Chief executives’ public displays of affection for decarbonization and the Sustainable Development Goals far outstrip their ardor for the “actually doing something” phase of the affair.
In fact, it’s the opposite: most of these companies abandon their professed love for the SDGs and ESG performance, subjugating public pledges to their fatal attraction to carbon. Despite the rhetoric, they are actively unfaithful: lobbying against regulations that would limit carbon and support the SDGs, and continuing to finance and develop carbon-intensive projects.
“Clara, what would you want to say to the Business Roundtable, BlackRock’s Larry Fink and all those people who gather at the World Economic Forum in Davos?” Robert Eccles asked me recently in an interview for Forbes a while ago.
My answer to Bob’s question, in the form of a bulleted list, got many positive reactions. So here’s my short list of annotated “to dos” for the heads of institutions who are seizing the moment (and the momentum of the SEC’s move to require climate disclosure by public companies) to exhibit leadership.
“My powerful friends,” I said, “please act together to…”
1. Stop making pledges. Start reporting performance.
And require the same of portfolio companies. The SEC has already moved in that direction with respect to climate. This is no time to let up on doing the work and reporting on it.
I was thrilled by Microsoft’s recent announcement that it had failed to meet its decarbonization targets. They also disclosed by how much they had missed (a lot—21.5%!) and why.
Why was I thrilled by this report of failure? Because it just might be real: it is not a pledge to do something about carbon emissions in the future, or a report using home-grown metrics issued by the public relations department. It’s a performance report, not an intention yodel. It appears to be honest. And it is issued by a sustainability executive who works in the core business, reporting to Microsoft’s president and vice chair.
If Microsoft is reporting ESG performance (including carbon emissions) transparently on its SEC filings, and if they use standardized disclosure metrics that can be audited/assured by an independent third party (and comparable to peers), they deserve bonus points. (And since Microsoft is on record supporting the requirement of standardized disclosures by the SEC, this is likely).
And if they go beyond reporting only on factors relevant to enterprise value-creation (per SASB) and also use the GRI framework and metrics that encompass broader, stakeholder ESG factors, they achieve gold status. (It is on these “Scope 3” emissions, encompassing supply chain and customers, that Microsoft struggles.)
While imperfect (as is, notably, the status quo), this is the halting and creaky beginning of implementation standards that cover broader topics and a longer-term time horizon for companies comprising upwards of 70% of stock market capitalization. This isn’t the global economy, but it is some large chunks.
Before it’s all said and done, there will be more failure—a few steps forward, a couple back. This is no different than the uneven financial results that accompany business-as-usual operations, including any capital investment in forward-looking changes to a company’s core business. The process of decarbonization will be complex, difficult, expensive, and time-consuming. In the future, there will be more and broader data (including AI-sourced), assurance, and regulation.
Glib, straight-A, non-standard reports are suspect, period, and will fall apart under scrutiny. The chorus of empty pledges is tired, transparent, and beginning to look dishonest.
Be just a little courageous, my powerful friends, and get started with honest reporting. Now.
2. Stop lobbying against climate legislation and lobby for it (including regulation and carbon pricing and taxes).
Virtually every public (and private) company in the U.S. lobbies Congress, both directly and through a variety of trade associations. Influence includes the drafting of favorable legislation, bills that position companies to profit from government spending on a dizzying array of goods and services (the U.S. government is the biggest customer on the planet), and, of course, lobbying for or against a variety of regulations, including those affecting decarbonization.
Companies that make pro-green announcements yet lobby against climate legislation (yes, that would include Microsoft, sadly along with Apple, Disney, Amazon and more) should not only stop lobbying against such measures, but must lobby for them. This is business-critical risk mitigation (if one needs reasons beyond avoiding human extinction). Those who don’t do this are misleading shareholders, customers, and employees. Use your power to do this, now.
3. Stop financing carbon-positive projects
Despite public pledges and promises, major banks and investment funds continue to finance the fossil fuel industry’s operations and expansion.
Shareholder activism appears to have encouraged progress on carbon-transition finance, which is a “both/and” approach where carbon development is seen as a bridge to a low- or no-carbon economy. But most bank activity on reaching net zero, or even reducing carbon emissions, has been in the form of pledges and promises.
Perform on these promises, and do so through your core business, even when it means having the guts to report setbacks for a while, like Microsoft. Carbon offsets are to bank investing what grantmaking is to endowed foundations—a side business, unrelated to core operations. Offsets are seldom (if ever) the basis for lasting change in the business’ operations, product lines and supply chains.
