The founder of the World Economic Forum explains why ‘a new mindset’ is giving him hope for climate action, and shares which companies are getting it right

Act to Impact: Klaus Schwab Fireside

When Klaus Schwab thinks of climate change, he thinks of his grandchildren and their future. Schwab, the founder and executive chairman of the World Economic Forum, is worried – but hopeful.

“Many people have a tendency to see our fight against climate change as a cost, as something that is negative,” Schwab said. “Yes, it may be to a certain extent, but it’s also a great opportunity.”

For the economic leader, tackling climate change means leadership innovation. Company executives, investors, consumers, and political leaders will have to find ways to work together to enact change, he said.

And that means new economic opportunities: new infrastructure projects such as the one Congress is debating, new developments in technologies such as carbon sequestration, and new products such as expanded options for electric cars.

Schwab credits a good portion of his philosophy on climate change to Bill Gates, who he said is a leader in the green movement.

“Gates talks about how, in order to decarbonize the world or to make it carbon-neutral by 2050, a lot of new technological progress has to be achieved,” Schwab said. “I see here a great opportunity because we can move into an age of green innovation.”

Signs of this age of green innovation have increased in the past year. ESG investments, or investments that apply environmental, social, and governance principles to a company’s performance, have seen record growth and are projected to increase in the future, reports showed.

US assets under management that used ESG criteria increased 42% over the past two years to $17 trillion in 2020, up from $12 trillion in 2018, showed a 2020 report from the US Forum for Sustainable and Responsible Investment.

A growing number of companies have pledged large green initiatives. GM, America’s largest car manufacturer, said it would go carbon-neutral in its global products and operations by 2040. Apple committed to being 100% carbon-neutral for its supply chain and products by 2030.

Schwab is energized by these changes and believes the trend toward a more stakeholder-centric view of the world is ahead.

“I’m really excited,” he said, adding that society has changed over the past few years. “We have a new mindset. We have a new social consciousness.”

Insider spoke with Schwab about his new mindset and how leaders plan to embrace the ESG movement. Our interview has been edited for length and clarity.

There’s more and more recognition that a viable economy not only relies on treating people well but treating the climate well. Do you think CEOs have fully adopted this mindset that treating the climate well is good for shareholders?

So the executives who have a longer-term thinking have clearly adopted this mindset. And if you look, there are two reasons – they are very obvious. So there’s first an economic reason. I think what we have learned from the coronavirus is that prevention – the cost of prevention is much lesser compared to the cost of responding afterward to the damage. So we have a situation where you have a kind of free ride because you don’t have to integrate all your external costs into your business model, but someone will have to pay for it. And it will be down the road.

And my fear is that we may end up like tobacco companies, which means, we will be in a situation where, down the line, you will have class action. Already today, investors recognize this danger, this risk. There are investors who hesitate to provide capital to companies who really are damaging the environment.

But there’s also a moral reason. I’m thinking of my grandchildren. I don’t want to have them facing a crisis that may be much worse compared to what we are seeing today with the COVID-19 pandemic.

Do you believe that investors are recognizing the risk?

I said investors who are thinking long term. Of course, if you want to make a fast buck, it’s a different matter.

But in the end, I think companies will recognize they will be better off economically if they take care of nature, because young people – I mean, at least my employees – they don’t want to work anymore for a company or for an organization that is damaging nature.

And I think clients and customers do not want to buy the products of such a company. So I think it’s in the direct, commercial business interest of companies to take care of the planet.

Here in the US, the Securities and Exchange Commission just created an ESG task force to promote the disclosure and transparency of ESG criteria. And a report showed that over 300 ESG proxies are headed to a vote this spring. How do you feel about the surge and attention to ESG reporting?

I think it’s a great evolution. Some people would say even a revolution. But we should not forget that the ESG metrics – so measuring responsibility – are only part of a total integrated system.

It starts with defining your strategies, where you have to take into account the present and maybe even future expectations of your stakeholders. So it’s a strategy formulation. It’s the responsibility of the board. Then it is of course execution, not only inside the company itself but also in the supplying network. And at the end, you have some measurement system, the ESG metrics.

