Gray Rhino & Company CEO Michele Wucker spoke at the ESG Global Leaders Summit held in Beijing August 26, focusing on “ESG Development and a New Low-Carbon Sustainable Future.” The summit was led by Sina Finance ESG channel and co-hosted by CITIC Publishing Group.
Watch here. The original text follows:
I am delighted to participate in the ESG Global Leaders Summit. This important conversation could not be more timely.
This July was the hottest month ever recorded. A billion or more sea creatures were cooked to death off the coast of Canada as heat records were shattered. Smoke from raging wildfires in the Western United States has continued to drift across the continent. Halfway across the country, our sunrises here in Chicago look more like eerie moonrises because of the particles in the atmosphere.
The recently released report by the Intergovernmental Panel on Climate is a stark warning of the consequences if the inhabitants of earth do not change our behavior dramatically. It sounds the alarm that we are not moving nearly fast enough to avert disaster. The increasingly fierce wildfires and floods this year tell the story even more clearly.
The devastation caused by climate change is an obvious, highly impactful, and not only highly probable threat, but one that has already arrived and foretells much worse to come.
In other words, climate change is a gray rhino with all of its fearsome weight bearing down upon us.
We have seen its deadly impact on human health, well-being, and loss of life. We will see more and more of this – just as is happening to biodiversity as species after species die off. The domino effects go far beyond. Central banks and regulators increasingly concerned about how climate change increases financial risk, particularly for real estate, insurance, and agriculture, with knock-on effects across the global economy and financial system.
If we humans do not change, we will be trampled.
So how do we face down this gray rhino?
The climate crisis is existential, challenging every society, government, organization, and citizen on the planet to think hard about who we are and what we value most. It also raises practical, tactical questions about the steps we need to take -particularly as ESG leaders- to reduce and remove carbon emissions, and to live and work within the planet’s capacity to sustain life.
Today I will share some thoughts on both.
First, the big picture. Little says more about a group of people and their values than what they do when confronted with obvious gray rhino risks with highly probable, highly impactful consequences.
In risk analysis, it is all too common to focus mainly on the nature of the risks themselves. Yet it is just as important to understand how and why we respond the way we do, as individuals, groups, organizations, or societies. Our responses affect the outcomes of the risks we face. They also are a key part of who we are.
In fact, you might think of the risk choices a society makes as leaving an imprint as distinct as the fingerprint impression left behind on a glass. And you might think of cultural, economic, and social values and priorities as the elements that form that unique risk fingerprint which identifies any society to the rest of the world.
From the time of the first cave people gathered around fires, humans have joined together to protect each other from the common dangers they faced. Communities, then cities, then nations arose on a larger scale and evolved for just this purpose. The threats that each has overcome, combined with the present and future ones they face, both shape and are shaped by what they believe and how they put those beliefs into action.
When we ask how to respond to the climate imperative, we actually are asking societies, organizations, and citizens to show us who they are.
- What risks they care about most?
- What are they willing to lose and what gains would they prize above all other?
- How close is their perception of risks to how likely or impactful those risks really are?
- Do people care only about potential threat to themselves or more broadly: family, friends, community, and globally, and particularly the most vulnerable people?
- How do citizens and leaders prioritize short term versus long term risks?
- How do governments and organizations communicate about risk?
- What policies are in place to protect citizens from risks?
- How do policies encourage or discourage constructive and foolhardy risks?
- How are the profits or losses that result from successful or failed risk-taking shared?
The answers to these questions are crucial when it comes to climate change: the defining issue of our time. What citizens, organizations and societies do to arrest climate change will shape our common future.
Today, we are all here as ESG leaders with the specific goal of heading off climate risks.
As such, let’s turn now to the practical, tactical side of our conversation. What are the concrete steps that ESG leaders can take to rise to the opportunities and challenges of climate change? How can we make the most of a new surge of interest in economic, social, and governance investing to reach net zero carbon emissions?
First, It’s important to focus on messaging and making sure key stakeholders recognize the opportunities that come from switching to a more sustainable way of doing business.
Second, Accurate and consistent reporting and standards are essential to both risk pricing and to combating greenwashing.
Third, Companies and countries need to collaborate across borders while engaging in healthy competition -a race to the top.
Just like all gray rhinos, the climate challenge brings opportunities along with danger. It creates the urgency to apply clean, renewable technologies to reducing pollution and greenhouse gases. That will create jobs, reduce future energy costs, and improve health and living conditions.
Climate change is shifting the conversation from “How much does it cost to fix this” to “How much does it cost NOT to fix this” and “How do we tap into the value proposition of fixing the problem?”
Investors and corporations are finally coming around to the understanding that analyzing and reporting climate impact helps them to better assess and manage the entire set of risks at hand and to make better decisions about where to put their money. For example, how does increasing extreme weather from climate change affect a company’s facilities and supply chains? How do fossil fuel investments affect real estate holdings in the same portfolio?
Global efforts to create common climate risk disclosure standards are progressing. By the end of 2020, nearly six in ten of the world’s largest public companies supported using the framework developed by the Task Force on Climate-related Financial Disclosures convened by the Financial Stability Board. Finance ministers of G7 countries agreed in June to make climate disclosure mandatory. The more governments push companies to disclose climate risks, the easier it will be for investors to assess the true value of those firms.
One of the happy developments of the last 18 months is the huge increase in flows of money into ESG investments: that is, companies and funds that claim to create value through their policies and actions involving environmental, social, and governance priorities. At the end of June, Morningstar reported US$2.24 trillion in assets invested in sustainable funds–more than double the roughly one trillion at the beginning of 2020.
An unfortunate side effect is that problems remain with “greenwashing,” or companies and funds pretending to prioritize ESG when, in reality, it’s just a marketing ploy. There have been efforts to create common standards, such as the World Economic Forum’s Stakeholder Capitalism Metrics. Yet competing ESG standards still make it too hard to sort out the wheat from the chaff. For example, a recent Wall Street Journal study of ESG ratings assigned to nearly 1500 companies showed that three big rating firms agreed only 36 percent of the time. Much work remains to be done.
Markets can only do so much without the proper policy environment. Coordination on climate pricing through carbon markets or taxes also is badly needed to remove the temptation for companies to move operations from a country that makes dirty business more expensive to one where it is cheaper.
This shows an urgent need for countries to work together to fairly allocate the costs of carbon-intensive activities, which too often fall on others while companies reap profits. A global carbon price floor could help to right that imbalance.
But, like other gray rhinos, there also are many opportunities -not just the financial ones I mentioned earlier. There also are huge opportunities for nations to show leadership and to cooperate even when they disagree on other issues.
When it comes to climate change, we are all at risk. No matter how much countries may differ elsewhere, when it comes to our climate future, it’s time to leave other tensions aside. This is a huge opportunity for a world that struggles with so many problems and opposing perspectives: it’s a chance to come together.
With that in mind and following the recent conclusion of the Olympic Games, I propose another kind of international competition where countries showcase the best of themselves. This would be an Olympics of climate solutions, a race to the top instead of a race to the bottom. It would be a competition where countries celebrates excellence, no matter the source, and display their climate risk fingerprints, showing everyone what they will risk to save the world.
Read more about country risk fingerprints in YOU ARE WHAT YOU RISK: The New Art and Science of Navigating an Uncertain World (April 2021).
This article is part of my LinkedIn newsletter series, “Around My Mind” – a regular walk through the ideas, events, people, and places that kick my synapses into action, sparking sometimes surprising or counter-intuitive connections.
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