- WEF founder Klaus Schwab said corporate leaders today have a “new mindset” around climate change.
- He said more corporate leaders will likely embrace the ESG movement.
- The comments were made during Insider’s “Act to Impact” event, presented by Deloitte, on April 20.
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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.