So we should not look at ESG metrics just as some kind of a formal, additional reporting system. I think to do ESG performance in the right way, you have to look at it as an ecosystem, which integrates a company as a whole.

There are those who are still against certain ESG metrics, for example, the billionaire investor Warren Buffett recently urged shareholders to reject proposals for more transparency of climate-related risks and diversity and inclusion efforts. What would you say to Buffett and others who reject more transparency?

I would like to have a discussion with him.

I would tell him: “Look, I can understand that on the level of Berkshire Hathaway, which is a kind of conglomerate, you will have difficulties measuring the ESG responsibility of each of your companies where you have a shareholding in. So, here, I would understand.”

But as far as his companies are concerned, where he has invested in, I would tell him: “Look, particularly because you are very heavily exposed to the insurance business, why don’t you engage actively into more ESG of responsibility? Because it may backfire on you one day, in your insurance business. You may be caught by not having an integrated policy where you pursue profitability but also take care of people and the planet.”

President Joe Biden is asking Congress to approve hundreds of billions of dollars to remake transit infrastructure in the US in a plan that the White House says will fight climate change. What do you think of this kind of package?

It’s not enough to hold only corporations responsible. I think we have a common responsibility, all stakeholders of global society, which means corporations have to absolve a lot of their responsibilities in this respect, but it’s also us individual consumers, and it’s the government.

And the government has to contribute to fighting climate change by creating the necessary incentives and also disincentives. I think there are still too many governments around the world that provide subsidies for activities that actually are damaging the climate. And I think we need the government to step in to build the necessary infrastructures.

What we need is an integrated approach. We cannot fight climate change by doing here a little bit, there a little bit. We need to have an integrated ecosystem approach. And I think here the government has a major role to play, to provide the kind of integrated vision for the future.

Going back to the corporate world for a minute: Doesn’t the case of Danone and the recent ousting of its CEO show that focusing on ESG metrics can lead to a nonconfidence vote of shareholders?

Yes, so we have the famous case of Danone. The CEO was ousted and the criticism was that he has been devoting his time and his attention much too much to the ESG dimension, and not necessarily giving sufficient attention to his shareholders. But I think that’s a wrong dichotomy.

We shouldn’t make an artificial polarization between profitability on the one hand and people and the planet on the other hand. I think the art of good management today is to create the right balance and not to be too much just keeping in mind stakeholders or shareholders. I’ll give you a practical example – if we compare Danone with Unilever.

Unilever is certainly recognized worldwide as a company that is at the forefront of ESG thinking, but at the same time the share price of Unilever has doubled more or less in the past 10 years. The share price of Danone has quite had some difficulties, especially over the past year. Shareholders are also stakeholders. Unilever is an example that you can give [attention] to your shareholders as well as your other stakeholders.

What company stands out to you as doing especially well when it comes to tackling climate change?

I’m looking at the hardest-hit companies, hardest in terms of those being confronted with a major need for transformation. Here – if I look at the oil industry – I take as an example Total, the French oil company. Total is one of the 70 companies that the World Economic Forum brought together to commit to report on the ESG metrics we have developed with the International Business Council, under the guidance of Bank of America’s CEO, Brian Moynihan, together with the Big Four audit companies.

If we’re talking about persons, I would say Bill Gates. I just read his newest book [“How to Avoid a Climate Disaster”]. I think he has a very great contribution to offer us. Because he says, “Look, we need a systemic approach to fight climate change. Even if we take all of our goodwill, it will not be enough. What we need is innovation.”

He talks about how in order to decarbonize the world or to make it carbon-neutral by 2050, a lot of new technological progress has to be achieved. Our present technology does not suffice to get to the target in 2050. So I see here a great opportunity because we can move into an age of green innovation.

Many people have a tendency to see our fight against climate change as a cost, as something that is negative. Yes, it may be to a certain extent, but it’s also a great opportunity.

