Prime Minister Justin Trudeau says his government’s plans for a post-COVID recovery will simultaneously target climate change, “the biggest long-term threat of our generation.”
U.S. President Joe Biden spent his first day in office signing executive orders related to climate change.
But perhaps nothing signals the critical mass of climate action in the corporate world more than the U.S. Chamber of Commerce’s dramatic reversal in announcing this month that it is open to a carbon tax.
“Climate change really is being baked into any of our economic recovery strategies. What this means for investors is that they need to get ahead of this,” says Tim Nash, the founder of Good Investing, a financial planning company that focuses on sustainable investments.
There’s a renewed focus on the environment and climate change by investors and corporations amid the pandemic, he says.
“I really think we’ve seen with COVID how important it is to listen to science and to scientists,” Mr. Nash says.
And the science says we’re facing a climate catastrophe without action, he adds.
In its annual survey of investors released last fall, the Responsible Investment Association (RIA) found nearly half were more likely to choose responsible investments than they were a year prior.
Seventy-two per cent of 1,000 investors surveyed were very or somewhat interested in investments that incorporate environmental, social and governance (ESG) factors, and there are now more than $2.3-trillion in responsible investment assets under management in Canada, the RIA says.
“For investors, the lesson is to get ahead of these things, to anticipate this movement toward a more sustainable economy rather than to react,” Mr. Nash says.
The move by central banks, including the Bank of Canada and the U.S. Federal Reserve, to start measuring corporate carbon risk is a major impetus, he says.
In Canada, the Task Force on Climate-Related Financial Disclosures has produced a framework for measuring corporate climate risk and disclosing emissions reduction. Europe already has such regulations in place.
Mr. Nash calls it a “climate stress test,” akin to the financial disclosures imposed on banks and financial institutions following the 2008 global financial crisis.
With the potential for such mandatory disclosures, there has been a slew of corporate commitments to 2050 net-zero emissions plan, he points out.
“Right now it could be a bit of a PR exercise… but with better disclosure and the rules around reporting, as investors, we’re now going to get to see who’s actually moving in the right direction,” he says.
Larry Fink, chief executive officer BlackRock Inc., the world’s largest asset manager, recently said the pandemic has intensified the migration to lower climate risk investment and asked CEOs to disclose how their businesses will be compatible with net-zero greenhouse gas emissions by 2050.
While investors and CEOs may be responding, ultimately, government policies are responsible for forcing climate action, says Mark Jaccard, a professor of sustainable energy in the School of Resource and Environmental Management at Simon Fraser University and a policy advisor on carbon pricing and regulation.
“I’m a capitalist. We live in a capitalist society,” Mr. Jaccard says. “Companies invest money to make money for their shareholders and owners. That’s why, even though governments and companies have talked big about climate action for more than 30 years in Canada, our emissions continue to rise, because they put their money where they could make the most money, which was mostly in oilsands.”
The federal government’s carbon tax and phasing-out of coal investments were game-changers, says Mr. Jaccard, who is also the author of The Citizen’s Guide to Climate Success released last year.
Governments must make it harder to profit from destroying the planet, he says.
Global leaders in climate action have all done so, including California, Sweden and Norway, where last year Norges Bank Investment Management, manager of Norway’s sovereign wealth fund and one of the largest investment funds in the world, blacklisted four of Canada’s largest oil producers from its US$1-trillion portfolio, citing the high carbon emissions from their operations.
“Business goes where the money is. I know there are business leaders who try to be on the leading edge of social responsibility and I’m not trying to belittle that,” Mr. Jaccard says. “But when it comes to climate change it is pretty hard for a corporation to walk away from natural gas if that’s the cheapest way to make a product … . Unless you have government policy, it’s not going to happen.”
Climate change has cycled in and out of the agenda for decades, Jaccard says. Government policies need to ensure the green transition regardless of public or political interest.
Investors can divest, he says, but if oil products and emissions-heavy industry makes money, others will take up the slack.
“You can’t force everyone on the plant to have the same ethics,” Mr. Jaccard says. “Somebody will replace your investment if policy allows that investment opportunity to be profitable.”
Whether enhanced scrutiny from investors or mandatory corporate disclosures, Canada and the world are coming out of COVID with climate action on the agenda, says Jamie Bonham, director of corporate engagement at NEI Investments.
“One of the pleasant surprises of the last year has been the degree to which climate has stayed on the radar,” he says. “In the midst of a pandemic if you’re still talking about this issue then that’s an acknowledgement of how serious it is.”
Going forward, investors and companies that don’t have a net-zero plan will find it challenging, Mr. Bonham says.
“That will be table stakes as we move forward. Any kind of new strategies, new plans, new business ventures are going to fit within that framework,” he says.
Climate plans and reporting will be necessary, whether or not they are mandatory, Mr. Bonham adds.
“We can’t have the current mishmash where we have some companies with excellent reporting and disclosure and discussions of a strategy and some, none,” he says. “Increasingly, you can’t be that company that has none. I think the investor world will definitely bypass you if you’re in that boat.”
Another lesson from the pandemic is the importance of collaboration, he says.
“Hopefully the ethos that comes out of this is that we recognize that we can move a lot faster if we collaborate more,” Mr. Bonham says. “I can’t say I see signs of that just yet but I hope that might come out of it.”