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Carbon, climate change & catalyst leadership

Carbon, climate change & catalyst leadership

Source: Business Times
Article Date: 11 Jun 2021
Author: Jeffery Tan

Leaders should look at the potential opportunities that can be explored and exploited from sustainability and climate issues.

Increasingly, global attention has turned to the impact of activities with large carbon footprints and how they contribute to climate change. What was previously perceived as a macro issue that has no bearing on an individual's life, has now caught the attention of the common woman and man who have become 'alive' to this issue and its impact on the environment.

A survey by Pew Research Center in April 2021 yields some interesting findings. Younger Americans - Millennials and Gen Z (those currently between the ages 18 and 39) - stand out in the survey for their high levels of engagement with the issue of climate change: 48 per cent of Millennials and 49 per cent of Gen Z indicate that action to reduce the effects of climate change needs to be prioritised today. What is also interesting is that this younger generation, as active media users, are bringing their cause online and getting more involved with the issue through activities such as volunteering, attending rallies and protests.

In May 2021, eight Australian teenagers, along with a 86-year-old nun, succeeded in their case to prevent the approval of a massive coalmine when they persuaded the Australian federal court that the environment minister has a duty of care to protect young people from the climate crisis - a judgment that is hailed by lawyers as a world first.

This past month has also seen a first in modern corporate history: Exxon Mobil Corporation, America's largest oil company, faced a challenge from an activist investor, Engine No. 1, who was upset with the entity's financial performance and its less than timely response to climate matters. This stakeholder frustration resulted in the hedge fund ousting 2 directors at the company's annual shareholder meeting. Anne Simpson, managing investment director at the California Public Employees Retirement System (CalPERS), who was among the prominent investors and pension funds that backed the activist campaign, expressed the ouster of the directors in these words: "Investors are no longer standing on the sidelines. This is a day of reckoning."

At home, last month saw the issuing of a legal opinion by a team of independent legal counsels, titled Directors' Responsibilities and Climate Change under Singapore Law. This was commissioned by the Commonwealth Climate and Law Initiative. The main aim of the legal opinion is to examine the legal basis for directors and trustees to take account of climate change risks, and societal responses to climate change risks.

The view of the lead author of the opinion, Jeffrey Chan, may be a harbinger of things to come: "Given the seriousness and public concern over climate change, directors of Singapore companies must be aware that they will incur criminal and civil liabilities if they do not inform themselves on how their companies impact or are impacted by climate change and factor these into their decisions as directors."

In connecting the different dots from the above developments one can surmise as follows: Millennials and Gen Zs have climate change issues squarely within the crosshairs of their social focus; stakeholders are unabashed to articulate their concerns to the point of taking action against corporations and governments; and the legal tide may be turning against corporate leadership that do not respond appropriately to these changes.

Put simply, the message to corporations and the boards that provide oversight is clear - a carefully considered and appropriate response to climate change is needed. In this regard, enlightened and proactive leaders may wish to reflect on the following areas as they prepare and position their corporations for this emerging corporate challenge:

Leadership awareness and tone from the top

There needs to be a clear understanding and embracing of sustainability and climate change issues from the board down to senior management. Without sounding dramatic, this needs to be seen as a potential 'existential threat' to the businesses an entity is currently invested in; and should not be taken as mere 'white noise' that can be ignored or merely managed and mitigated as a PR issue. The challenge is in having the leadership of organisations fully appreciate the impact of climate issues, and to take concrete steps and actions to address them - in order to ensure they have sustainable businesses that can preserve and grow the capital that stakeholders have entrusted to them.

Sustainability issues and threats to be viewed on par as financial considerations of an organisation

Just as banks now have Sustainability Committees whose stature and approval authority on the grant of loans is on par with the traditional Credit Committees, corporations will need to determine how best to raise the stature, standing and significance of sustainability and climate issues to the same level of scrutiny as financial issues on a corporation's balance sheet. Increasingly, stakeholders are placing a financial impact number on the assets of corporations for sustainability issues that helps highlight the importance - be it through the corporation's sustainability rankings or the adoption of frameworks created by the likes of the Taskforce for Climate Related Financial Disclosures (TCFD), Sustainability Accounting Standards Board (SASB) or otherwise. It's a matter of time, when meetings with financial analysts on a corporation's sustainability and climate impact will be as normal as the regular analysts' meetings that focus on a corporation's financial performance.

Reframe the way sustainability and climate issues are looked at

Instead of seeing climate issues and challenges as a 'risk burden' that needs to be simply (and mechanically) complied with, leaders should look at the potential opportunities that can be explored and exploited. In the case of fossil fuels businesses like Exxon Mobil, this would be the swift pivoting from its fossil fuels business to green opportunities in the renewables sector, in order to ensure the continued sustainability of their businesses. Leaders should recognise that if these transition exercises - from risks to opportunities - are done well, they can create a value premium for their corporations.

Recognising sustainability and climate change is not a future problem

Leaders will need to determine how best to make the link between the unfolding climate challenges and the present-day context - through having mid or long incentives that encourage senior leadership to focus their energies in this area. In developing this, it is important to guard against the formation of a "cynical long term" mentality, where leadership merely expresses a goal or objective but takes no concrete steps now, in the belief that it is a task for a future team to "implement and figure out". Corporations need to be sensitive to the fact that their reputation may be at stake, should they be branded by stakeholders as a 'NATO' entity - No Action, Talk Only.

The above list of possible responses is by no means exhaustive. For wise leaders who desire to catalyse change in the areas of sustainability and climate change, to positively impact the businesses their corporations operate, one thing is clear: The changes that are contemplated will need to be implemented with urgency and, more importantly, with the requisite courage and conviction that will make a tangible, measurable difference.

The stakeholders have made their expectations clear, and now there is much for leaders to think about.

The writer is the group general counsel and chief sustainability officer of Jardine Cycle & Carriage. He is also the CEO of mental health charity Jardine MINDSET and serves on the board of the Singapore International Chamber of Commerce.

Source: Business Times © Singapore Press Holdings Ltd. Permission required for reproduction.

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