If I look at the young generations – the World Economic Forum has a community of 10,000 young leaders – if I talk to them, they have a different mindset. They have a different picture of the world.

It’s not only the material dimension, income, or GDP. It’s well-being. And climate change is interconnected with pollution. It’s interconnected with life expectancy. It’s interconnected with a lot of health issues. So if we want to invest in our well-being, then we have to invest in fighting climate change.

Recently, a number of major corporations such as GM and Apple have made pledges to go carbon-neutral – GM by 2040, and Apple by 2030. Do you think these timelines are realistic? And are they fast enough?

We speak about a carbon-free world by 2050. That’s the objective of the Paris Agreement. Most countries have subscribed to this objective. And many, many companies have now also issued statements that they would achieve carbon neutrality.

Now, we have to be aware that the situation is not the same for each company. We have the energy companies – the Exxons, the Chevrons, and so on – that will have much more challenges to reach this objective of carbon neutrality in 2050, compared to Google, or even a car manufacturer that understands the technology to make this transformation to the electric car.

So it’s good if companies that have fewer challenges, such as the high-tech companies, provide an example by setting very ambitious objectives. But again, I come back to this: Setting objectives is not enough. Being measured in the execution is important, and here the ESGs come in again.

Do you think the energy-sector companies such as Chevron and Exxon have fully bought into the stakeholder-capitalism model? Have they bought into addressing climate change?

I would answer that in the following way: If they haven’t bought in yet, into the stakeholder concept, they are on the wrong side of history, because I’m deeply convinced that we are now really at an inflection point where society as a whole does not tolerate any more companies that are damaging nature or that are not upholding diversity and social justice.

I think we have a completely new social consciousness. We now also have a world where every deficiency can be reported very fast, and that can create a negative reaction. So if I were Exxon or a company that’s really challenged – we should not forget, these companies need a complete transformation of their business models – I would commit to the stakeholder concept, but would also try to create understanding in the public. For me, being in the energy sector, it may be much more difficult compared to a company that’s already producing products that do not necessarily damage the environment. So it’s a communications effort.

How are you feeling about the corporate fight to tackle climate change? What, if anything, are you excited about?

I’m really excited because, as I just mentioned, we have a new mindset. We have a new social consciousness. People like Greta Thunberg got very aware that something is wrong here in our lifestyles – that either we will have to suffer down the road or our children will have to suffer.

So we are now in a situation where climate change, or the attention given to climate change, provides a higher sensitivity for other deficiencies that we have.

I mentioned already a lack of inclusion, a lack of social justice, a system that is not necessarily fair in providing everybody with the necessary opportunities. And I think the pandemic has contributed to this new alertness, to this new sensitivity. Some people may say this is inconvenient because we pinpoint weaknesses in our society, but it’s a wake-up call to adapt and to make sure that we have better lives. That’s what we’re fighting for.

Read the original article on Business Insider

Warren Buffett’s focus on shareholders over the planet could ‘backfire’ on him, said World Economic Forum’s executive chairman

warren buffett
Warren Buffett. REUTERS/Rebecca Cook

  • Klaus Schwab, executive chairman of the World Economic Forum, said he wants to talk to Warren Buffett.
  • He said Buffett’s focus on shareholder profitability over the planet may one day backfire.
  • Buffett has previously said companies should stop making decisions based on social beliefs.
  • See more stories on Insider’s business page.

Warren Buffett caught the attention of the World Economic Forum’s Executive Chairman Klaus Schwab, who said he’d like to “have a discussion” with the billionaire investor.

Last year, Buffett said companies should focus on creating shareholder value, and not invest in social causes like climate change. “This is the shareholders’ money,” he said.

But Schwab said companies should strike a balance between profit, people, and planet. He said if given the opportunity, he’d tell Buffett, “Look, particularly since you are very heavily exposed in the insurance business, why don’t you engage actively into more ESG (environmental, social and governance) responsibility, because it may backfire to you one day in your insurance business.”

