market for sustainable lending and banking, which has already grown over many years. 2020 was a setback in what has already been a fundamental positive growth in demand for Triodos’ sustainable financial services and products. Mainstream banks in the Netherlands are increasingly discovering the market for sustainable finance, which is vital in moving from the brown economy to a green, sustainable one and reallocating capital to finance climate and biodiversity regeneration.

As a leader in promoting and driving sustainable values into mainstream banking, what examples of work have Triodos done recently and their impact?

The most fundamental message from Triodos since the beginning: all finance has an impact; there is no difference between finance and impact finance. Every time money is lent to the economy or whatever you invest in, will grow – money is a form of energy.
Triodos’ message to mainstream banks and the financial industry: Be conscious about the impact you want to create, connect to the biggest challenges of our time, e.g. climate change and the threatening collapse of our ecosystems and use the power of finance as a force for good to solve these huge challenges
Don’t be “wilfully blind”, but be fully aware of negative societal, environmental and ecological impacts and your contribution and so reallocate capital and manage assets to tackle these.

What is the biggest challenge that a bank like Triodos faces in meeting net zero targets?

The biggest challenge for Triodos and their business clients is their need for governments to steer markets in the right direction. Organic farmers and entrepreneurs struggle with accessing a level playing field and have to compete with mainstream food products which have been manufactured using old, industrial, degenerative farming and food manufacturing, which have been favoured by old agricultural policies. In business, we finance change, but there is also a need to change finance.

Systems change and incentives, such as CO2 taxing in energy markets and scaling up sustainable businesses across all sectors will steer markets in the right direction and ensure the growth of business clients in Triodos’ portfolios, which aim to build a sustainable inclusive economy needed to tackle the climate, ecological and social crises.

Amy Clarke (Co-Founder and Chief Impact Officer; Tribe Impact Capital)

Amy set up Tribe Impact Capital to bridge the disconnect between people and their wealth and help investors put capital into where it makes the most difference.

Over the last 2 years, capital inflows towards ESG funds have increased seismically. Does this mean investors are starting to address the climate crisis?

Although there have been large capital flows into ESG funds, ESG is a risk measure and does not take into account the core product or service of a business and its impact on the marketplace. There is a huge variety and quality of frameworks on the market, such as The EU Green taxonomy, Social taxonomy and SFDR (Sustainable Finance Disclosure Regulation) Articles 6, 8 and 9, which are great first steps in raising the bar and helping investors work out whether a fund is authentically green. In the short term, regulatory movements like the SFDR won’t be able to tackle the issue of ‘green’ funds which aren’t aligned with the Paris Climate Agreement. Regulations and frameworks being adopted now, e.g. sustainable investing TCFD (Task Force on Climate-related Financial Disclosures) and TNFD (Taskforce on Nature-related Financial Disclosures) beta framework and SECR (Streamlined Energy and Carbon Reporting), must be agile, responsive and evolve with the latest climate and biodiversity science about the scale of the challenge and solutions.

What main question do you ask a fund manager about their investment strategy to determine where their capital is flowing?

“What are you trying to solve for as a result of these investments?”

This question can disarm fund managers, partly because much of the product in the market is predominantly ESG, and there is a “wilful ignorance” of the difference between ESG and true sustainable impact investing due to greenwash, impact and SDG washing.

Is ESG moving the needle, or is it distracting from the more fundamental issue of changing the heart of business models?

Amy doesn’t think that ESG is distracting from the conversation about changing the heart of business models, because the governance part of ESG can be linked with the conversation about the core constitution of a business (a business’ aims and how to achieve them). However, more proper engagement and conversation is needed around the role of corporate governance in holistic change, such as the Better Business Act, which aims to change company law to move from shareholder primacy to stakeholder alignment. Amy also pointed out the issue of tactical, rather than open, reactions, for example in UN COP26, so the solutions become very tactical. Amy believes that, instead of sticking to business as usual and introducing some green adjustments, we need to step back, understand the scale of the problem and what the big levers for holistic change are to achieve a new way of doing everything.

Kees Vendrik further commented that all debates and discussions in the EU and UN COP26 have been about focusing energy and time on regulating sustainable finance (the solution), but not tackling ‘the brown elephant in the room’ – fossil fuels (the problem). The conversation needs to be steered towards addressing and eliminating unsustainable sources of finance (e.g. fossil fuel industries) to achieve a genuine transition.

Close

Following 2 breakout groups and wrap up, Ben then closed the event, summarising the key, recurring themes of the conversation:

Fear, paralysis and wilful blindness and how to address this crisis
Need for a better narrative
Theme of treating carbon like money
Viewing things systemically using collaboration and partnership instead of competition
All finance has an impact
Consumption and degrowth are needed to reduce the use of fossil fuels