Not too many years ago, ‘climate change’ was not a business-industry-friendly phrase. In fact, as noted in “Corporate America is Stepping Up to the Carbon Challenge”, it was often actively avoided. This was justified by the liability associated with recognizing a problem that was difficult to solve or a risk in highlighting a challenge that the company had not yet created a solution to address. The intentional avoidance in addressing ‘climate change’ was also to reduce accusations of greenwashing, hypocrisy, or making the ‘wrong’ business decisions. However, the climate crisis has evolved to a point that the riskiest business decision to make is to avoid an active stance on climate change.
Historically, the concept of sustainability was a softer subject, sometimes addressed if the leadership chose to spend money on the ‘nice-to-have.’ Many times, corporate sustainability strategies were not explicitly tied to minimizing the company’s effects on the climate. In many cases, responsibility for the sustainability vision was held by either the Human Resources department, which was designed to support staff retention and connect employee wellbeing with sustainable values or the Corporate Communications team, who were focused on promoting the company’s philanthropic efforts. This resulted in strategies that ran in parallel to the development of mainstream business strategy and did not truly influence company direction and decision making. There was no defined payback or return on the investment and there was certainly no discussion of it on Wall Street or in the finance world at large.
In recent years, the sustainability narrative has shifted. “ESG Impact Investing” is a common phrase on Wall Street and investors from many industries, including the energy sector, are buying into the transition to a low-carbon economy. The most important shift in this movement is that corporate leadership with titles other than ‘Chief Sustainability Officer’ are talking about this and making business decisions that align with the mission.
No need to look further than the world’s largest fund manager, BlackRock. In an internal letter, CEO Larry Fink explicitly references the climate emergency, “Awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance.” Later, the company took an active stance, “BlackRock does not see itself as a passive observer in the low-carbon transition. We believe we have a significant responsibility – as a provider of index funds, as a fiduciary, and as a member of society – to play a constructive role in the transition.”
Though significant, it will take more than one fund manager to shift the global climate crisis. Greenbiz’ Joel Mackower recently addressed this continuous rise in sustainability-linked finance. Mackower highlights advancements made in 2020, including: Verizon’s Green Bond, which had 300 investors with over $8B in debt the day it was released; Visa’s green bond, which totals $500M for sustainable investments; Neuberger Berman’s $175M sustainability revolving credit loan; and Googles’ Alphabet, which issued $5.75B in sustainability bonds.
Evidently, Corporate America and companies around the world would agree that it is time to explicitly and intentionally address climate action. No longer is sustainability a soft nice-to-have employee benefit. Today, it is one of the wisest, most cost-effective long-term investments that a company can make. As the value continues to rise, now is the time to make sustainability-driven finance strategies that inform all areas of practice. Sustainability strategy is business strategy.