Corporations are facing dramatically different pressures on climate change than even just a few years ago, making it a riskier proposition for companies that aren’t addressing emissions.
It’s a stark change. Less than a decade ago, most corporate efforts to go green largely rang hollow as marketing platitudes. Executives didn’t see tackling climate change as aligned with their imperative to turn a profit. Many companies were still fighting efforts to slash emissions.
But in recent years, the ground has shifted beneath corporations. As public pressure on climate change builds, big-name investors increasingly see global warming as a threat to financial markets, and companies begin to realize their own material risks from climate change effects.
This year, even in the middle of a pandemic and economic downturn, some of the biggest producers and consumers of fossil fuels announced in rapid succession that they would achieve net-zero emissions by 2050. That included oil majors such as BP and Shell, major coal-burning utilities such as Vistra Energy, and the world’s largest cement producer, LafargeHolcim.
“Corporates are getting net-zero pressure from every angle now,” said Ben Ratner, a senior director with the Environmental Defense Fund. “Everywhere you turn, if you’re a company, increasingly you’ve got a stakeholder you care about who’s saying in their language, ‘Climate action now.’”
That includes investors, asset managers, employees, politicians, environmental activists, and the public.
A particular problem facing companies is that they could harm their ability to recruit and retain younger workers if they don’t have a plan to lower their emissions.
“People, especially millennials and younger people, far and away want to work for companies that share their values and, in particular, feel the same urgency they do to address climate change,” said Victoria Mills, a managing director at the Environmental Defense Fund who leads the group’s work with companies.
When BP announced its net-zero goal in February, the oil major saw an all-time peak of more than 12,000 applications from people wanting to work at the company, said Kerry Dryburgh, BP’s executive vice president of people and culture, during an investor presentation in August.
“What we know is that the direction of travel is attractive to people outside of our company,” she said.
Social norms are shifting, too, as extreme weather events like record-breaking wildfires in the West and intense hurricanes in the mid-Atlantic increase public awareness of climate change risks. Customers are increasingly willing to use their wallets to reward or penalize companies based on whether they’re addressing climate.
For example, Mills pointed to a September petition signed by more than 250,000 people in the United States that slammed General Motors, Toyota, and Fiat Chrysler for siding with the Trump administration on its weakening of fuel economy standards.
People are “saying, ‘That’s it. I’m done with Toyota. I’m going to buy a Ford. I’m going to buy a car from a company that is actually leading the transition to a low-carbon future and investing in innovation, not litigation,’” she said.
Beyond public pressure, companies are facing increasing scrutiny from their investors.
A few years ago, climate change was “more of a fringe issue” for investors, said Dan Bakal, Ceres’s interim director of climate and energy. That has changed significantly. Now, even the biggest mainstream investors, such as BlackRock, “recognize climate change as a material risk and as a systemic risk and one that is appropriate to engage with their portfolio companies on,” he said.
In September, Climate Action 100+, a coalition of more than 500 global investors with more than $47 trillion in assets, said it would judge companies’ progress toward meeting net-zero greenhouse gas emissions. The coalition, which includes big-name investors and asset managers such as BlackRock, BNP Paribas, and UBS Asset Management, is focusing on the world’s 161 largest-emitting companies.
The investor group brings “quite a unity of purpose that has never existed on any issue,” said Adam Matthews, co-chairman of the Transition Pathway Initiative, which will help Climate Action 100+ judge companies’ progress. “It’s very difficult for any company, with that percentage of your shareholder base actively articulating very clear objectives, for you not to engage with it.”
Matthews, who also serves as the Church of England Pensions Board’s director of ethics and engagement, helps lead work between Climate Action 100+ and Shell. He said he has a few calls each week with the oil major on climate change.
Investors’ scrutiny will start to come with consequences if companies aren’t performing on climate. This month, the Church of England Pensions Board sold all of its shares in ExxonMobil because it hasn’t measured up on tackling climate change, Bloomberg News reported.
Big banks are jumping in the fray, too. This month, JPMorgan Chase, the biggest financier of fossil fuels in recent years, announced it would align its investments with the goals of the Paris climate agreement and push its clients to reduce emissions. That followed a similar commitment from Morgan Stanley in September to strive for net-zero financed emissions by 2050.
Banks and investors can “pull a number of different levers” to penalize companies on climate negligence, said Ben Caldecott, director of the Oxford Sustainable Finance Program.
For example, “banks will increase the cost of capital for risky companies and risky projects, and that’s going to make those things more expensive. Or they might withdraw from markets completely,” added Caldecott, who recently served on the Commodity Futures Trading Commission’s Climate-Related Market Risk Subcommittee. That panel released a sweeping report in September finding climate change poses massive risks to the U.S. economy and financial markets.
Companies themselves acknowledge the intensifying scrutiny they’re facing on climate.
“[W]e were increasingly hearing from our customers, shareholders, and employees about environmental sustainability,” said Shelley McKinley, vice president of Microsoft’s Technology and Corporate Responsibility Group, in a statement to the Washington Examiner.
“We believe that those who can do more, should,” she added. In January, Microsoft committed to go carbon negative by 2030 and to remove all the carbon it has emitted since the company was founded by 2050.
What’s distinct about the climate pressures now facing corporations is they’re largely independent of politics, especially in the U.S., where the Trump administration has done little on climate policy and has actively promoted fossil fuel development.
If Democratic presidential nominee Joe Biden wins the White House in November, it could certainly accelerate pressures already facing corporations and potentially push some recalcitrant companies, particularly U.S. oil companies, to act, experts said. But even if President Trump wins again, momentum won’t slow down, they added.
“The risk doesn’t go away just because the federal government isn’t addressing it,” Bakal said.
Company directors and investors have legal obligations and fiduciary duties, all of which are being affected by the changing dynamics on climate, Caldecott said.
“You’d have to be in breach of your legal obligations if you didn’t react and take account of those drivers when you’re making your company strategies or, if you’re a financial institution, making your investment decisions,” he added. “It’d be criminally negligent, basically, to not think about these issues.”
