Are investors calling the shots on climate?

When I did my case study research on why Fortune 500 companies set climate targets, the feedback I heard was counter-intuitive. I was told investors were not an influence on environmental goals – that would be micromanaging. I heard that cost savings were no longer a primary motivation – those days had come and gone. And business cases? They were used by line managers to implement goals effectively, but the targets were set without bottom-up numbers.

All of this perhaps reflected the maturity of the companies I interviewed. Each had been working on their environmental initiatives for years, seeing continual savings and impact, along with growing pressure from their customers. Never wanting to appear forced, companies were prone to position their goals as driven by their leadership stance rather than dictated by others. But is investor pressure starting to count?

BlackRock recently announced that climate risk will be a “key engagement theme” in 2017 as the largest asset manager in the world seeks to understand how management at its portfolio companies are assessing climate impacts to their businesses. While BlackRock was tempered in its announcement, it made clear that it will not be placated, and unanswered concerns will be elevated to portfolio company Boards, who will be expected to have a basic understanding of the risks climate change may pose to their core business strategy and operations.

This may be a watershed moment for the role of business in climate change. The first step to any change is admitting you have a problem, so disclosing in writing that you are or are not considering the physical, legal, technological and social risks of climate change is that foot on the ground.  A continual drip of questions will create a stream of issues that must be recognized or blatantly ignored.

Companies are wise to get ahead of stakeholder pressure, whether from investors, customers or regulators, so they can dictate their destiny. You may think of investor pressure as something suffered only by oil companies and utilities, but every company is about to get a wake-up call from its owners. Once BlackRock’s companies start digging into their climate risks, they will find upstream and downstream impacts that involve a growing circle of businesses. The bases are loaded for action.

Photo courtesy of Moses Luski.

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