IAN DUNLOP. If Business Leaders Want To Regain Our Trust, They Must Act On Climate Risk.Mar 19, 2018
Business leaders seem astonished that community trust in the activities is at an all-time low, trending towards the bottom of the barrel inhabited by politicians. To the corporate leader dedicated to the capitalist, market economy success story of the last 50 years, that attitude is no doubt incomprehensible and downright ungrateful.
But it is hardly surprising given continuing scandals and declining ethics across the corporate and banking worlds, driven by the pernicious impact of short-termism, rising inequality and undue political influence; in large part the outcome of the oxymoron of “pay-for-performance” remuneration. So how is trust regained? The need for stronger leadership, ethics, greater transparency, open communications and improved culture feature prominently in current responses.
But a far more fundamental requirement is ignored, namely that business must lead on really critical issues, particularly the point raised long ago by economist Kenneth Boulding: “Anyone who considers economic growth can continue indefinitely in a finite system is either a madman or an economist”. The constraints Boulding anticipated have now arrived, as burgeoning population and economic growth crash into global biophysical limits which cannot be circumvented.
Those constraints, encompassing resource shortages, biodiversity loss and pollution in various guises, do not feature in the capitalist economic lexicon, as technology and the market are supposed to overcome all as we march toward the sunlit uplands of the neoliberal nirvana. In the real world, the entire growth model under which Australia and global economies operate, is no longer sustainable; it sowed the seeds of its own destruction some time ago and is rapidly driving itself into the ground as growth rates decline. This is the great “black elephant” of business and politics; a known, knowable fact that no one wants to acknowledge – the unmentionable in the recent Business and Governance Summits around the country, as our leaders strive to compound the problem with self-defeating subterfuges to maximise growth, not least corporate tax cuts and trade agreements.
To the community, these constraints are increasingly obvious as the quality of life for the average person deteriorates in myriad ways. The rhetoric of much-vaunted corporate social responsibility no longer holds water when our supposed leaders are not prepared to address the issues that really count for our survival, let alone prosperity.
These range from basic considerations such as ensuring food and water availability, to the creation of genuinely sustainable global societies. However, the first priority must be human-induced climate change, manifest as the lack of an atmosphere into which we can continue dumping carbon pollution from the burning of fossil fuels, agriculture and deforestation, without causing catastrophic consequences.
Climate change is accelerating far faster than expected, to the point where it now represents an existential threat to humanity, that is a threat posing permanent large negative consequences which will be irreversible, an outcome being locked in today by our insistence on expanding the use of fossil fuels. This should be a major concern in Australia given that we are more exposed than most, but instead our leaders would have us embark on massive fossil fuel expansion. Already one of the world’s largest carbon polluters when exports are included, Australia is complicit in destroying the conditions which make human life possible. There is no greater crime against humanity.
The economic and social impacts will be devastating unless that policy is rapidly reversed. The unprecedented hurricane season in the Atlantic, bushfires in the Californian winter, extreme heat in many parts of South Asia and rapid heating of the Arctic with associated instability in the northern hemisphere weather system, are only the most recent portents of what is to come. The worst outcomes can only be avoided now by emergency action, akin to restructuring economies on a war-footing.
It finally seems to be dawning on corporate and investor leadership that climate change is a real and present danger which is not going away.
Company directors are personally liable for failing to assess and act upon climate risk, but the greenwash continues. Major corporates parade their credentials in support of serious climate action, but none of their scenarios and policies are in line with the Paris objective of constraining global temperature increase “well below 2.0C above pre-industrial levels and to pursue efforts to limit the increase to 1.50C”
Fortunately, as understanding of the risks improves, regulatory pressure mounts. The recommendations triggered by Mark Carney, governor of the Bank of England, via the Task Force on Climate-Related Financial Disclosure (TCFD) are gradually being taken up, with companies voluntarily disclosing the impact which a 2C policy framework would have on their organisation, assuming such a framework was ever put in place (by governments?). Progress, but reactive and certainly not leadership. The question that must be answered is: “what are you doing proactively as a company to create a 2C world” – more realistically closer to 1.5C, as it is now patently clear that 2C is far too high?
If business genuinely wishes to regain trust, it must proactively face up to the challenge posed by climate change and initiate emergency action. Beyond that, it must open up honest debate on a new economic model to replace conventional growth. It is the only way business will be sustainable in the 21st century with a real social licence to operate.
In Churchill’s words: “Sometimes we have to do what is required”.
This article was first published in The Guardian.
Ian Dunlop was formerly an international oil, gas and coal industry executive, chair of the Australian Coal Association and CEO of the Australian Institute of Company Director