“Climate risk is investment risk”. It’s one of the cut-through phrases of stakeholder capitalism this year – asserted by BlackRock’s Larry Fink in his 2020 annual letter to CEOs.
The catchcry ignited great discussion at SVP’s recent webinar, Will the Climate Crisis Reshape Business and Finance? Moderated by former CEO Helen Steel, the session formed part of the Climate for Change webinar series, which takes a deeper dive into the topics and issues brought to the fore by the crises of 2020.
Whilst the pandemic has largely overshadowed the climate change agenda this year; Australia’s worst bushfire season and global natural disasters, climate strikes, and data from the World Economic Forum revealing the world’s business leaders count five environmental risks among the top 10 risks for business, all serve as a reminder that this ‘slower’ crisis is ever-present. In fact, it has been estimated that climate inaction could cost the global economy up to $15 trillion by 2050.
Recognising the impact this has on business and finance, BlackRock Sustainability Specialist for its Australasia Client Business, Steve Monnier, and QBE Group Head of Sustainability, Janette O’Neill, lent their expertise to the discussion. Please find some of their key insights below.
Key quotes from the session
“What we’re really saying is that we believe sustainability, including climate-integrated portfolios, stand to be more resilient and provide better returns for our clients long-term . . . we expect to see a fundamental reallocation of capital away from broad market exposures to these more sustainability-focussed investments . . . this is not something new from our perspective, it’s an evolution not a revolution; an acceleration of our thinking.”
- Steve Monnier, commenting on the assertion that “climate risk is investment risk”
“Often when we talk about sustainability, sustainable investing or ESG (etc), what we’re ultimately talking about is operational excellence – companies that are doing a great job of managing all of their risks. Irrespective of your own values around the issue, and if we come back to the thesis that ‘climate risk is investment risk’, it really is about recognising that there is opportunity for companies to outperform [others not responding] in the long run.”
- Steve Monnier addressing the audience question around whether carbon neutrality and a strong economy are mutually exclusive
“It’s about not just talking theoretically, but giving people the opportunity to engage with leaders in climate change, or actually be out in the field . . . to touch and feel the impact of climate change . . . It is an attraction and retention vehicle.”
- Janette O’Neill on building a genuine climate-conscious culture
“Climate risk is becoming a defining factor in companies’ long term prospects, and that doesn’t matter where you are or what sort of company you are. Each sector has its own challenges in relation to climate. It’s not just a mining energy or oil and gas story.”
- Steve Monnier
“We’re trying to creative social value and economic value, so it’s very true to shared value. Essentially [the program is] taking premiums and investing them in impact investing opportunities. The benefit for us [at QBE] is that we’re able to diversify our investments and have an impact, and were doing it within our normal frame of reference around our investment decisions.”
- Janette O’Neill, explaining QBE’s Premiums4Good program
“Climate risk is such a big issue that it’s going to require the participation of all stakeholders – from government to individuals, companies and investors. The full gamut of stakeholders has a role to play in addressing and mitigating the risks.”
- Steve Monnier
“We’re at a pivotal point in terms of how we take the next steps forward [regulations-wise]. New Zealand has come out as the first country asking banks and other firms to disclose their climate risk [with policy set to come into effect in 2023] . . . It comes back to the objective around disclosures; being to get critical information to investors and other stakeholders.”
- Steve Monnier commenting on whether climate disclosure should be mandated. He later added that the three key barriers around climate progress are disclosure, consistent data and regulation
“The absence of a common language means there is an opportunity for people to be talking about the same topic but perhaps with different understandings or interpretations.”
- Steve Monnier addressing the need for consistent reporting mechanisms
“It’s now about flipping from just looking at risk management to innovation, and how we better understand the issues that our customers are facing and how we create products and risk services that will help them.”
- Janette O’Neill on reframing challenges as opportunities
“Every conversation that BlackRock’s executives and senior managers have had over the past year has included climate. But that doesn’t mean other issues aren’t important, and certainly throughout COVID we’ve seen a lot more attention around the ‘G’ (of ESG), still a interest in the ‘E,’ and an increasing focus the ‘S’ – with issues raised including employee wellbeing, supply chains and human rights.”
- Steve Monnier talking to the key issues raised by clients in 2020
“We tend to think of climate change as doom and gloom and risk, but there is also a lot of opportunity that comes with the issue. How do we harness that, and ensure our employees have a voice?”
- Janette O’Neill on climate-related employee engagement and business potential
“Companies live and breathe within society and community; they employ people and use suppliers. So they are very much part of the fabric of those communities. That’s why it’s so important to think about the range of stakeholders serviced by companies, and why we encourage business to articulate its purpose, and how that relates to profits – which has never been more important than it is today.”
- Steve Monnier