Fighting against the status quo: a manager’s story
A fictional tale about fictitious change
“It is a Tuesday evening of October 2020. The Teams call has just ended. Carlos speaking on mute for twenty long seconds before realizing it was probably the highlight of the meeting. The progress on defining our interim climate targets is tremendously slow. I am invited to these weekly calls where Ananya and Niels update the rest of us on their discussions with various departments on this matter. Week after week, nothing concrete comes out. The company‘s leadership still doesn‘t seem to agree on the need of a clear set of carbon reduction targets beside a fuzzy climate neutrality pledge. Despite all the travel bans and employees already working from their homes due to the pandemic, even setting an easy reduction target on business travel and commuting-related emissions seems too limiting. When reading our latest sustainability report, it‘s quite embarassing to see we have a carbon neutrality goal thirty years from now and absolutely zero plans or yearly reduction rates to show to the public that the company is serious about it.
Yesterday, while scrolling on the phone, I stumbled on a reel video with dolphins swimming in the blue waters of Venice‘s canals, apparently thanks to the effects of the country‘s lockdown rules. Likely fake news, but still they got me thinking that with less traveling, consuming and polluting, the environment is obviously benefiting from this situation.
Stopping people from going out as well as stopping companies from polluting, requires policing efforts, commands and controls, fines and penalties. Issuing and enforcing strict rules is working in most of the countries to stop the spreading of this coronavirus. It could probably work also for another urgent issue, the climate crisis.
Our man-made greenhouse gas emissions are creating the conditions for more frequent and brutal weather events, like hurricanes, heat waves and ice storms. These are some of the so-called acute climate-related physical risks. There are also chronic ones, which are slow, long-term and irreversible, like the polar ice melting and the sea level rise.
Being the first ESG Risk Coordinator of the company (my boss and I came up with this title), it‘s my job now to get familiar with this kind of risks as well. So I try to keep up with everything that is going on outside our bubble, to early detect any development around environmental and social topics that could affect our business. In other words, I keep an eye on what our stakeholder groups complain or worry about.
One of the things that are happening is that the use of the expression “climate crisis”, as well as the introduction of high-level discussions on climate-related risks, is taking hold among the financial institutions and insurance companies. The TCFD framework, an experiment only a few years earlier, is now becoming mainstream. Its key innovation is to assess a business‘ long-term viability under various future climate-related scenarios. Most of the large companies exist and take important decisions just by planning three or five years ahead. That‘s the minimum required for enterprise risk management and financial controlling. Banks and other financial institutions must also do stress tests, to see if they could sustain periods of extreme volatility in the financial markets. So the experts behind TCFD, who mainly come from the financial world, propose to check whether in 2030 or 2050 a company‘s business could still thrive in a world that might have frequent extreme weather conditions, higher sea levels, longer dry periods, no availability of cheap fossil fuels and so on. It‘s a really good idea in principle, that sparks interesting early analysis and assessments among some risk-averse large companies with very conservative investment plans. Pension funds for example, due to their nature and mandate, look far in the future and want to be safe. So they start screening which companies to divest from, taking in consideration how much their business models will suffer under likely future scenarios. Of course this type of decisions doesn‘t happen overnight. Still, there are clear signals that investors, banks and insurers want more now than just a feel-good 2050 carbon neutrality target.
Another signal comes from lawmakers. Like the Covid-19 lockdown measures have limited the individual freedoms to protect the health of the whole community, it has become acceptable to propose rules creating obstacles to certain business activities, in order to mitigate the speed and the effects of climate change globally.
That comes on the heels of the climate protests, which now have turned into a generational struggle. Young people are new voters who want to see governments to take action before it is too late and finally they want justice against those who continue ignoring their responsibilities, pretending that everything is just fine as is.
That‘s what I read sitting in pajama trousers in front of my laptop, during the “new normal” ten or twelve-hour workdays.
When I reach out to Harald and other senior leaders that I believe could see what is going on, I keep saying this whole situation is a huge opportunity for change. The company could use this virus-induced global break time to catch up with all these developments, accelerate its transformation, following the clues coming from the financial world, the regulators and ultimately, the people.
In July the EU Commission released the so-called Taxonomy on Sustainable Finance Regulation. From afar it seemed an obscure niche piece of legislation, but when I start getting more into the details, I was amazed. It is establishing a list of standard criteria, to define when a business activity can be considered environmentally sustainable. This is exactly what I was looking for, in order to advise our Board to not get fooled by sustainability buzzwords.
In the following months the EU Commission‘s experts started drafting the technical criteria which identify, for each sector, the activities that substantially contribute to certain environmental goals. The first release is about climate change mitigation and adaptation. As a result, a company has to check first if its business activities are included in the EU Taxonomy categories. If yes, then it needs to verify if the activity meets all criteria defined for that specific category. This double step process can make a big difference for investors: it allows to distinguish between an activity which can be potentially sustainable versus another that actually is, because it demonstrates top environmental performances and best practices. Many business associations around Europe don‘t like how the Taxonomy critieria are written, which activities are excluded and how complex the whole thing is. A fierce lobbying effort begins.
In the meanwhile, with the greenlight of the Strategy and Finance departments, I manage to get my own process approved. From now on all new requests for investment that need a Board approval should be assessed first against ESG supply chain risks, carbon impacts and EU Taxonomy technical criteria. I am happy again. Finally I put ESG & sustainability into one of the key corporate governance processes. With this it is now possible to change things from within. This is what I was aiming for, the opportunity for change. If this was a movie, it could end here, with scenes of joy, triumph and hope for the future.
The reality turns out to be quite different. The happiness lasts only for a few days. The whole thing opens a pandora box. Now every project developer, contract owner and production plant manager wants their own nice ESG assessment. In some cases it‘s easy. There are technologies and activities that are clearly not going to be environmentally sustainable, ever. In other situations instead, the assessment is less straighforward.
I am also perfectly aware that most Taxonomy-eligible projects I assess are not getting approved eventually. They are either postponed or forgot, because too complex, too radical and too expensive. The focus is rather to make incremental improvements to the existing production facilities. The situation is very similar to the one of a dad who needs to get his family house more energy efficient. He can go through a costly renovation of the entire building, to achieve in a few years an A+ energy class, or he can simply make some adjustments now, like changing windows and putting a few photo-voltaic panels on the roof. The second option is cheaper, quicker and it shows an immediate action. Totally understandable if that‘s the chosen one, but unfortunately this attitude can develop into full blown green-washing syndrome. Painting some of these incremental improvements as giant leaps toward a low-carbon future becomes the norm in the presentations to the Board. Part of my job becomes then to admonish the various project owners and ask to tune down the bullshit. The COO starts remembering my name.
I close my laptop at 10 pm, feeling numb. Flimsy climate targets, a lot of noise about decarbonisation but no real investments yet into transformative technologies.
I get a text message from the COO: „Great to have you on board. We cannot say yes to all these treehuggers. Keep up with the good work“.
I stare at my own reflection on the dark screen. It’s not going to be easy.