So they end up becoming an excuse for business as usual and kicking the can down the road. While they may be positive in the short term (and even the long term), most are an essentially marginal activity, like fundraising events and corporate giving.
4. Report on your ESG performance (including the companies in your portfolio) using standard disclosure metrics. Yes, they exist.
These standards include those from the Sustainability Reporting Standards Board, or SASB (now housed in the Value Reporting Foundation under the International Sustainability Standards Board), focused on enterprise value creation, alongside those from Global Reporting Initiative, or GRI, which are relevant to both shareholder and broader stakeholder value creation. For more information check out this panel sponsored by the International Corporate Governance Network.
There is math, transparency, and real standards there. Remember that SASB/VRF and GRI are the only standard setters for ESG topics. Organizations such as Ceres, the Interfaith Center on Corporate Responsibility, the UN Principles for Responsible Investing and other civil society organizations are vital voices in moving forward on climate change goals, and for creating standards for activities such as corporate lobbying, but do not set data standards for reporting on company performance.
5. Run your business as if you were employing, buying from and selling to people you care about.
This encompasses, at minimum:
- Pay your taxes. Get out of those tax havens where kleptocrats and autocrats and other cheaters live. Is that you? Pay your fair share and yes, lobby so that everyone does.
- Pay your workers at least enough to avoid going on public assistance, and preferably a living wage.
- Make sure your business and your board look like the U.S. and the globe. Be diverse by race and gender – it’s bad management to do anything else.
6. Pay close attention to equity in your supply chain and across the globe.
Global equity presents our most neglected and powerful opportunity to combat climate change. Thinking about “life first” (to paraphrase Paul Hawken) will guide us from an extractive to a regenerative economic base. If we don’t go there we will ultimately fail spectacularly.
Many corporate leaders agree, and those who are saying we must “reinvent capitalism” are inspiring. The centerpiece of such a change must be that everyone, including corporations and wealthy individuals, pay their way in the global community, recognizing and replenishing the human beings, natural systems and natural resources we all rely on for survival, to say nothing of prosperity.
In particular, boards of public institutions such as foundations, large nonprofits, pension funds and sovereign wealth funds have a huge opportunity to make a difference. Some are rising to the occasion, particularly pension funds. Yet many, including mission-focused organizations such as foundations, cite their fiduciary duty or the need to exist for perpetuity as reasons to enshrine business as usual.
My powerful friends in philanthropy, listen up: Regeneration and stewardship of natural systems is where perpetuity can be real and fiduciary risk mitigated. Anything less is dereliction of duty.
A stunning example of an opportunity for true “perpetuity” appeared in a New York Times article about the peat swamps in Congo. Tout Va Bien, a Congolese man, referred to these swamps as “the world’s lungs.” Yet the Congo’s peatlands (alongside the Amazon’s rainforests, the Arctic tundra, the oceans and other survival-critical natural systems) are threatened by mankind.
Nature is humankind’s “endowment,” and requires true stewardship, true risk management and true equity. That is not the version that assigns those virtues to individually assigned pots of assets that today have no real value outside an actuarial, rather than natural, perpetuity. Without that larger, longer picture, even the most assured talk of stewardship, equity and fiduciary duty is empty.
What if critical natural systems everywhere were considered to be the perpetual endowments of the world? “Carbon equity,” held in perpetuity, could have moral and practical gravitas.
This would indeed be a worthy project for the multi-billion-dollar endowments of the Hewlett and Ford foundations (and their peers), which were among the sponsors of the extraordinary Times reporting that led to the story. Deep in this calculus must be the equity rights of the people whose land has been and is being taken, misused, unshared and over-extracted. That practice is at its core, unsustainable.
Be just a little bit brave.
Today, few of us among the world’s population – including large institutions and global corporations – are investing at all. Even fewer invest in the perpetuity of globally critical natural systems. Instead, those of us who have anything to invest are investing, like most asset owners, 100% of our assets in varying shades of the perpetuity of human extinction.
Through voice and positioning, chief executives of private and public companies and institutions have placed themselves in a leadership role. Now’s the time to lead.
Explain to your boards and shareholders and friends in government why we must move quickly. Level with them about what it will mean. Be willing to invest and take risk for the long term, even when it means a short-term loss. Walk your own talk.
Yes, it’s hard, but it’s possible. You don’t have to be a Volodymyr Zelensky, but the stakes are at least as high for the world as they are for Ukraine. Be just a little bit brave.
Clara Miller is President Emerita of the Heron Foundation, and the founder and former CEO of Nonprofit Finance Fund.