Calling all corporate leaders at Davos: Embrace a low-carbon economy

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Many corporate leaders already know some of the financial risks climate change pose for their companies. They need to convey this to the rest of the world.

Corporate leaders gathering at the World Economic Forum in Davos this week have an opportunity to send an important message: climate change matters.

Corporate directors must take that message and help their companies embrace a low-carbon economy with all its economic opportunities — and, yes, challenges. The alternative is to pay a much higher price down the road when the impact of unchecked rising temperatures starts to come down harder.

Directors can drive their organization’s strategies for becoming climate smart and the market’s most influential climate champions. Or watch as competitors seize the advantages of pivoting to cleaner, more efficient ways of doing business and expanding markets.   

As advisors to management, directors are responsible for helping to set the overall direction their companies’ navigate. As stewards of short-term and long-term shareholder value, their mandate is to provide a broad perspective. They are uniquely positioned to help their company executives and employees craft innovative climate strategies. They can actively shape an industry’s responses to climate change rather than having extreme weather, rising seas, resource and water scarcity, supply chain interruptions and less productive assets dictate them.

It’s time to either act or react. The pressure will be too great for directors to ignore climate change much longer. Investors, regulatory bodies, stakeholders are all stepping up demands that corporations and their boards start acting now. Consider:

  • A group of the world’s most powerful bankers, regulators and executives just released a sweeping set of guidelines for how companies should measure and disclose the financial impacts of climate change. These recommendations, developed by a task force created by the Financial Safety Board at the request of the G20, sent a strong signal that the market considers climate change to be a financial risk. They are based on the notion that more disclosure leads to better financial decisions and includes a focus on the role of corporate boards in driving climate change risk assessments.  

  • Climate change defined the 2016 proxy season as investors sharpened their focus on the climate competence of boards in particular. Shareholder resolutions on environmental and social issues made up the largest number of resolutions filed by investors last year. Major global investors, including Norway’s $870 billion sovereign wealth fund and State Street, the U.S. financial adviser with $2.45 trillion under management, are laying out specific expectations for directors. The California Public Employees Retirement System, the largest pension fund in the U.S. with $300 billion under management, updated its Global Governance Principles (PDF) last year to include guidelines that board members of the companies CalPERS owns have "expertise and experience in climate change risk management strategies."

  • Global business leaders are pushing hard, showing that support for a low-carbon future is stronger than ever. A few days ago, more than 630 companies and investors, including the U.S. industry giants DuPont, Johnson & Johnson, Levi & Strauss Co., Mars Incorporated and PG&E reaffirmed their support for policies to accelerate a low-carbon economy and curb climate change. The B Team is spearheading the transition to net-zero emissions by 2050 by signing up commitments from individual global powerhouses, including Unilever, Kering and Salesforce.

A low-carbon future is inevitable and irreversible because it is necessary. The science and the economics are irrefutable. As leaders are speaking this month in Davos more extreme storms, rising sea levels, droughts and floods are reshaping markets and industries around the world. To ensure resilient stable growth, the global economy must accelerate the transition to the next energy age with cleaner and more efficient power resources.