How must boards change to tackle the climate crisis?

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Hello from New York, where the financial world is grappling with two obsessions: climate change and cryptocurrencies. Now they are starting to collide, as innovators explore whether blockchain can be used to promote more transparency in the environmental, social and governance (ESG) world. Agricultural and trade companies such as meat processor JBS, for example, have recently been exploring how to use blockchain to track the provenance of products, such as cattle.

Now central banks are jumping in: the Bank for International Settlements has joined forces with the Hong Kong Monetary Authority and the private sector banks to launch a so-called “Genesis” project that uses blockchain to track green bonds. Is this just hot air? Some green warriors might fear so — particularly since older forms of blockchain gobble up so much energy that they are not very “green” at all. But, if nothing else, these innovations show that ESG is spreading into new realms. Read on for more examples this week, in sectors ranging from shoes to audit to corporate boards. — Gillian Tett

Reimagining the board for 2030’s climate challenges

Much is at stake for governments, companies and markets at COP26 this November. But the Glasgow climate summit will also be the catalyst for smaller initiatives that aim to provoke fresh thinking about what needs to change to set the climate on a more sustainable path.

One of those is being unveiled by B Lab UK today. The UK arm of the group that certifies B Corps, the form of benefit corporations adopted by the likes of Bombas and Patagonia, is asking companies to imagine what their boardroom will be discussing in 2030 — and how it will be composed. 

Backed by groups including the UK’s Institute of Directors, the Boardroom 2030 initiative asks companies to conduct a board or senior leadership meeting as if it were already COP26’s target date for emissions cuts. 

It suggests having new faces around the table, from worker and community representatives to activists, scientists and youth representatives. And it asks boards to imagine themselves in 2030, reviewing the big decisions they have taken since 2021 and how market, regulatory and customer expectations have changed since then.

A few companies from the Body Shop to Natura have already signed up. Coutts, the 329-year-old UK private bank that became a B Corp this summer, has asked its “junior management team”, which already shadows its executive committee, to run the exercise and report back to the board. 

“COP can be . . . a difficult conference to understand if you’re not a very large corporation. This is a way for businesses of all shapes and sizes . . . to think about what they can do for 2030,” says Alison Robb, Coutts’ head of sustainability. 

It will be revealing to see how many larger companies decide to entertain conversations that may challenge the status quo, but B Lab UK’s initiative is a reminder that addressing the climate crisis will require as much imagination as it will capital. (Andrew Edgecliffe-Johnson)

Regulators tasked with pinning down slippery alphabet soup of climate disclosures

As the seasons change, the conversation around climate-conscious investing is also evolving. Gone are the days when people ask “what is the Task Force on Climate-related Financial Disclosures (TCFD)”? Now, as regulators worldwide require TCFD reporting, a fresh question has emerged: what new, material information are companies disclosing?

On Friday, a consultation period closes for the UK Financial Conduct Authority’s expanded corporate climate disclosures.

Under the proposal, a wider array of businesses would make TCFD requirements than was initially mandated by the UK in December 2020. The FCA is also seeking feedback on TCFD disclosures from asset managers, life insurers and pension providers. 

Meanwhile, the FCA has come under fire for its lax enforcement of potentially deficient corporate climate disclosures. Client Earth, the environmental pressure group, in August criticised the FCA for “fail[ing] to address, and enforce against, companies’ inadequate reporting in relation to climate change”.

Client Earth highlighted for the FCA two companies with questionable climate disclosures: Carnival and Just Eat Takeaway.com. Both companies have made potentially misleading statements about climate risks, Client Earth said.

Other companies claimed to be committed to TCFD reporting, and in some cases were providing information. But companies “are still failing to deliver the granularity of detail investors need”, Client Earth said.

Amsterdam-based Just Eat Takeaway (JET), Europe’s largest food ordering app, rejected Client Earth’s allegations. Once the company has an accurate measurement of its direct and indirect emissions “we will be setting reduction targets and reporting these over the coming months”, JET said.

Florida-based Carnival said it had been investing in new green technologies to combat climate change, and it had been dramatically reducing plastic use on ships.

“We have reduced our carbon footprint rate by more than 25 per cent with a goal of 40 per cent by 2030. Our ultimate goal is zero emissions,” it said.

But as the UK gears up to expand its TCFD requirements, the lack of framework-specific enforcement mechanisms leaves regulators with the task of ruling on what is truly green or not. (Patrick Temple-West)

Allbirds fires the starting gun on ‘sustainable’ public offerings

Last week the wool shoemaker Allbirds became the first company to file its initial public offering as a Sustainable Public Equity Offering, or an SPO, in collaboration with Business for Social Responsibility, a San Francisco-based consultancy.

