Davos Preview
As the leaders of nations and multinational companies head into the oddly snowless Swiss Alps for this year’s edition of the World Economic Forum (WEF) annual meeting in Davos, hope and skepticism abound in nearly equal measures. ?Will this be another global gabfest or, with 52 heads of state and government and nearly 600 CEOs , can progress be made?
The first post-pandemic WEF annual meeting, held last May, was dominated by concerns over Russia’s invasion of Ukraine. Geopolitical uncertainty, inflation and recession will continue to top the agenda this year, but climate change and sustainability are now a permanent fixture of the global dialogue.
“There is no doubt that our 53rd annual meeting in Davos will happen against the most complex geopolitical and economic backdrop in decades,” said forum President Borge Brende, pointing to challenges like the threat of global recession,?soaring energy ?and?food prices , and the need to better address global warming.
Christiana Figueres - former executive secretary of the U.N. Framework Convention on Climate Change - framed the talks : “Without a doubt, we are in the decisive decade. We must be guided by the firm conviction that humans can meet this challenge. Carving a better future does not happen on its own. We have to be intentional, purpose driven—frankly, downright stubborn—about our objective. Only that determination will give us a fighting chance.”
Kristalina Georgieva, managing director of the International Monetary Fund, worries that we are “sleepwalking into a future that is poorer and less secure” by moving away from the global cooperation that characterized previous eras.
WEF founder Klaus Schwab said “This situation which we are in now is not the worst of all the times, it’s a bad one. But in the end, change is what’s happening. We can manage change.”
My own perspective as a veteran of these meetings is that WEF is a unique and helpful forum for highly impactful connections that often lead to change, but don’t expect any headline grabbing breakthroughs. There will be the usual raft of announcements and fascinating comments from leaders, but the real magic of Davos is the connections formed behind the scenes.
Reckoning In ESG Finance?
Last week we covered the US SIF trends report showing that ESG investing plunged by more than half to $8.4 trillion dropping the ESG share of the total US investment market to 13% from 33% in 2019.?
What changed? Regulators around the world are demanding more accountability from funds claiming their investments are sustainable or promote better social outcomes and many of them are dropping ESG from their names.?
While the huge assets associated with ESG investment are impressive, this pull back is a long overdue reckoning and will help align assets to verifiable ESG vehicles.??
For ESG investors and the companies they fund, this reckoning is about value creation. Sustainability has long been viewed by companies as either a reputational asset or a compliance requirement. Increasingly, companies are looking for more value form their sustainability investment.?
In an article titled The EBITDA of Decarbonization Kurt Harrison and Sylwia Zieba of Russell Reynolds Associates make the case for the business value stemming from integration of sustainability in business. They present a series of cases where decarbonization efforts resulted in growth in revenue and EBITDA (earnings before interest, taxes, depreciation, and amortization), debunking concerns that sustainability programs weaken growth.?
Their thesis is backed up by an EY study showing 69% of corporate sustainability leaders across all industries and countries say that the financial value created from climate change initiatives exceeds expectations.
Fed Steers Clear of Climate Policy?
In reaction to the growing ESG backlash, US Central Bank Chair Jay Powell said : “We are not, and will not be, a climate policymaker.?
Underscoring the independence and responsibility of the Fed, he added: “The public reasonably expects supervisors to require that banks understand, and appropriately manage, their material risks, including the financial risks of climate change.”?
The Fed also published a paper outlining their role in the climate crisis . “We review the climate action plans of Global Systemically Important Banks (GSIBs) and the progress they are making toward achieving them. While most GSIBs have committed to fully offsetting their emissions by mid-century, they are only beginning to measure financed emissions resulting from their loans and investments, which comprise the vast majority of their emissions…much work lies ahead to properly measure and disclose climate-related risks, and to better align financing activities with their net-zero targets.”
