Ahead of the Papal Encyclical on climate change last month, an NGO video went viral. Playful but clever, it conveyed the message well: be forceful stewards of God’s kingdom and get fit for the fight.
Fit we need to be, difficult this fight will be, but lost it is certainly not.
Last month, important voices coming from all directions set the bar for the Paris COP21 negotiations. On the same day that the Norwegian sovereign wealth fund announced its divestment from coal, the CEO of AXA described the current approach as playing Russian roulette with five bullets in the cylinder.
Then Mercer published its climate change report showing that a shift to a world with a 2C warming target has no cost for a diversified asset owner. The report effectively advocates that investors who are today mainly “unaware risk takers” become at least “aware risk takers”, if not “future makers”.
From their Bavarian retreat, the G7 leaders reaffirmed the 2C target and agreed to phase out fossil fuel use by the end of the century. Perhaps the letter from 120 investment firms’ CEOs to finance ministers a few days earlier helped.
Potentially the biggest short-term game changer, the SEC ruled that the “duty to monitor” is explicit in fiduciary duty under trust law and many nations use some form of trust law.
So religion, state, finance and perhaps the law are all starting to speak with one voice.
But let us be clear. The fight is not just about phasing out fossil fuel.
A rapid energy transition depends on all major companies and heavy energy users adopting low-carbon business plans. Only such realignment of the whole economy will deliver low-carbon development.
And that is where the biggest unknown kicks in – our own wilful blindness.
To phase out fossil fuels by the end of the century is far too late. Technology and climate catastrophes will have already stranded much of these assets. Governments need to do better.
Of course, ‘bad’ companies need radical business model change. But so do the ‘good’ players. NGOs which have effectively provided cover for investors and companies not to do what is really needed now can and must get more real. These organisations could play a critical role in this fight, but only if they recognise that a systemic change in business models is needed.
Those who say they care about climate change, such as the Vatican Bank and the large foundations that fund climate mitigation and adaption projects, need to be more authentic. This global crisis is powered by a mindset that says let us create wealth with one hand and sort out the problems with another. But that same mindset underpins the religious institutions and foundations that seek to be part of the solution. Modelling integrated leadership is possibly the most important thing they could do.
Lastly, overcoming complacency means institutional investors going well beyond easy answers. Decarbonisation of portfolios is important, but only by becoming forceful stewards can investors have their real influence. In the fight against big climate risk, avoiding stewardship is like going into the ring with your dominant hand strapped behind you. Forceful stewardship could deliver real risk reduction on a time frame beneficiaries need.
It is also a very simple strategy to implement since it means using your voting rights. The first step is simple: just commit to ticking a box to say you want to see investee companies produce low-carbon-compliant business plans.
Such collective action, which can be done by investors whatever their size, could trigger a paradigm change. It is an action within your own sphere of control that gives you more credibility when it comes to telling others – like governments – what to do.
Raj Thamotheram is CEO of Preventable Surprises and a visiting fellow at the Smith School, Oxford University, and Olivier Cassaro is climate programme director at Preventable Surprises