Schwab said Buffett, who runs Berkshire Hathaway, a holding company whose core business segment is insurance, “may be caught by not having a integrated policy where you pursue profitability, but also you take care of people and the planet.”

Read more: Warren Buffett didn’t mention SPACs, crypto, or meme stocks in his annual letter. Buffett scholar Lawrence Cunningham explains how the billionaire still managed to warn investors about them.

Schwab, the author of “Stakeholder Capitalism: A Global Economy that Works for Progress, People and Planet,” spoke to Insider during the forum “Act to Impact: Keeping Our Promises to the Planet.”

Buffett did not immediately respond to Insider’s request for comment on Schwab’s message. The investor told the Financial Times previously with regard to companies spending on social issues like climate change that, “Many corporate managers deplore governmental allocation of the taxpayer’s dollar, but embrace enthusiastically their own allocation of the shareholder’s dollar.”

Insider previously reported Buffett spent about $30 billion on wind turbines and related infrastructure in Iowa, but he said it was only because of a production tax credit.

Schwab said the “art of good management today is to create a balance” between shareholders, and stakeholders, as in society as a whole. He said for companies not buying into the stakeholder concept, they’re going to be “on the wrong side of history.”

Read the original article on Business Insider

Closing the global gender gap will take an extra 36 years due to the impact of the pandemic, the World Economic Forum said

Hundreds of women gather in Russell Square for the Women's Strike Assembly on International Women's Day on 8th March 2018 in London, England, United Kingdom.
Hundreds of women gather in Russell Square for the Women’s Strike Assembly on International Women’s Day on 8th March 2018 in London, England, United Kingdom.

  • Closing the gender pay gap will take an extra 36 years, the World Economic Forum said Tuesday.
  • The prediction has climbed from 100 years to 136 years because of the impact of the pandemic.
  • 5% of all employed women lost their jobs during the pandemic, compared with 3.9% of employed men.
  • See more stories on Insider’s business page.

Achieving global gender parity will take an extra 36 years because of the coronavirus pandemic, a World Economic Forum (WEF) report said.

Previously, the WEF estimated that the gender pay gap could take around 100 years to close. It’s now increased its prediction to nearly 136 years.

“Preliminary evidence suggests that the health emergency and the related economic downturn have impacted women more severely than men, partially re-opening gaps that had already been closed,” the report said.

The WEF calculated worldwide gender parity through economic participation and opportunity, political empowerment, health and education across 156 countries.

It will take around 146 years to attain gender equality in politics, and 268 years for men and women to get the same salary for similar work, the report said. It added that the data doesn’t yet fully reflect the impact of the pandemic, which could extend the gaps further.

Gender parity has improved in the education sector, taking another 14 years to completely close, and the gap in health between men and women will take a similar amount of time.

The WEF report cited the International Labour Organization (ILO) that said 5% of all employed women lost their jobs during the pandemic, compared with 3.9% of employed men. There was also a decline in hiring women into senior positions, according to LinkedIn data.

“There is a persistent lack of women in leadership positions, with women representing only 27% of all manager positions,” the report said.

Sectors such as cloud computing, engineering, data and AI are more likely to have gender gaps as the uptake of women for these kinds of jobs is fairly low, the WEF added.

Read more: Here’s how to find out if you’re underpaid at work, and the exact script to use when asking your boss for a salary increase

WEF managing director Saadia Zahidi wrote in the report: “The hardest-hit sectors by lockdowns and rapid digitalization are those where women are more frequently employed.”

“Combined with the additional pressures of providing care in the home, the crisis has halted progress toward gender parity in several economies and industries,” she said.

Zahidi added that she hoped the report would be a “call to action” for countries to focus on gender equality in the post-pandemic recovery.

According to data from the Bureau of Labor Statistics, average weekly earnings for men who were older than 16 and working full-time was $408 compared to $251 for women – that’s 61.5% of a man’s weekly earnings. This has increased to 81.7% in the third quarter of 2020.

Insider reported in March that the gender wage gap in the US varies widely by state, city and race, with Black and Hispanic women facing the largest pay gap in comparison to non-Hispanic white men’s earnings.

