Can a fast-growing collection of green investors work with maverick CEOs to prevent climate disaster?
My granddad’s grandfather was a Danish blacksmith named Christy Andersen. He fled a failing Denmark in 1890 for Australia. There, in an era when farming was king, my blacksmith ancestor forged a uniquely shaped cowbell that could be heard from many miles away. His invention was so popular that it secured the Dane a place in Australian farming history. It also made him a small fortune, which he partly sowed back into his community by building the local village its first school.
Andersen’s grandson—my granddad—was a fine horseman and a genius mechanic. Farmers from all over would summon him to fix some testy tractor or other machine. I loved to watch him tinker away. On the vast cattle stations where I spent much of my childhood, we’d be riding from sunrise to sunset to muster cattle or boundary riding to check fences or spending days rebuilding fences. It would be an impossible job for just one person. It takes a community to make a farm work.
It would be a world of fences, not neighbors.
His story reminds me of the climate challenge we all now face. Will its pressures tear us apart, or can we pull in the same direction to save the “farm”—our liveable planet? A Shell official once told me that either countries will come together to deeply transform the global economy’s energy systems or governments will fail to agree and just try to go it alone. That would pit countries against one another, as each of them scrambles to secure resources for its people. It would be a world of fences, not neighbors.
I would rather the former scenario. The other would herald our extinction. If investors and CEOs continue business as usual, says energy historian Simon Pirani, solving the climate challenge will be “beyond our grasp.”
Indeed it will.
Fixing finance
So how do we fix our “global farm”? Academics Rebecca Henderson and Mariana Mazzucato say a greatly expanded public and private partnership is necessary if we are to achieve rapid global decarbonization. The Covid-19 pandemic has given us an example of the importance of coordinated private and government collaboration, says Henderson, author of Reimagining Capitalism in a World on Fire. Covid-19 is having two major effects on business leaders, she says: a “visceral awareness” that they should have planned for risk and a renewed appreciation for the power of the state.
“You cannot live through this pandemic and think that you don’t need government or that a functioning health-care system is not important. I think many business leaders are willing to step up to the plate and engage government in a new way,” Henderson says. Mazzucato, a professor in the economics of innovation and public value at University College London, says “radical inclusion” is required along with a rediscovery of what the state can do.
I think business leaders are willing to step up to the plate and engage government in a new way.
Enter BP‘s new CEO, Bernard Looney, who has just taken up the reins in a year that may be the worst in the oil industry’s history. Earlier this month Looney noticed something striking when speaking online to workers at a Toledo, Ohio, oil refinery. “They said, ‘Listen, thanks very much for what you’re doing on the energy transition.’”
“I asked why, given they work in an oil refinery and it’s been your life. And the guy said, ‘Well, these fellas will tell you that I talk a lot about my grandchildren and I’ll tell you what, given a choice, I’d choose my grandchildren every time,’” Looney said.
An insight into a new green economy or greenwash? Or both? We face an intensifying tug of war between investors and states wanting to cling to fossil fuels and investors recognizing the need to wean the global economy from coal, oil, and gas.
All eyes on BlackRock
At the center of the debate are an increasing number of progressive institutional shareholders, led by the U.N.-convened Net-Zero Asset Owner Alliance (AOA). They are working to rally wider business and government support to get the world back on to a 1.5C path (or as close to it as we can). The AOA, whose members include insurance and pension funds, is threatening to pull funding from CEOs who do not accelerate efforts to decarbonize.
All eyes are now on the actions of the biggest asset manager in the world: BlackRock, with more than $7 trillion in assets under management. No one knows how challenging it is to balance shareholder needs for both profit and purpose than BlackRock CEO Larry Fink. In his annual letter last January, he said climate change could lead to a “fundamental reshaping of finance.” Yet, four months later, BlackRock voted against resolutions calling for Australian oil and gas giants Woodside Energy and Santos to set targets in line with the Paris Agreement. Last month, it reversed itself and backed climate-related shareholder action at ExxonMobil’s annual general meeting. Tim Buckley, director of energy finance studies at the Institute for Energy Economics and Financial Analysis, says BlackRock “will progressively get better because investors increasingly want this.”
No one knows how challenging it is to balance shareholder needs for both profit and purpose than BlackRock CEO Larry Fink.
But here’s the good news: We can change. And we’ve done it before. (And I have known farmers who’ve fixed the seemingly unfixable.) As Rebecca Henderson points out, business has the resources, political power, incentives, and responsibility to win this climate race, and it has widespread support. Surveys show that people today trust their employers more than the government or the media. Another global survey finds that 71% of respondents believe that “it is critically important for my CEO to respond to these challenging times.”
“No single firm can put these kinds of changes in motion. But history suggests that when groups of firms or business leaders act together in partnership with civil society and government to support structural change, great things can happen,” Henderson wrote recently.
She cited Denmark as an example.
Denmark, in the 1890s (when my ancestor fled to Australia), having lost territories to Prussia and Austria, was locked in bitter internal political conflict that threatened to cripple industry and tear the country apart. But in strode Niels Andersen, a member of parliament and railroad entrepreneur with a skill for consensus-building. Andersen united business leaders and collaborated with union leaders to put in place a national system of collective bargaining and close collaboration with government.
A path to a “new normal”
Could climate-aware investors, led by groups such as the Net-Zero Asset Owner Alliance, and working with a new generation of sensitive climate leaders like BP’s Looney, make history by building a consensus that gets us rapidly off fossil fuels and on track to a sustainable “new normal”?
I think so, because progressive investors stand ready to partner with governments to achieve the transformative changes we need. “We believe we can support governments with very aspirational [climate action plans]. We believe that with the work we are doing, we can go on a path to achieve a sustainable normal,” Guenther Thallinger, chief investment officer of the insurance giant Allianz, told a recent session of the Petersburg Climate Dialogue (Thallinger also is the chair of the Net-Zero Asset Owner Alliance).
As BP’s Looney spoke to oil refinery workers in Ohio from his London office, on a shelf beyond his shoulder was a small, green model tractor. I do hope Looney follows through on his pledges for empathy, kindness, and trust because we have lost so much time—and are so behind in this climate race of our lives. Never has it been so important for civil society, the state and the private sector to pull together in the same direction. The climate alarm bells are ringing. What future will we now choose to forge?
Photo by BP
