Australia’s devastating bushfires have had the effect of galvanising a lot of global and local attention on climate change, with some very uncomfortable results for businesses as well as governments.
To take one very small but important example, flight shaming – particularly in Europe – is now leading to significant reductions in the demand for air travel, with real life consequences for airlines.
If the fires sparked a similar response in Australia, that could have real life consequences for Australian airlines and potentially increase train and other forms of travel.
Changes happening already
Already there have been signs of change as a result of the fires with Prime Minister Scott Morrison signalling a potential change in his government’s approach to dealing with climate change and many businesses also outlining their green credentials and committing to do better.
Amid all of that activity – some of which was probably well intentioned but fairly limited in scale – came an unrelated bombshell in the form of an annual letter to executives from investment giant BlackRock.
BlackRock says businesses need to get serious about climate change
Perhaps sick of the slow pace of change on climate change action, BlackRock founder and billionaire executive chairman Larry Fink outlined a series of measures around how BlackRock would integrate sustainability and climate protection into its activities.
The reason this was such a bombshell is that BlackRock controls around $10 trillion of funds and if a chunk of those funds is no longer headed in a particular direction, that would really concentrate the minds of some chief executives.
For a start BlackRock will no longer make investments in businesses that generate a quarter or more of their revenues from thermal coal.
That threat alone could cause any concentrated thermal coal business to look at diversifying in a real hurry.
Big share blocks could vote against companies not moving fast enough
It is also launching new investment products that screen for fossil fuels and BlackRock will also “be increasingly disposed to vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them”.
Much of this is not new, given that environmental, social and governance style investing has been around for decades but the fact that a global fund manager with serious clout is making it a central plank of its strategy is new.
While many a company may have been prepared to bluff their way through some “green’’ protesters at a meeting or produce some greenwashing claims to attract some new customers, they may not be well prepared for some serious scrutiny from fund managers.
Any company finding itself on the wrong side of an investment “screen’’ by BlackRock would realise that it is in big trouble and needs to take some serious action quickly.
Global coverage of the fires promoting climate urgency
While the BlackRock action was unrelated to the Australian bushfires, global media coverage of the fires has fed into a global narrative that there is no time to lose in getting serious about global warming.
On the other side of the equation is the very real fear of investors both large and small that they could be left holding on to fossil fuel investments that are on a path to becoming worthless in the future if alternative energy forms take off.
The most interesting part of Mr Fink’s letter is that he linked climate change to many other financial crises such as the inflation spikes in the 1970s and early 1980s, the Asian currency crisis in 1997, the dotcom bubble and the global financial crisis.
This problem isn’t going away
“Even when these episodes lasted for many years, they were all, in the broad scheme of things, short term in nature,’’ said Mr Fink.
“Climate change is different. Even if only a fraction of the projected impact is realised, this is a much more structural, long-term crisis.”
It is a simple message but a powerful one that chief executives will understand.
If they want their companies to thrive in a new investment environment, they will need to do more than produce some nice rhetoric around climate change – they need to take some real long-term action if they want to remain relevant to the investment community.
Money is a universal language in business and it sure to be listened to when someone with the global clout of Larry Fink is speaking.