Read the original article on Business Insider

Bank of America, KPMG, Mastercard, and some 60 other top companies adopt new ESG metrics

Brian Moynihan, the chief executive of Bank of America.
Brian Moynihan, the chief executive of Bank of America.

  • Some 60 major companies have agreed to adopt a new ESG reporting framework. 
  • ESGs are metrics that measure a company’s environmental, social, and governance progress. 
  • The effort is being led by the World Economic Forum and the International Business Council, run by Bank of America CEO Brian Moynihan. 
  • Visit Business Insider’s homepage for more stories.

Executives from Bank of America, Mastercard, KPMG, and about 60 other large companies announced Tuesday they’ll be adopting a new reporting framework for environmental, social, and governance standards (ESGs) in partnership with the World Economic Forum. 

Other companies that have signed on to this reporting framework include Salesforce, Unilever, Dell, and Sony. 

ESG standards are a set of criteria used to measure a company’s performance on things such as how the company is impacting the environment (like its amount of toxic emissions), how it manages relationships with its employees (does it encourage employees to volunteer), and how the company runs internally (boardroom diversity).

If widely adopted, these standards, called “Stakeholder Capitalism Metrics,” have the potential to transform what it means to operate a large corporation. It could make it standard procedure for a major company to report its ESG metrics, just like it’s standard (in fact, required) for a company to report on its financial metrics. 

Many in the business community see ESG metrics as a concrete way to advance stakeholder capitalism, the leading economic theory today that says companies are responsible to all stakeholders, including their employees, customers, the environment, as well as their shareholders. 

“We have to deliver great returns for our shareholders and help drive progress on society’s most important priorities,” Brian Moynihan, CEO of Bank of America, and chairman of the International Business Council, said in a statement. “That is stakeholder capitalism in action.”

The next step in a trend

In September, the World Economic Forum and the International Business Council (IBC), run by Bank of America CEO Brian Moynihan, partnered with “the Big Four” accounting firms to create the reporting framework of 21 ESG standards. The big four – Deloitte, PwC, EY, and KPMG – provide financial auditing and other professional services. 

Insider recently spoke with Klaus Schwab, World Economic founder and executive chairman, about the more than 60 companies signing on to these metrics. 

“At the moment you have a situation where a company reports mainly about their intentions. Now we have to walk the talk,” he said. 

Read the original article on Business Insider

HRH The Prince of Wales unveils new sustainability charter, backed by the likes of Bank of America and AstraZeneca

Prince Charles
Britain’s Prince Charles, Prince of Wales, delivers a speech at the World Economic Forum during the World Economic Forum (WEF) annual meeting in Davos, on January 22, 2020.

  • His Royal Highness The Prince of Wales announced Sunday the creation of the ‘Terra Nova’ – a charter giving businesses a roadmap to a more sustainable future.
  • The charter is backed by some of the world’s biggest businesses, including: Bank of America, BlackRock, Unilever, AstraZeneca and BP.
  • Prince Charles’ has also launched the new ‘Natural Capital Investment Alliance’ which aims to target $10 billion by 2022
  • Visit Business Insider’s homepage for more stories.

His Royal Highness The Prince of Wales has unveiled a new sustainability charter, named “Terra Carta,” backed by leading international businesses, including Bank of America, BlackRock, Unilever, AstraZeneca and BP.

The charter, designed by Apple’s former Chief Design Officer Sir Jony Ive, is a 10-point roadmap to 2030 for businesses, supporting the likes of the Paris Climate Agreement. With nearly 100 actions for businesses, the plan should act as a “basis of a recovery plan that puts Nature, People and Planet at the heart of global value creation,” according to a press release. Each actor was given a framework for their individual plans, it said. 

This publication is the latest endeavour by Prince Charles to support sustainable practices in the private sector, following his speech at Davos in January 2020 and the creation the Sustainable Markets Initiative.

