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How boards can keep up with climate action expectations


HSBC’s bus stop adverts. BlackRock’s investment plans. BP and Microsoft’s carbon offsets.

In the past 11 months, each of these companies has landed in trouble for doing something that once seemed unremarkable. They are far from alone, thanks to jolting shifts in what an acceptable approach to climate change looks like.

Climate policy is becoming the fast-fashion of business strategy, constantly changing shape to keep up with the demands of regulators, investors, customers and employees. For a new breed of climate tech entrepreneurs, industrial history is repeating itself.

“We’re going through the climate transformation just like we went through the digital transformation,” says Laura Zizzo, co-founder of Manifest Climate, a Canadian software group advising companies on climate regulation.

She has a point, as does Taylor Francis, co-founder of Watershed, a carbon accounting start-up valued at $1bn by its investors this year. As he told me this week, corporate behaviour that was mainstream a short while ago can easily fail to meet the “basic threshold of good climate governance” today.

There are many steps boards can take to keep up. Here are five worth considering.

First, ignore anyone who advises you to opt for a distant, “set-and-forget” net zero goal to bring your emissions down to almost zero by 2050.

That was a bold step in 2019, when analysts estimated about 34 businesses with annual incomes above $1bn had set a net zero target. Today, when 700 of the 2,000 largest publicly traded companies by revenue have such goals, it is the bare minimum expected. As the evidence of climate change grows, companies are being pressed to set interim emissions goals for no later than 2030, which is when scientists say global emissions should be almost halved.

Financial groups face extra pressure to set a date for ending new investments in fossil fuel projects — as BlackRock knows. The world’s largest asset manager is a net zero champion but is regularly assailed by demands to exclude companies expanding fossil fuel production from its funds.

That underlines a second step: brush off advice that you can easily offset your emissions by buying cheap carbon credits generated by trees that suck up carbon dioxide as they grow.

These so-called “land-based” carbon offsets are falling from favour. For one thing, trees can burn down, as BP and Microsoft discovered last year when US wildfires struck forests generating credits they had bought.

More important, land-based carbon offsets have an emerging technology-based rival: equipment that removes carbon dioxide from the air and stores it deep underground. Offsets from these projects cost much more but are fast becoming the gold standard and Microsoft is among those buying or pre-purchasing them to bolster the nascent sector’s growth.

Microsoft offers a third lesson: watch out for climate policy competition. Two years ago, the software group said it was going beyond net zero to be “carbon negative” by 2030, meaning it would remove more carbon than it emits. By 2050, it plans to have removed all the carbon it has produced — either directly or through electricity use — since it was founded in 1975.

Few are matching this lofty pledge but more are being urged to consider it. The head of one global company told me last week of the group’s dismay when climate activists recently asked it to follow Microsoft and compensate for historic emissions.

That points to a fourth idea: listen to investors like Sir Christopher Hohn, the hedge fund manager and climate philanthropist who says companies should join forces and lobby for stronger regulations for their sector. Industry-wide regulation that levels the playing field makes it easier to take climate action without risking competitive disadvantage.

Finally, handing the job of shaping climate policies over to the marketing team must end. No matter how well-intentioned, these teams are rarely set up to deal with the long-term implications of climate action facing unprecedented regulatory scrutiny.

Ask HSBC. A leaked draft finding by regulators this year deemed it misled customers with bus stop adverts promoting its green efforts, such as tree planting, but omitting its financing of big carbon polluters. A definitive ruling has not appeared but uncomfortable headlines have and, as anti-greenwashing regulation spreads, they will surely not be the last.

Ultimately, the message for boardrooms is clear. Climate business as usual is over and companies must either keep up or face the consequences.

pilita.clark@ft.com



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