Climate change is the biggest threat the modern world faces. Experts and critics may argue about the causes (and some deny it), but the increasingly extreme weather systems seen around the world and the rise of the oceans are bad news for us all.
Individuals, businesses and governments have myriad of other issues to tackle, but the bottom line is that if climatic conditions deteriorate much further, those issues may not matter. An existential crisis? Maybe, for future generations.
Changes in global temperature are nothing new. In the last 650,000 years there have been seven cycles of glacial advance and retreat. The start of the modern climate era was signalled by the end of last ice age, about 7,000 years ago.
Most of these climate changes are attributed to small variations in Earth’s orbit, subtly altering the amount of solar energy received by Earth. However, according to the Intergovernmental Panel on Climate Change (IPCC) Fifth Assessment Report, the current warming trend has a “greater than 95% probability” of being man-made.
Information gathered by NASA indicates that Earth’s average surface temperature has risen by 0.9°C since the late 19th century. The majority of this increase occurred in the past 35 years, with the five warmest years on record taking place since 2010.
What will be the legacy of the current inhabitants of this planet, then? Swedish teenager Greta Thunberg is doing a remarkable job in raising awareness of the risks posed by climate change. If someone so young can stand on the world stage and hold politicians to account for their paucity of action, then surely worldly-wise professionals, including treasurers, can take a stand too.
Of course, few can garner the kind of public profile achieved by Thunberg, but all can take action of some kind. And it needs everyone’s input. Globally, US$90trn will be needed by 2030 to achieve sustainable development and climate objectives, according to figures from the City of London Corporation’s Green Finance Initiative.
The precision of the figures is uncertain, but the scale of the potential problem for humanity is not. This is why the Paris Climate Agreement and the UN 2030 Agenda both ask for commitment from financial institutions and businesses to align their financial flows with a pathway towards low-carbon and climate-resilient development.
The motivation to make a difference should be self-evident. Some companies make a much larger contribution to global warming than others, and it is reasonable to recognise that responses can be relative.
But we live in challenging times and bludgeoning people with the cold, hard facts of climate change, when it is perceived that there are more immediate issues to tackle (poverty, inequality, financial crises et al), is not always the most persuasive method. Sometimes a ‘what’s in it for me’ approach is necessary (as if survival of the human race was not sufficiently persuasive).
According to DARA (an independent non-profit organisation working for populations affected by armed conflict and natural disasters) and the Climate Vulnerable Forum (a global partnership of leaders of countries most vulnerable to climate change), climate change is already costing US$1.2trn a year, with five million deaths each year related to weather impacts and a carbon-intensive economy. Without strong action, the UK government ‘Stern Review on the Economics of Climate Change’ predicts that costs could be equivalent to at least 5% of GDP each year globally, or up to 20% of GDP regionally.
On a more positive note, and at a corporate level, if tackling climate change is viewed in terms of sustainability and environmental, social and governance (ESG) policy, then there is some evidence that putting it high on the agenda improves financial performance.
In 2018, Switzerland-based academic publisher, MDPI, produced a paper, ‘The Impact of Sustainability Practices on Corporate Financial Performance: Literature Trends and Future Research Potential’, presenting an analysis of the impact of corporate sustainability on corporate financial performance. Using content analysis techniques to examine current research, it concluded that from a total of 132 papers from “top-tier” journals, 78% reported a positive relationship between corporate sustainability and financial performance.
There is some evidence too for treasurers and CFOs that sustainable finance is prudent from a purely financial perspective. Within the investor market there appears to be a continuing and significant growth in mandates, to the extent that demand outstrips supply of ‘green’ assets – lending or bonds. This can lead to a pricing advantage for issuers.