Corporations Fixing the Climate Crisis in 2020?

Corporations Fixing the Climate Crisis? The Big Brands Making Big Commitments in 2020 (and what that means for the future!)

“Last September, when millions of people took to the streets to demand action on climate change, many of them emphasized the significant and lasting impact that it will have on economic growth and prosperity – a risk that markets to date have been slower to reflect.

But awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance.”

You could be forgiven for assuming that the leader of an environmental movement wrote these inspiring words. However, this is actually an extract from the open letter written in January this year by Larry Fink, CEO of BlackRock, the largest asset management firm in the world.

In it, the company vows to make climate change a central pillar of its corporate strategy and mission, and urges other corporations to “rethink their carbon footprints.” Among a suite of new steps to address climate risks, BlackRock has pledged to divest US$500 million of their US$7 Trillion asset portfolio away from coal-related companies.

The impact of this moment in business cannot be understated, and not only because of the sheer size and influence of BlackRock, the world’s biggest shareholder.

It also speaks to a broader shift occurring at a fast pace among business leaders, towards a triple bottom line approach.

Just one year ago, BlackRock voted against key climate resolutions at energy companies, including ExxonMobil, citing a need for management caution rather than climate action. This year, due to activist pressure as well as world events, Fink and BlackRock have made a complete turnaround in position.

But BlackRock isn’t the only big corporation making big climate pledges this year.

• Shortly before they released their letter, BlackRock joined the Climate 100+, a group of over 450 global investors who use shareholder influence to shape corporate climate governance in line with the Paris Agreement.

 
This group of investors collectively manage over US$40 trillion in assets, and are systematically targeting some of the biggest polluting companies in the world. As well as BlackRock, over 20 new investors have joined the Climate 100+ group since January 2020.

• Jeff Bezos, richest man in the world and CEO of Amazon, announced in February this year that he is committing US$10 billion of his personal fortune to address the climate crisis, in an initiative he calls the Bezos Earth Fund.

 
This announcement follows on from Amazon becoming the first company to sign the American Business Act on Climate Pledge late last year, committing the global Ecommerce giant to implement ‘de-carbonization’ strategies in line with the Paris Agreement. Amazon aims to achieve net zero carbon across their businesses by 2040, transition to 100% renewable energy, as well as meeting a list of other targets addressing including waste minimisation, and net zero deforestation. For one of the largest companies in the world, that’s a big deal!

Notably, in order to achieve these goals, Amazon is making climate central to their existing business activities, for example, replacing the transportation fleet with only electric vehicles. This is a huge shift towards ‘deep decarbonisation’ as an integrated part of business strategy (as Fink urged in his letter), and away from token efforts or greenwashing.

• In January, two days after BlackRock’s letter was released, Microsoft announced some of the most ambitious climate targets ever developed by a corporation. Not satisfied with becoming carbon neutral, the tech giant pledges to become carbon negative, that is, putting in place strategies to absorb more emissions than they generate.

 
By 2030 they aim to have offset any past emissions generated since the company’s founding in 1975, in addition to ensuring all future activities are carbon neutral.

• In February, Delta Airlines became the first U.S Airline to commit to becoming 100% carbon neutral over the next decade. This is a significant moment in an industry that currently relies on fossil fuels, and is responsible for a significant share of global emissions.

 
Their strategy is to invest in carbon absorbing projects in forestry and conservation, increase fuel efficiency, and to work with supply chains. It is expected that other airlines will follow suit, under pressure from consumers.

• Within just days of Delta’s announcement, BP’s new chief executive, Bernard Looney, also announced that the energy, oil and gas giant has set an ambitious new climate target: to shrink their carbon footprint to net zero by 2050.

 
This pledge will require them to remove more than 400m tonnes of carbon emissions a year from their oil and gas operations, a total that is more than the entire annual emissions of the United Kingdom.

Their specific strategy remains unclear, but they have outlined a plan to invest more in renewable energy, carbon capture technologies, and reforestation programs, while Looney has stated they will be phasing out oil and gas extraction, ‘over time.’ Details are expected to be provided in September. Perhaps most significantly, Looney also stated that the company will no longer engage in lobbying or PR activity that works against the introduction of effective climate policy.

• In December of 2019, just a few weeks prior to the release of BlackRock’s letter, international banks Goldman Sachs and Credit Suisse both announced that they will no longer be financing new coal power stations. Credit Suisse is among 10 large European banks called upon last year by climate activists to stop investing in the high emissions energy industry.

• PepsiCo announced in January that they are committed to becoming 100% powered by renewable energy in America, in 2020. The announcement builds on efforts they have made over the last several years to source green energy for all their production facilities located in the United States.

 
As you can see, 2020 is turning out be a monumental year for companies making pledges to reduce their climate impact.

However, the previous several years have seen literally hundreds of companies making similar commitments, with varying degrees of success and accountability.

Last year, over 87 international brands committed to the 1.5C Pledge, setting climate targets for their entire value chains aligned with limiting global temperature rise to 1.5 Celsius, and reaching net-zero emissions by no later than 2050.

The American Business Act on Climate Pledge now has over 154 signatories, who are morally and publicly (if not legally) bound to fulfil targets such as: reducing emissions by as much as 50 percent, reducing water usage by as much as 80 percent, and achieving zero waste-to-landfill.

That all sounds great! But, what does this explosion in corporate pledges actually mean for the future of the climate, business, and everyone on the planet?

Perhaps the best person to summarise would be Larry Fink himself. In the BlackRock letter from January of this year, we can take away two key points from the many pertinent points that he made:

“Climate risk is investment risk… Ultimately, purpose is the engine of long-term profitability. Over time, companies and countries that do not respond to stakeholders and address sustainability risks will encounter growing scepticism from the markets, and in turn, a higher cost of capital.”

“While government must lead the way in this transition, companies and investors also have a meaningful role to play.”

What Fink is essentially trying to bring home to businesses in 2020 is, firstly, that climate action is central to long term profit, because climate risk is business risk. The good news we can take away from these corporate pledges is that companies are listening.

The latest data indicates that over the last several years, an increasing number of companies are genuinely building measurable environmental sustainability targets into their business models. If more companies continue to move towards this version of ‘deep’ (as opposed to ‘shallow’) decarbonisation, it could mean an existential difference in outcomes.

It’s difficult to put a precise figure on the potential impact of these diverse pledges, and companies are responsible for accurate reporting. However, considering that just 100 companies are responsible for 70% of emissions, this corporate shift could have an enormous impact.

The second point Fink is making, is that any success in tackling the climate crisis requires governments to take the lead.

This is where some environmentalists raise their eyebrows. Many of these same corporations, including BP and BlackRock, have engaged in lobbying, funding or PR for years, that has disrupted climate policy. If big business is serious about saving the world, they need to support governments in developing strong climate policy and innovative technologies, and stop lobbying against change.

BlackRock’s turnaround this year has been a huge moment in the sustainable business revolution the climate needs. Let’s hope that by the end of 2020, every company (and government) gets on board!

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