Theory, policy and practice perspectives from Royal Holloway

We are living in the ‘Anthropocene’, but does ‘big business’ care?

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The notion of the ‘Anthropocene’, coined and popularised by the atmospheric chemist Paul Crutzen, recognises that we are living in a crucial moment in the history with humanity’s relation with the planet.  It conjures a time when we know that our activities are causing escalating environmental and social crises on a global scale, and may have time to do something positive about it, changing our practices to avert impending catastrophe.  There is evidence to suggest that alternative organisations such as cooperatives, new social movements, and social enterprises are gradually expanding their efforts to integrate sustainability objectives into their decision-making.  However, according to Crutzen’s analysis, there is a need for radical changes in the practices of ‘big business’. On this point, the sustainability news is mixed:

CONSUMER PRESSURE

On the one hand many big companies have changed their policies in response to consumer pressure. For instance, Unilever, Nestle, Kellogg and Mars are among 13 companies now refusing to do business with IOI, the Malaysian palm oil group which is implicated in the deforestation of Indonesia to make land for palm oil farming.

However, Cargill and Bunge continue to do business with them, despite the fact that the Roundtable on Sustainable Palm Oil has revoked IOI`s sustainability certificate. Cargill produces the ingredients for branded products, which means that they cannot be a target for consumer boycotts the way household names like Unilever and Kellogg are. Nevertheless, it is heartening that the tone of the Financial Times article of 13th June 2016, “Standards in spotlight; Cargill and Bunge maintain ties with accused palm oil trader” is one of disapproval, suggesting that ethical standards are becoming more mainstream.

REDUCED PROFITABILITY

While some companies improve their ethics to avoid losing market share, lack of return on investment is the motive prompting oil companies to pull out of their damaging practices in some regions. Last year Shell gave up on drilling in the Alaskan Arctic, and now global oil giants have given up 2.2 million acres of drilling rights in the Chukchi Sea- almost 80% of the leases bought for over $2.6 billion from the US government in 2008.

This is good news, but will only last while the price of oil is low, as they have already asked the US government to `keep the door open` (FT June 23rd 2016) for future oil exploration there. Furthermore the Norwegian government has just opened up new areas of the Norwegian Arctic to oil exploration.

 

CORPORATE RISKS ASSOCIATED WITH GLOBAL WARMING

Insurance companies were among the first to realise how global warming could impact their businesses, so it is good to see that the UK group Prudential has raised its bet on the future of green energy by investing 150m euros in Italian solar farms. Prudential already has a string of renewable energy investments in the UK, including the planned Swansea Bay tidal scheme. (FT 13th June, 2016)

Furthermore, some investment companies are beginning to consider the long-term effects of global warming on profitability. According to Friends of the Earth more than 500 institutions across the world have now committed to moving investments worth £3.4 trillion out of fossil fuels. Yet (Guardian Feb 18th 2016) `Local authorities have been warned by the government that they will face “severe penalties” if they divest from fossil fuel holdings or boycott oil, coal or gas firms in procurement tenders government has said.  But the governor of the Bank of England branded fossil fuel investments a “stranded asset” risk, and the shadow climate change minister, Barry Gardiner, praised local councils that had divested for showing leadership. “It is simply not prudent for the government to insist that councils ignore the financial risks of fossil fuel investments,” he told the Guardian. “Nearly $1bn has been wiped off the value of coal investments by UK public pension funds in the last two years.”

The legal NGO ClientEarth, which successfully challenged the government over its response to air pollution, said that local authorities which protected their pension fundholders from climate risks were making a far-sighted investment decision, rather than taking a political stance.

Major mismanagement of pension funds has been a recurring topic recently. Pension fund trustees have a fiduciary duty to consider all financially material risks to investment returns over the long-term, and with this in mind WWF commissioned Trucost and Mercer to analyse the greenhouse gas emissions and potential carbon costs associated with UK-based equity funds.

Mercer interviewed the managers of the four investment portfolios with the smallest and largest carbon footprints to find out whether decision-making includes carbon risk factors. The case studies suggested that many managers had a “wait-and-see” approach to addressing climate risks in portfolios, raising parallels with the credit crisis on how systemic risks slip through the cracks.

 

All of this could make disheartening reading.  However, it emphasises the importance of recent and emerging research into the possibilities for companies to take sustainability seriously by incorporating broad social and environmental goals into their internal decision-making, rather than merely managing their image through external reports.  It also encourages us to take the efforts of alternative organizations more seriously, especially as they build more expansive and complex connections with civil society groups.

 

Alice Bryer, Lecturer in Accounting & Finance, School of Management, Royal Holloway

Alice.Bryer@Rhul.ac.uk

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