Transparency and responsibility driving business
Leo Burke, director of the Climate Investing Initiative at Notre Dame’s Mendoza College of Business, on why a new way of thinking is required to drive energy transition.
Director of the Climate Investment Initiative at Notre Dame's Mendoza College of Business
Anyone currently working to address climate change is swimming upstream. There’s been a significant breakdown in trust between citizens, investors, governments and business, and that trust needs to be rebuilt if we are to stand any chance of success.
There’s no getting away from the fact that we need to get to zero emissions by mid-century if we are to meet the Paris goals and avoid the worst consequences of climate change. Unfortunately, we’re going in the wrong direction. So we’ve got to find a new way to address the challenge.
Some governments are helping to drive change, although notably not the current US administration. Businesses, however, are taking a more pragmatic approach. Some of that is driven by the trend towards greater transparency – we’re moving into a new era where the type of financial reporting recommended, for example, by the Task Force on Climate-Related Financial Disclosures will, over time, become a set of standards. At the moment the regime is voluntary, but it won’t remain so.
However, it’s also driven by a sense of responsibility. Shell CEO Ben van Beurden put it well when he said that climate change is ‘the defining issue of our time’, and most senior executives I’ve spoken to want to play their part in reducing emissions. However, I am yet to meet a scientist, a business leader, a policy specialist or a climate expert who believes that we’re going to hold global temperature rises below 2°C, not one. And once that ceiling is breached, the impact of climate change on markets, supply chains, the availability of labour and social stability will grow, making it even harder for business to reverse the tide.
Shell’s announcement that it is willing to set specific CO2 emission targets and link these to executive pay is heartening. And, hopefully, in my view, this will set a precedent that other oil and gas companies will follow. It’s in everybody’s interests for corporations to be able to publicly commit to specific percentage reductions and then be transparent on their performance. Key to the Shell commitment was the engagement of investors, who are increasingly outspoken. The investor consortium Climate Action 100+, for example, now represents over $32tn in assets; it advocates that corporations demonstrate they are Paris compliant. To the extent that energy companies and investors learn to collaborate on addressing CO2 emissions in a timely way, we have a chance of forging a future where the worst effects of climate change can be avoided.
Investors are increasingly outspoken. The consortium Climate Action 100+ now represents over $32tn in assets and advocates that corporations demonstrate they are Paris compliant.
Education and leadership
Both energy companies and investors also need to do a better job of educating civil society about what they do and why they do it. An asset manager, for example, might be criticised for holding stakes in carbon emitters while promoting its sustainability ethos, but that investor might see maintaining a stake as the best way to effect change. Education is also needed around some of the more controversial policies required to reduce CO2 emissions, such as a carbon tax. The mere mention of tax often provokes a negative reaction, so we have to educate people that the proceeds from such a levy would be distributed in an equitable way that will reduce carbon emissions and ease the financial impact on those who can least afford it, rather than simply filling a general budget coffer. We live in a time when people are suspicious of the integrity of the information they receive, so effective communication is essential for policies such as these – and the parties that propose them – to win widespread support.
All of this requires a new kind of leadership where both private and public sector leaders step forward to embrace an uncommon destiny of putting the interests of the planet and its inhabitants above everything else.
At Notre Dame we have been working on a structural model to drive energy transition, which covers seven areas that are relevant to business. Working within this framework will require a different way of thinking; all of its elements need to be considered within the construct of our inherent unity. We are one species, we have one planet, and we cannot build a wall high enough to keep out CO2 emissions. So how do we take the wellbeing of the totality into account? How do we demonstrate a willingness to co-operate that goes beyond traditional boundaries of nation state, politics or religion? It’s very clear that no business can do this on its own. It’s a huge challenge but we have to maintain a sense of optimism if we are to get there. We have no other option.
Seven steps to energy transition - the Notre Dame model by Leo Burke
Senior executives will need to be really smart about how they manage their fiduciary responsibilities through the energy transition period because they're going to have to make trade-offs that will have financial implications. They're going to have to stretch their perspectives.
Decarbonisation can happen in three ways - through greater energy efficiency, substitution (switching to renewable energy rather than fossil fuel-generated supplies) and carbon capture. There's a lot of innovation in this space - techniques have been developed, for example, that enable more carbon to be captured in cement than is generated producing it.
Involvement of civil society
This is very important. Businesses can help educate citizens and civil society about what’s needed to drive energy transition. We have to get people working together in a much broader way than we do now.
Universal access to electricity
Today there are more than one billion people around the world without access to electricity. This locks them into poverty, so we have to find ways of creating access in the most carbon-neutral way possible. The fact that the world’s population will rise by more than two billion over the next 30 years only adds to the challenge.
We need to rethink the role consumption plays in society. The level of waste – particularly in OECD countries – is way too high. So we have to reconsider how every aspect of our lives is moderated, without sacrificing the intangible values that we hold as being necessary for a high quality life.
We need an equitable carbon pricing that is interoperable between countries. Until we have policies that price in the externality of CO2 emissions, tackling climate change will continue to elude us.
'Care for our common home'
All of this requires us to buy into the concept of ‘care for our common home’, which includes everything from environmental stewardship to looking after the disadvantaged. Climate change will disproportionately affect island nations and create refugees in different regions. So how do we take that into account in the way decisions are made? This is an important issue for all elements of society, including business.