If the pursuit of corporate profits led to the paradox now posed by climate change, then the same precept applies if global leaders want to reach net-zero. That’s a cornerstone of the proposed securities rules — requiring companies to disclose their climate-related market risks.
Roger Ballentine explained the logic, a climate capitalist who is the president of Green Strategies Inc. Cheap fossil fuels have powered the globe’s remarkable economic growth. But times have changed, and now is the moment to align profit-seekers with climate-friendly businesses. The market will reward companies that embrace the challenge, while those that do not will get sidelined.
The U.S. Securities and Exchange Commission (SEC) would require companies to reveal their climate risks — part of the agency’s “core bargain” with investors. The proposal was issued for comment on March 21, and a final rule is coming.
“Climate is a business issue. Like any other, it should be proactively incorporated into a business strategy. That means mitigating new risks and adding value,” says Ballentine. “The capital markets are asking an increasing number of questions. When your largest institutional shareholders seek better answers, that moves the needle. It is central to creating value. The SEC proposal could put climate capitalism on steroids.”
Ballentine spoke at Green Builder Media’s Sustainability Symposium. The global renewable energy market was valued at nearly $900 billion in 2020, and it is projected to reach almost $2 trillion by 2030, says Allied Market Research. That’s an 8.4% compound annual growth rate. The global clean energy industry has a wealth of opportunities. Trillions have yet to be invested. The increase in renewable energy demand and government incentives are driving the trend.
Major power generation companies are capitalizing on this shift: ABB
, Electricite de France, General Electric
, Invenergy, The Tata Power Company, and Xcel Energy
. And on the consumer side, there’s Apple
, which is already reporting its climate risks, and Microsoft
Impacting the Brand
Ballentine points to Tesla
, which went a long time without making a profit. Still, Wall Street highly valued the carmaker because it got out ahead of the climate dilemma by ushering in quality electric vehicles. The lesson for others is that they, too, want to be on the side of climate change.
Markets will view climate-conscious corporate leaders as competent — ones with a strategy to reduce dependence on fossil fuels and mitigate risks. Those shakers are also recruiting executives and engineers with an eye toward the future, realizing they must attract and retain a qualified workforce by building sustainable businesses.
“Climate change is not waiting for political change,” says Ballentine, who also served as Chairman of the White House Climate Change Task Force under President Clinton. “Any company that is not managing these risks will lose to companies that are.”
It’s an urgent need: Temperatures hit 115 degrees in Siberia last summer, and there’s been a 400 percent increase in the number of natural disasters since 1980. “There’s a certain amount of carbon we can emit in 30 years,” says Ballentine. “The bad news is we are on pace to empty that in 10 years.” What now?
He sees the insurance sector as having a significant role to play. Europe’s four biggest insurers have now placed restrictions on coal. Allianz, Generali, and Zurich Insurance Group are the continent’s biggest carriers, and they are proactive. Meantime, Reinsurance giants Swiss Re, Munich Re, and SC
OR have underwriting restrictions on heavy emitters. Industry losses are in the hundreds of billions.
The green movement now eyes the biggest banks, pressuring them to quit lending money to coal companies and get the major pension funds to sell off their shares of coal companies. Already, Bank of America
Inc., Goldman Sachs Group
, Morgan Stanley
, and Wells Fargo
have altered their lending practices. Most of those are also disclosing their climate risks, and so are Barclays, Lloyds Banking, and TD Bank Group.
“To prosper over time, every company must not only deliver financial performance but also show how it makes a positive contribution to society,” says Larry Fink, chair of BlackRock
, which manages $6 trillion for pension and investment funds. Succumbing to short-term profit goals will result in inferior returns, and a failure to be sustainable could impact the brand.
A Wealth of Opportunities
Enter the SEC, which would require companies to track their CO2 emissions and how much energy they consume. It would also require them to monitor the emissions of those within their supply chains — a more complicated task. Yet, Walmart
oversees its suppliers, monitoring their climate policies. The policy works because companies want to be on the retailer’s shelves.
No doubt, there’s pushback. Much of that is coming from the supply-chain portion of the proposal. But Ballentine emphasizes that environmental causes and corporate profits are linked. The SEC is merely the catalyst that will unleash the profit motive on climate change — a rulemaking that must wend its way through the comment period and the eventual bevy of lawsuits it will face.
Under any set of circumstances, companies can’t evade the stark reality that markets will reward them for their climate actions and penalize them for the roadblocks they throw up. The good news is that the transition to a low-carbon economy is a multi-trillion opportunity. Some enterprises are ahead of the curve while others are playing catch up — a race spearheaded by the SEC and one that better arms investors.