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3 practical quesitons for corporate stewards about decarbonization

3 Practical Questions for Corporate Stewards About Decarbonization

Author:

Sloane Ortel

Founder and Chief Investment Officer of Ethical Capital.

I feel for the many corporate directors and executives that are trying to chart a credible path towards net zero.

Best intentions, board-level buy in, and a big budget aren’t enough to do the kind of deep decarbonization work that’s necessary. And I’ll eat a shoe if anyone can prove to me that all three of those conditions are present at even a plurality of corporations.

So what’s a well-meaning manager to do?

In the conversations I’ve had with executives at the companies in our portfolio over the past year, I get the sense that there’s a lack of useful guidance about what moving towards net zero actually looks like. As a practical matter, almost all of them probably assume that they need to start by hiring consultants to build a detailed estimate of their scope 1, 2, and 3 emissions.

And like, sure. That’s a step.

But it’s the opposite of a functional understanding. Think about it: there’s nothing wrong with hiring consultants, but it’s a literal cry for help. And there are real limits to the contributions that third parties can make to something as central to long-term strategy as decarbonization.

So I’ve decided to clarify how we understand the problem, the sorts of corporate actions that matter to us, and where we see the biggest opportunities for near-term progress.

Whether you’re considering investing in one of our strategies, wondering how to get your company on the right path, or just hoping to get your hands around the problem, I hope you’ll let us know how we can make this more useful to you by leaving a public comment or sending us a private note.

What Have You Learned Recently?

The fifth National Climate Assessment that was recently delivered to congress estimates that extreme weather events already cost the United States $150 Billion each year. That figure doesn’t account for loss of life, healthcare costs, damages to ecosystem services, or what’s happening in the other 194 countries on the planet.

Our black, brown, and indigenous siblings will doubtless experience the worst of this. But I also expect the direct costs of climate change to permanently kill the vibes in more than a handful of boardrooms. Uneven, extreme, and unpredictable changes always seem to catch at least a handful of companies unprepared.

The traditional corporate playbook has been to claim that such risks are well controlled.

I categorically reject such claims. What I want instead (and consider to be table stakes) is a publicly available discussion of how a company has improved their understanding and control of these risks at least once a year for the foreseeable future.

My favorite leaders already approach this conversation with humility, vulnerability, and candor. In the coming years, I hope they’ll start to feel comfortable doing that in public.

And I’ll never need another Christmas present if they start to normalize practices like sharing new words they’ve learned, exposing things they’ve gotten wrong, and asking for help or insight from their stakeholders.

What Capacity Can You Build in the Next Three Years?

It might not be entirely clear how to go about capacity-building, so here are a few things leaders ought to contemplate charging their teams with in roughly ascending order of ambition, complexity, and career risk.

Source Carbon Removals1

If you’re still doing the spewing, it’s time to get started undoing.

The carbon removal market barely exists today, but every single one of the roughly 2,600 organizations with a science-based net zero target is wholly reliant on it to actually reach their net zero goal. Why? Because it’s not particularly likely that any complex organization can truly reach zero carbon emissions by just decarbonizing their operations.

What are Carbon Removals?

Carbon Removals refer to processes that remove carbon from the atmosphere and demonstrably keep it from being re-emitted for extremely long periods of time.

Yet only 32 companies with these commitments had actually bought carbon removals as of September 2023. And according to cdr.fyi, only about 120,000 tonnes of carbon removal have ever been delivered.

If your company plans to eventually purchase carbon removals at some scale in order to meet your net zero goal, you should begin immediately. And if you do not plan to participate in the market, say so.

Many corporate executives will feel that if they participate in this market, they will be expected to cover each and every ton of carbon they emit immediately. This can turn a well-intentioned climate plan into a weird spreadsheet game that’s more about scoring arbitrary carbon points than manifesting impact.

Save us all some trouble and skip that step for now.

Instead, acknowledge that this is a multi-decade process that will require new internal sourcing capacity, supplier relationships, and strategic planning. Focus on quality over quantity, and remember that you’re entering a new market that you will likely participate in for a long time. This is a rare circumstance where bravely taking baby steps will count as leadership.

Strengthen Industry Standards

Evaluate any professional associations that may be relevant to your industry, and ask whether they’re currently issuing guidance on how members should adapt to climate change.

Is that guidance good enough? If not, why not?

Remember that there is power in networks. In uncertain times, strengthening the soft infrastructure that surrounds you and your colleagues can be hugely clarifying.

The intended goal isn’t just to elevate the status of your own company but to influence industry standards on decarbonization as a whole. This can actually enrich the quality of your own strategy by sourcing incremental inputs from a larger professional network and decrease the career risk of climate action by building momentum and broader buy-in.

It may also be possible and appropriate to create industry-facing resources that discuss your company’s environmental processes, failures, and successes. In time, this could create a shared repository of knowledge that other companies can refer to when bolstering their own practices.

I’m not suggesting you spill any trade secrets here. Take a page from the software industry, where it’s common practice for engineering organizations to write about how they approach complex problems. In many cases, firms will even create open-source infrastructure that others can use to tackle these same issues. Do the folks thinking about decarbonizing your fleets feel like they can publish their analysis of the current trade-offs? If not, why not?

Lastly, take a long hard look at your lobbying activity. Are you advocating for stricter environmental regulations? I think you should be. This probably seems short-sighted, idealistic, and insane to some readers, but consider that it will also concretize the costs of credible climate action and build them into the cost projections of every major actor in your industry.

What Are Your Stakeholders Saying?

Credible plans are intrinsically unique. Every business has its own ethos, targets, and constraints, and so should every climate action plan.

Done right, this won’t create conflict between your company’s idiosyncratic approach and the reporting required by the folks who oversee the science-based targets initiative. Instead, it will help translate the long-term ambitions you’ve committed to into shorter-term steps and tangible decarbonization progress.

Effective climate action will unfold in a dynamic process that responds to changes in technology, regulation, community needs, and your company’s practical circumstances. Don’t make the mistake of carving your approach in stone. Instead, celebrate what you’ve learned by sharing how and why your approach has evolved.

I love it when managers directly cite stakeholder feedback as the root cause for these sorts of updates.

Why?

It’s straightforward: mainstream investors have been conditioned to care about ESG disclosures because they contain useful hints about whether a company is capable of considering and controlling risk holistically. The quality, diversity, and frequency of your stakeholder communications are the main mechanism that such considerations manifest through.

So instead of spending all of your time on the outlook for next quarter or next year, think about ways to give us direct visibility into how you manage those relationships.

It might be uncomfortable in the short term, but that’s something we’ll all have to get used to. Because even though there’s material uncertainty in the path climate change will take, there is no reasonable projection that could be described as “comfortable.”

Note:

  1. As a co-founder of the Woodcache Public Benefit Corporation (a carbon removal project developer), Sloane has a material conflict of interest related to all things carbon removal. ↩︎

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