Listing as an SPO requires companies to meet specific framework guidelines, including upholding a minimum ESG rating from a “widely recognised” third-party ESG reviewer, according to BSR.

While Allbirds is a Certified B Corp, achieving a score of 89.4, nine points over the minimum to qualify, BSR has yet to announce which reviewers would be acceptable for its framework. The company said it would comment on the criteria in “a few weeks”, after Allbirds’ IPO. It should be noted that Sustainalytics and MSCI sit on the framework’s advisory council.

But as more and more brands jump on the sustainable fashion bandwagon, demands for transparency are catching up to the lofty rhetoric. Allbirds faces a civil class-action lawsuit in the New York Southern District Court that maintains the brand has misled consumers with its sustainability claims. Allbirds swiftly issued a reply with a motion to dismiss.

Sustainability sceptics may also point out that Allbirds is lossmaking, and is set to remain that way for the foreseeable future. But with the company’s $1bn valuation following a $100m in a Series E funding round in September last year, there may be plenty of investors ready to run with the SPO. (Kristen Talman)

Tips from Tamami

Nikkei’s Tamami Shimizuishi helps you stay up to date on stories you may have missed from the eastern hemisphere.

Japan’s prime minister Yoshihide Suga, who pledged back in October 2020 that Japan would be carbon neutral by 2050, announced on Friday he would not seek re-election later this year. How does his decision affect the country’s ESG efforts?

Some ESG advocates are concerned the move will create a power vacuum due to the reshuffle of cabinet members and high-level officials ahead of important global meetings such as the UN Biodiversity Conference in October and November’s COP26.

“Unfortunately, we cannot expect to see that Japanese politicians will show strong leadership in these meetings,” Kenji Fuma, chief executive of Tokyo-based ESG advisory company Neural, wrote in his newsletter. He urged Japanese corporations to step in to fill the void instead. 

Some, however, expect the leadership change to yield positive results.

“If Taro Kono succeeds Suga, Japan would be more likely to take strong action on climate change,” said Richard Katz, a senior fellow at the Carnegie Council. Kono, a leading candidate for prime minister who is currently in charge of administrative reform and vaccine policy, is an early advocate for serious action on climate change among Japanese politicians.

“Compared to Suga, Kono’s ability to connect with the voters and help the ruling Liberal Democratic party’s backbenchers in the upcoming elections would give him stronger leverage against those in the bureaucracy and business world who are dragging their feet,” Katz said. 

Many predict that Shinjiro Koizumi, another green advocate and a minister of the environment, will remain in the cabinet if Kono becomes the next prime minister.

Eyes are also on Sanae Takaichi, who was set to announce a run for the party’s leadership position and would be the country’s first female prime minister. Her stance on ESG matters, however, is not widely known.

“The Suga administration left a big legacy setting targets such as 46 per cent cut in greenhouse gas emissions by 2030 and net neutral by 2050,” said Mika Ohbayashi, director of the Renewable Energy Institute. “I hope the new administration will solidify the road map to achieve these goals despite resistance.”

Chart of the day

Due to declining subsidies in China and a slowdown in production tax credits in the US, wind turbine installations are set to fall in the coming years, according to a recent study from Bank of America Global Research. Installation rates are not expected to surpass 2020 levels until 2027.

Smart reads

• Saskatchewan’s carbon tax and dividend payout programme is a top case study for how governments worldwide could accelerate their emissions reductions, writes the FT’s Martin Sandbu. “It is the most promising approach if countries are to overcome the biggest remaining hurdle on the path to decarbonisation.”

• Even before Covid-19, it cost significantly more for small, island nations to cut emissions than wealthy nations, Antigua and Barbuda’s prime minister Gaston Browne writes in the FT. Browne also chairs the Alliance of Small Island States. “We require equitable support and accessible climate finance to achieve our sustainable development goals and truly advance,” he said.

Recommended reading

• Growing calls for delay to UN climate summit amid pandemic (FT)

• Climate Activists Are Hauling Solar Tech to New Orleans to Help Restore Power (Rolling Stone)

• Joe Lycett: ‘Why should the thirst for profit outweigh humanity?’ (FT)

• Brussels to issue ‘Covid green bonds’ as part of pandemic recovery effort (FT)

• Green bonds: record sales push sustainable investment forward (FT Lex)

• Saudi Arabia’s PIF hires banks to advise on ESG -IFR (Reuters)