“The ‘Terra Carta’ offers the basis of a recovery plan that puts Nature, People and Planet at the heart of global value creation – one that will harness the precious, irreplaceable power of Nature combined with the transformative innovation and resources of the private sector,” HRH The Prince of Wales will say at a One Planet Summit event.

Read more: Morgan Stanley picks the top 90 global sustainability stocks that will soar as economic recovery gets underway – including one with an upside of 137%

Read more: Lazard’s top ESG stock-picker outlines the 3-part strategy he’s used to beat 75% of his peers and smash his benchmark without paying Tesla-like prices

One of the initiative’s aims is to drive investment into Nature-based and engineered solutions that address the climate and biodiversity crises. To that end, Prince Charles’ SMI created the Natural Capital Investment Alliance, which seeks to increase natural capital allocation by $10 billion by 2022.

Natural capital is the term used to describe the stock of combined resources that make human life on Earth possible. For example, plants, animals, minerals, soil, air and water.

The alliance, founded alongside HSBC Pollination, Lombard Odier and Mirova, will also pursue natural capital investment through corporate offsetting and carbon pricing prospects.

Terra Nova’s supporters already include some of the biggest businesses in the world, with Brian Moynihan, Bank of America’s CEO and Chairman, calling it “a comprehensive roadmap for the private sector to help drive toward a sustainable future.”

“By aligning development objectives within our operating models the private sector can marshal the resources that will be needed to reach the development goals.  HRH Prince of Wales’s leadership and commitment has created a spirit of possibility that business leaders are proud to join,” he added.

Read more: Jessica Alsford built Morgan Stanley’s ESG research unit from the ground up. Here’s how she advises clients on using ESG in their portfolios – along with 4 sustainability trends to watch.

Read more: A Refinitiv research chief outlines 6 key investing themes that will drive markets in 2021 – and explains how you can capitalize on each within your portfolio

The charter’s commitments include:

  • Commit to rapidly accelerating the world’s transition towards a sustainable future.
  • Recognize that ensuring the integrity of all ecosystems, on land and under water, requires that climate, oceans, desertification and biodiversity be treated as one common system and addressed simultaneously.
  • Acknowledge that we need to make health our goal; individual health, community health, economic health and the health of our Natural resources (e.g. soil, air and water).
  • Recognize the importance of ‘local’ – local traditions and culture, local products, local jobs and local sustainability – and how these ‘locals’ connect and support each other in the wider tapestry of regional and global systems.
  • Acknowledge that Nature underpins the inherent prosperity, wellbeing and future of all people and the one planet we share.  Further, that the restoration of the natural world is of common benefit to all humankind irrespective of borders.
  • Acknowledge that the required global trajectory is a sustainable one, where the private sector has a critical role to play.  To accelerate along this trajectory, a ‘future of industry’ and ‘future of economy’ approach must be taken.
  • Take into account the need to ensure a skilled workforce and cadre of leaders that are prepared to participate in a fair, equitable and just transition towards a sustainable future.
  • Recognize that to scale sustainable solutions and investment, cross-border and longer-term ‘mega’ projects need to be explored underscoring the importance of public, private and philanthropic collaboration.
  • Acknowledge the need for net zero commitments to be achieved by 2050 or sooner.  Setting more ambitious timelines, such as 2035, emphasizes and catalyzes immediate action, continuous innovation and improvement.
  • Undertake to collaborate, share knowledge and ideas to propel the world towards sustainability at a faster pace through public, private and philanthropic collaboration.

Read more: What does the Democratic sweep actually mean for investors? We spoke to 5 investing experts to find out how to make the most of Biden’s blue Congress

Initial Supporters of the Terra Carta include: AstraZeneca, Fidelity International, Bank of America, freuds, Jony Ive/LoveFrom, Refinitiv, Manyone, Heathrow Airport, Coutts, IIGCC, HSBC, Schroders, EY, BP, Macquerie, State Street, Pollination, Lombard Odier, Mirova, Drax Group, Eurasia Resources Group, EFI, Compass Group, ReNew Power, Polymateria, CCm Technologies, Lanzatech.

 

Read the original article on Business Insider