WHAT IS THE CURRENCY OF CLIMATE CHANGE?
The conversation on climate change in financial services is getting louder and louder. Larry Fink, CEO of Blackrock, made the global challenge the focus of his seminal January letter, stating that heightened awareness of “the significant and lasting impact that [climate change] will have on economic growth and prosperity” means that “we are on the edge of a fundamental reshaping of finance.”
To action this, Fink said BlackRock would begin to exit certain investments with a “high sustainability-related risk”. As the world’s largest asset manager with nearly $7 trillion in investments, his warning was influential.
It prompted a raft of international companies to make important claims announce how they plan to make a difference. For example, Microsoft announced that by 2030 it will be carbon negative, and by 2050 the company will remove from the environment all the carbon that it has emitted since it was founded in 1975.
It’s a bold pledge and should be applauded as a result. However, following swiftly on the back of Fink’s letter, it’s clear that boards will increasingly have no choice but to sit up and listen to significant investors when it comes to cutting their carbon footprint, or risk losing out on significant investor capital.
How do we define the climate change currency?
In The Daily, Andrew Ross Sorkin, a financial columnist for The New York Times, raises the question as to how much of a difference corporates can make when there are entire countries that are so behind. China is the world’s largest greenhouse gas emitter accounting for approximately 27% of global emissions and it’s unclear when or how it plans to cut fossil fuel consumption levels.
So what is driving corporate climate agendas? In reality, the currency corporates are trading in goes beyond capital. It includes what is often known as the “softer” considerations, such as brand perception.
This dimension is far from soft especially in today’s digital world where companies are very easily held to account. Being seen as failing to address climate change carries very real risks. It can significantly impact a firms’ reputation among customers, its ability to attract talent and therefore its bottom line.
Who can afford to change the planet?
While large, wealthy companies are making bold pledges, in the UK this week, we have seen one council put a much lower and affordable price on tackling climate change. The residents of Warwickshire will be asked to vote on whether they are prepared to pay £1 per week in a historic referendum which aims to create a £3m “climate action fund” and make the entire district carbon-neutral by 2030.
Our client Bboxx is tackling the question of affordability for its consumers head on. They provide clean, reliable and affordable energy to hundreds of thousands of people. However, the energy sector still has a massive affordability gap. The latest Market Trends Report puts the gap $11 billion, estimating that the sector would need to grow at an accelerated rate of 13%, with up to $7.7 billion in external investment to companies and up to $3.4 billion of public funding to bridge that gap.
In response, Bboxx have created the Affordability Accelerator Fund. Building on the existing use of subsidies which it launched alongside the Government of Togo last year, they have developed a new financing model which will transform subsidies into an investment class.
The overall message here is that no single group can create change. It’s about collaboration: with consumers, companies big and small, investors, governments and more coming together to find scalable solutions that will keep the planet turning for generations to come.