In part one of his monthly #CSRCheatSheet column, Oliver Balch rounds up some of the biggest corporate sustainability news ahead of this week’s World Economic Forum meeting in Switzerland, including the publication of CDP's latest climate A list, which shows Japanese companies in the lead
This week’s gathering of business leaders and government heads in Davos for the World Economic Forum’s annual meeting is a major date in the sustainable business calendar, with big corporates using the media spotlight on the Swiss ski resort to highlight major announcements.
This year, two of the world’s biggest companies and the globe’s biggest asset manager jumped early, announcing ambitious climate commitments last week. Nestlé, the Swiss food giant, came out with a pledge to invest up to CHF2bn ($2.07bn) to accelerate the development of sustainable packaging solutions. Of this CHF1.5bn will go towards paying premiums for sourcing food-grade recycled plastics between now and 2025. The move is in line with Nestlé’s pledge to make all its packaging recyclable or reusable by 2025.
Hot on its heels came Microsoft, with a promise to remove all the carbon it has ever created by 2050. Included in the commitment by the US tech giant (founded in 1975) is an interim pledge to become carbon negative by 2030. To fund this extraordinary ambitious plan, Microsoft says is will expand its internal carbon fee (in place since 2012) to indirect as well as direct emissions.
It also intends to plough $1bn into a climate innovation fund to accelerate the global development of carbon reduction, capture and removal technologies. Both companies, incidentally, make it onto a new list launched by the World Benchmarking Alliance of the 2,000 private sector organisations judged most likely to help deliver on the UN’s Sustainable Development Goals.
And, unsurprisingly, Microsoft and Nestlé continue to feature on CDP’s A list for climate leadership, also published this week. AstraZeneca, BT Group, CVS Health, Danone, H&M, Grupo CCR Klabin, The LEGO Group, L’Oreal, Ørsted, Sainsburys, Samsung Engineering, Sony, Unilever and Walmart were also among the 179 companies that made the list, up from 126 last year. Of these, more than 100 have their climate targets validated by the Science Based Targets initiative.
The global nonprofit said Japan was the country with the most companies on the A list after a near-doubling to 38 from 20 last year. The US was relegated to second place with 35, while France came in third with 22.
The focus on climate ambition at WEF comes as the World Meteorological Organization (WMO) confirmed 2019 as the second warmest year on record (after 2016), with average annual global temperatures 1.1C warmer than the preindustrial average (1850-1900). Nor does the future forecast look very positive.
“The year 2020 has started out where 2019 left off – with high-impact weather and climate-related events”, WMO stated. The findings are drawn from five separate datasets (including sets from the US space agency NASA and the UK’s Met Office), the spread between which is 0.15C (with 1.05C the lowest and 1.2C the highest).
Such concerns are reflected in the World Economic Forum’s recently released annual Global Risks Report (full report here), which polls business leaders about their top concerns for the global economy.
The top five on the list for 2020 are all environment-related: extreme weather events, climate action failure, natural disasters, biodiversity loss and human-made environmental disasters. Ten years ago, green issues were not even mentioned (The top risks in 2009 comprised: asset price collapse, China economic slowdown, chronic diseases, global governance gaps, and deglobalisation).
BlackRock CEO Larry Fink captured the new zeitgeist in his annual letter to CEOs, in which he described climate change as “a defining factor in companies’ long-term prospects” and the “top issue” for BlackRock’s clients worldwide.
BlackRock’s chief executive also used his annual letter to inform the capital markets of his firm’s decision to exit its investments in thermal coal producers, along with pledges to launch new investment products that screen fossil fuels, and make sustainability “integral” to BlackRock’s current and future investment portfolios.
The letter came a week after BlackRock’s announcement that it had joined Climate Action 100+, an investor initiative to prompt action by the world's biggest 100 greenhouse gas emitters, which account for two-thirds of annual global industrial emissions.
Mindy Lubber, chief executive at the US environmental non-profit Ceres, pointed out in a column that BlackRock manages nearly $7tn in assets on behalf of investors worldwide, nearly one-third of all managed assets in the US.
“Fink’s letter is both a recognition that capital markets are changing to address the climate crisis and a clarion call to companies, other investors and policymakers everywhere that every capital market actor has a fiduciary duty to scale action on the greatest challenge of our time. This is the clear leadership required as we launch into our new decade.”
Others were more critical, describing the BlackRock announcement as a response to the “outpouring of pressure” from NGOs over the last 12 month, and pointing out that it remains the world's largest investor in coal, oil, and gas. A 2019 report by shareholder activist group Majority Action about BlackRock’s recent voting record reveals that the asset manager gave above-average support for the management of fossil fuel firms over the last year.
BlackRock also voted against all US shareholder proposals backed by the Climate Action 100+ coalition. “BlackRock should expand on its commitments and other financial institutions should follow suit," argues Ben Cushing, a spokesperson for the US-based Sierra Club.
The European Commission will be using WEF to promote its climate leadership, and last week released details of the investment plan for its proposed European Green Deal. The plan, which aims to help the European Union deliver on its goal of becoming the first climate-neutral bloc in the world by 2050, is expected to release “at least” €1tn in low-carbon investments, according to the Commission. Initial figures are more modest, however. For instance, the plan includes a Just Transition Fund worth €7.5bn, which, when matched by other European funds and national resources, is expected to provide a total of between €30bn and €50bn.
The plan also anticipated a public sector loan facility with the European Investment Bank to mobilise between €25bn and €30bn of investments. Backed by the EU budget, this will be used for public-sector loans for investments in projects such as district heating networks. A second scheme run by the EU’s investment promotion agency, InvestEU, will aim to attract up to €45bn in private investment for sustainable energy and transport initiatives, among other “green growth” projects. To hit its 2030 climate and energy targets, the EU estimates that additional investments of €260bn per year will be required.
Both events appear to substantiate a new paper that posits the start of the 2020s as the moment when environmental, social and governance (ESG) issues really take off in finance circles. Clue one is the changing nature of loan terms, argues the report’s author, ESG specialist MSCI. In the first nine months of 2019, loans linked to ESG performance totalled $71.3bn – double the volume issued in the same period in 2018. Clue two is the lower cost of capital for companies with better managed ESG risks.
High performers are seen to be a safer bet, MSCI argues. An analysis of the firm’s benchmark MSCI World Index between 2007 and 2017 indicates that companies with the highest ESG ratings experience are three times less likely to experience dramatic falls in their share price than those with the lowest ESG scores.
Additional reporting by Terry Slavin
CSRCheatSheet WEF World Benchmarking Alliance WMO Larry Fink BlackRock European Green Deal InvestEU