Money talks

The old adage that money talks has taken on a new importance with an important letter to CEOs, says Paul Hearns
Image: Stockfresh

24 February 2020

There is a fundamental shift occurring in our world that will affect every aspect of our lives. Climate change, in conjunction with anthropomorphic drivers, is changing the way we live, work and plan for the future.

With the extreme effects now visible through the likes of the Californian and Australian wildfires, as well as extended droughts elsewhere, and more frequent, higher intensity storms on our own doorstep, we are all coming to the realisation that something must be done.

That dawning has been some time in coming, but ever since about 2003, after the science became incontrovertible, many began to change the way they did things, with carbon control and reduction as a key plank of those efforts. Things were going swimmingly too, with many companies and industries, not least of which was the tech sector, making all sorts of pledges and promises.




Then 2008 happened and all those good intentions went pretty much out the window as the focus became survival over pretty much anything else. However, as part of the drive to revive the global economy, some companies, and indeed industries, became even worse in their practices. Added to all of this has been the rise of high-profile climate change ‘sceptics’. Not least among these is the current president of the United States, who famously withdrew the US from the Paris Climate Accord.

At a recent Dublin event, HPE’s Sustainability Summit, I had a chance to catch up with Chris Wellise, HPE Corporate’s chief sustainability officer. I had spoken to him fairly recently at another event where he had pointed out the changing demands of new enterprise architectures, such as edge computing, and how those demands will determine future power generation and distribution.

Wellise was there on the return leg of his trip to Davos, where he spoke and participated in panels and discussions.

He said there was a distinct change this year and that sustainability was high on the agenda. There is a realisation, he said, that business cannot wait for government to act and must take the initiative on climate change. Everyone is keen to see what they can do.

As part of the panel for the Dublin event, I asked him how deep that commitment went, and if like 2008 there was a shock, would it all wash away again with more primal concerns.

Wellise said this time is different. He said there is now the recognition that this is existential and those who are not seen to be doing enough will pay the price.

He cited the letter to CEOs from the CEO of BlackRock, the world’s largest asset manager and investment house. Larry Fink this year used his annual address to CEOs to point out this fundamental change in the market.
“Awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance,” writes Fink.

He points out that BlackRock has a duty to invest responsibly, and to recognise risk, wherever it lies. He frames climate change as such a range of unpredictabilities as to represent key risks. What, he asks, can be done if mortgages cannot be set for 30 year periods because it is impossible to know what climate effects will be seen through its lifetime?

“Investors are increasingly reckoning with these questions and recognising that climate risk is investment risk,” he writes.

It is worth pointing out again, this is the CEO of a massive investment house, not some academic, watchdog or ‘green lefty’.

Flight to quality

Fink asserts that capital will go where business leaders are being seen to address climate risks by improving the sustainability of their organisations.

This is a massive shift.

“In the near future – and sooner than most anticipate – there will be a significant reallocation of capital,” Fink boldly states.

And this is not just rhetoric to rally the troops, Fink has already put this approach into action.

“We believe that when a company is not effectively addressing a material issue, its directors should be held accountable. Last year BlackRock voted against or withheld votes from 4,800 directors at 2,700 different companies. Where we feel companies and boards are not producing effective sustainability disclosures or implementing frameworks for managing these issues, we will hold board members accountable. Given the groundwork we have already laid engaging on disclosure, and the growing investment risks surrounding sustainability, we will be increasingly disposed to vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them.”

In the letter, Fink urges organisations to not only make major changes to ensure sustainability, he also urges transparency and responsibility.

He highlights the Sustainability Accounting Standards Board framework for this, and reports that BlackRock has already implemented the measures. Again, this is no empty talk, this must be demonstrable if it is to be worthwhile at all.

“Disclosure should be a means to achieving a more sustainable and inclusive capitalism,” Fink wrote.

This is such a fundamental change that no business can ignore it. If the CEO of one of the world’s largest investment and asset managers feels the need to not only make such changes but also urge others to do the same for fear of losing out on capital investments then it is hard to argue against it.
The cynic in me still harks back to the question above, asked of Wellise, to determine how ingrained these initiatives are and what it would take to undo them. But it appears that this change, this realisation, has now gone deep.

Wellise pointed to the fact that HPE, among many other entities from cities to universities and healthcare organisations, are part of an alliance called We Are Still In, who “strongly oppose the US withdrawal from Paris [Climate Accord], and are not going to take a retreat from the global response to the climate crisis lying down.”

The alliance members have pledged to voluntarily meet the measures adopted by the Paris Accord, even as their government departs from it.

This willingness to defy a government move, even though it may present short term cost savings, is further testament that this time it is different. This time, the message has got through: humankind has contributed greatly to the acceleration of climate change and must do something about it.

Leaders, from Donald Trump to Scott Morrison of Australia, must be held to account for their lack of action.

Morrison, while Treasurer of Australia, famously brought a lump of coal to parliament, declaring it was nothing to be afraid of. Two years later, as much of the country burned, the episode has not aged well. Now Prime Minister, Morrison has come under intense pressure to resign due not only to his stance on climate change, but his poor handling of what has been a national crisis.

Fink warns that those who are not seen to be managing what is now perceived as a distinct business risk will suffer as capital goes where responsible actions are taken and disclosed. Are you ready?

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