领英推荐
Top 15 ESG Business Strategy Issues
Harvard Law published a summary of the top 15 ESG issues that impact corporate strategy - while climate change has an outsized impact on some businesses, workforce-related matters affect all companies. In the post-pandemic era, topics like “culture, purpose, hybrid work, the future of work, well-being, skills gaps, automation, societal expectations, as well as diversity, equity, and inclusion (DEI), are increasingly appearing on board agendas.”?
A paper in the same journal outlined the board’s role in building multi stakeholder trust by demonstrating a substantial “trust gap” between company business leaders and consumers. The key point is that trust builds long term value that boards can help achieve. Specifically, board members can ask management about corporate purpose, culture and the metrics to measure trust.
Ozone Layer Mending?
There was good news this week from a UN report that the ozone layer, vital to protecting life on Earth, is on track to be restored within decades. Ozone in the upper atmosphere is essential to block harmful solar radiation that can cause cancer. The linkage between chlorofluorocarbons and depletion of this protective ozone layer led to a global CFC ban under the 1989 Montreal Protocol.??
While global agreements to fight climate change - the 1997 Kyoto Protocol and the 2015 Paris Accord - have fallen short of this mark thus far, they have resulted in significant progress. The success of the Montreal Protocol in protecting the ozone layer creates a blueprint for how to solve climate change and breathes new hope into UN processes for addressing climate change.? ?
EU Leads the Way?
In an article titled How the EU has Fixed ESG , CEO of the Corporate Governance Institute David Duffy outlines the impacts of the EU’s new Corporate Sustainability Reporting Directive (CSRD).? The key takeaways are:?
Duffy commented that “businesses can no longer 'greenwash' in which they hide insufficient climate action behind misreporting, or ‘green-hush’, in which they do the same by not reporting action or impact at all. There will no longer be any ambiguity – and this should have an incredible impact on corporate sustainability.”
Deloitte backed this up with a new paper demonstrating the global reach of the CSRD which will require sustainability reporting from a substantial number of companies with as little as one subsidiary or branch in the European Union. Many US-based companies - public and private - will be subject to these European sustainability reporting requirements, which take effect sooner and are more stringent than the proposed climate rules from the Securities and Exchange Commission (SEC).?
Meanwhile, the EU started 2023 with momentum on sustainability rolling over from last year.? As Sweden takes over the rotating presidency, they have committed to finalizing a variety of climate policies by summer. About a dozen new laws to fight global warming are set to be finalized? including a 2035 ban on sales of new fossil fuel cars and a new carbon tax.?
Will China Step Up?
Chinese companies rank below most emerging market firms on ESG ratings. Investors seeking high growth in China have looked the other way, for now. ESG analyst Sustainalytics, recently downgraded several large Chinese firms for non-compliance with UN principles. And the ESG raters themselves are taking fire as the Chinese companies in their rankings are found using forced labor among other human rights violations.?
A Ban On Gas Stoves?
Could your gas stove harm your health? The Consumer Product Safety Commission is drafting new regulations - which may include a ban - in response to evidence that gas stoves emit harmful air pollutants exceeding federal safety standards. These pollutants are linked to respiratory illness, cardiovascular disease, cancer and other health problems.
In other clean air news, the US EPA plans to lower the annual standard for small particles in the air (PM 2.5) from 12 micrograms per cubic meter to between 9 and 10. In the decade since the last regulation, scientists linked several adverse health effects - including cancer - to small particles in the air.
Notable News (there is a lot!)
Global Communications at Self
1 年What rubbish.?I’m always amused (?) by the stuff that appears on my feed.?China, Russia and India don’t care much about “climate”.?Anyway, Davos is dead.?Stop going, unless for the catering. ? Ask a Sri Lankan about ESG.?People of color in the Global South are tired of being experimented on by rich white people. #climate?#davos?#esg
Sustainability Accelerator, Senior Brand and Communication Strategist
1 年Thank you for all news items, valuable!
ESG l Sustainable Finance l AI l Climate Change l Biodiversity l Nature-based Solutions
1 年Great news letter … very informative! Thank you very much.