We Have Stopped Engaging: Just Make It Look Good and Pretend to Care
By Eric Israel, Skytop Contributor / July 4th, 2022
Eric is the world’s first sustainability chartered accountant. He was the independent assurance leader for Royal Dutch Shell’s first global Sustainability Report in 1997. Eric is the co-founder of KPMG’s Global Sustainability Practice and PwC’s Conflict Minerals Practice. He was the U.S. Director for the Global Reporting Initiative (GRI) and is passionate about coaching the new generation of professional accountants on applying integrated thinking within new and emerging reporting frameworks.
High Standards of Truth
“If it ain’t broke, don’t fix it” is a true saying. Is, “If it is broken, then just ignore it” also a true saying, or just the operational response to a failed condition. Who knows. However, if a “fix-up” is necessary, we need change to make progress possible. And for this, I confess, I’m deeply troubled. Our collective failure shines these days, as we neglect to apply high standards of truth needed to get our legacy systems back on track.
It is staggering to hear the UN Secretary-General accusing governments and businesses for lying about their climate efforts, burning valuable time through many years of inaction. This is consistent with the trend that misleading sustainability claims by businesses are spreading at an alarming rate. And let’s also acknowledge that lying directly relates to the ‘tone-at-the-top’ and are red flags for fraud and corruption. The UN Secretary-General referred to this as “A litany of broken climate promises” and at a recent climate event organized by the White House he went further by saying “We seem trapped in a world where fossil fuel producers and financiers have humanity by the throat”.
Large global financial investors may equally concur since they are also worried if legacy companies are doing enough to adjust their businesses for the massive changes our global economy is undergoing. Even before the Putin led invasion, globalization was already becoming an increasingly controversial topic. So what are the assumptions of this phenomenon?
Views on Globalization
The business community views globalization largely as an opportunity for economic growth. And indeed, through the liberalization of trade policies, globalization helped create companies with the financial means that are often larger than the economies of many countries. Proponents of globalization believe that increased interdependence of trade and investment bring countries together and deter war. At the same time, opponents claim that yielding power to international governing organizations like the WTO come at the expense of national sovereignty and may start conflicts. Hence corporate accountability in the face of globalization is key since it involves serious trade-offs.
Holding Companies Accountable
Globalization is not an act of God but is the result of human behavior that can have harmful impacts. So it is not surprising that global investors have become more serious about holding companies accountable for their Environmental, Social and Governance (ESG) performance. Only just it goes further than words, with several institutional investors supporting shareholder resolutions on climate change. In the process of doing this, investors are openly changing the dynamic between board, management, and shareholders.
Ukraine and ESG Investors
Nevertheless, the Ukraine war has created new tensions for ESG investors. Many of them have seen their performance wane when compared with conventional funds and thus have signaled the need for some short-term boost to increase oil and gas companies in their portfolios. Making plain is that maximizing investment return on a risk-adjusted basis for their clients is still king and that climate risk may need to wait for now.
Climate Change Inaction and Financial Consequences
But make no mistake: this journey of climate change inaction will have wide financial consequences and beyond. According to the U.S. Government Office of Management and Budget (OMB), the fiscal risk of climate change inaction is immense. OMB has calculated that for the United States alone the cost of inaction will be at least $2 trillion a year, which is give or take 10% of U.S. GDP. Taxpayers will need to pay for this, and since corporations pay taxes they will pay their fair share, right? Not by any means: 86% of federal revenue comes from individuals while only 6% (!) comes from corporations. Yet the United States has a lot of wealthy individuals who can pay for this, right? Not by a long shot: the enactment of the 2017 tax law under the former administration lowered federal revenue for the rich by more than $200 billion a year. Federal tax receipts for fiscal year 2021 were about $4 trillion and the federal government ran a deficit of $2.8 trillion mainly due to the pandemic. In other words, the cost of climate change inaction is roughly the same as the pandemic, but then forever.
Species go extinct because they no longer adapt well to their environment. It’s nature’s way to get rid of plants and animals to allow for the formation of new species. Capitalism operates under the same principle: it gets rid of businesses that no longer create value. Another problem is that humans have often accelerated the extinction of species way above the normal rate. The same applies to capitalism, where businesses are threatened with extinction due to actions of humans, resulting in climate change and biodiversity loss. This is causing disruptions and it is sad to see that business has literally gaslighted themselves for decades with legacy thinking to become sustainable. The silver lining is that it would be far-fetched for these companies to deny the impact of climate change now and simply continue with business as usual.
Apathy, Not Denial
So why is it so difficult to respond to the terrifying impacts of climate change? It’s probably apathy, not denial, that is our biggest threat to society. It’s our worst enemy that prevents us from taking action for our own well-being. Apathy is an attitude of indifference, unresponsiveness, and detachment. Its overarching cause is pessimism about the future based on the loss of hope and faith in our ability to change our society. We feel paralyzed,and that’s preventing us from making progress and the main reason why we’re stuck with business as usual. It occurs when business partners no longer care about a company’s purpose. This can only be reversed when companies and stakeholders actively engage and agree on a plan of action, the complete opposite of apathy. It seems green is the color in the vanguard. Action, however, has yet to be counted, meaningfully.
Meaningful Action and Discourse
Meaningful actions depend on the existence of discourse where we can freely exchange ideas, and debate where we can freely argue the merits of those ideas.
To freely exchange ideas, you need a group where everyone is equal. Nonetheless, the elephant in the room is that climate change is strongly intertwined with racism, another big challenge we currently face. It means that a dialogue about climate change is often biased, which prevents exchanging ideas that are free of personal beliefs. Rutgers University did an interesting study about the impact of racist and sexist behavior. They found that prejudice transfers – between racism and sexism – because racist or sexist people thought that some groups of people should be on top and others not. In other words, some groups of people are superior to others.
Visionary Leaders Needed
And to freely argue you need good leadership, where good leaders speak up and bad leaders are challenged. Unfortunately debates are seen as a competition and it encourages businesses to ignore valid arguments that go against their business strategy.
We clearly need visionary leaders who are free from prejudice. Imagine what can happen when corporate decision makers can feel the pain of climate change that’s not their own, while disowning their comfortable lifestyle. Leaders who demonstrate empathy and make it possible to move away from ‘man-made’ disasters to a ‘woman-made’ society that unifies everything and everyone. Let’s hope our leaders love our children like their own (inspired by the Russian lyric by Sting).