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Companies need 'granular pathways' for sustainability but who's paving them?

Jovi Ho
Jovi Ho10/6/2021 05:23 PM GMT+08  • 8 min read
Companies need 'granular pathways' for sustainability but who's paving them?
"I can tell you not one of us has a clue of how we are going to get there."
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As chair of the World Business Council for Sustainable Development, Sunny Verghese has spoken to at least 250 CEOs. They tell the co-founder and group CEO of Olam International about their sustainability targets: they have signed and committed to the science-based targets of 1.5-degree reduction and to get to net zero by 2050.

But confidence among those executives ends there. “I can tell you not one of us has a clue of how we are going to get there,” says Verghese.

“We have all put out these commitments of what we will do by 2030 and 2050. But the granularity of the pathways and how we are going to get there is extremely flimsy and does not give us the confidence that we can see through those commitments,” he adds.

Verghese’s comments came on the first day of Temasek’s Ecosperity Week 2021, a hybrid event held at the Marina Bay Sands from Sept 28 to 30.

His gripes resonated among the corporates present, with grouses over the lack of a “granular pathway” repeated at various panels over the following days.

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At the same panel, Verghese’s comments were echoed by Piyush Gupta, CEO of DBS Group Holdings. “In banking, since we deal with every sector, our Scope 3 emissions include the emissions of every sector. I have to get the same degree of transparency for steel, aviation, transportation, real estate, property, everything.”

Scope 3 emissions refer to all indirect emissions that occur in a company’s value chain. “This lack of methodology, of a good set of tools, means it is extraordinarily difficult for me to try and figure out what my Scope 3 is. It’s very complicated,” says Gupta.

From left: SGX’s Herry Cho, DBS Group’s Piyush Gupta and Olam International’s Sunny Verghese at Temasek’s Ecosperity Week 2021 on Sept 28

As companies work to clean up their act, Gupta also highlighted how abstract transition pathways can be. “I think there’s a lack of global clarity on what are acceptable transition pathways. Depending on whom you talk to and how you look at it, you could choose one of 100 different transition pathways to get from where you are today to your 2030 or 2050 goals.”

He raises the example of coal — the favourite whipping boy of ESG proponents. “So, you move from dirty coal to clean coal, from clean coal to gas, from gas to something else? Is that an acceptable transition pathway or not? Depending on whether you’re sitting in Australia or Germany, depending on socio-political realities, the acceptable transition pathways are very varied,” adds Gupta.

Australia is one of the world’s largest coal producers, while coal is the largest power source in Germany.

What do regulators think? At the same panel, Herry Cho, managing director and head of sustainability and sustainable finance at the Singapore Exchange (SGX), acknowledged that companies may be mired in navigating the nascent sector.

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“It’s a very complex language. There are so many acronyms [and] it can be archaic. So, it has to be translatable for leaders here to be able to implement and spearhead [sustainability], to drive and build capacity.”

Absolute emissions reduction is easier said than done, says Cho, but this is now part of corporations’ responsibility. “These are all part of that high-level corporate strategic direction and thinking that the leaders in this room must spearhead and drive within their firms. If companies don’t have that broader perspective of what is the credible pathway, then it’s very easy to do greenwashing without even realising it.”

But companies face another problem when putting their nose to the grindstone, says Verghese, as carbon measurement is neither trusted nor robust.

“All of us measure our carbon footprint through a lifecycle analysis methodology. It is a complex methodology; it takes time and is not very accurate. If you appoint two consultants to do analysis and carbon footprint measurement for your company, the two will come up with very different results,” says Verghese.

After nine years of using this methodology, Olam has switched to a “technology-first solution”, says Verghese. The company was in for a “big surprise”; against a baseline of 78 million tonnes of greenhouse gas emissions in 2020, Olam was shown to emit 91.8 million tonnes under the new measurement system — up 34%.

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Given the way things are, Verghese charged that the world has “no chance” of achieving the UN Sustainable Development Goals (SDGs) — 17 goals set to be achieved by 2030. “I’m not trying to be cynical or pessimistic here, but we are already five years into that program and no country is on the trajectory of achieving the UN SDGs. We also have no chance of limiting global temperature to below one and a half degrees, and again, 195 countries signed up to it.”

“It is really about ‘How do we get this done?’” says Verghese. “What are the rewards and penalties for not getting it done?’”

Verghese’s takedown of such “grand pronouncements” comes as governments prepare for the 2021 United Nations Climate Change Conference, or COP26, starting Oct 31.

His comments echo those of teenage climate activist Greta Thunberg, who has been sceptical about the coming conference.

“Nothing has changed from previous years, really,” Thunberg told The Guardian. “The leaders will say, ‘We’ll do this and we’ll do this, and we will put our forces together and achieve this’, and then they will do nothing. Maybe some symbolic things and creative accounting and things that don’t have a big impact. We can have as many COPs as we want, but nothing real will come out of it.”

The climate police

While Verghese called for greater clarity and regulation, BlackRock’s Larry Fink shied away from bearing the mantle of “the climate police”. Speaking at a separate plenary at Ecosperity Week 2021, the chairman and CEO of the world’s largest asset manager pulled focus away from large corporations like his own.

“If governments are only asking public companies to move forward — mostly large companies — then we’re going to be asking the large companies to be the climate police… I don’t want to be the environmental police, I don’t want BlackRock, because we’re a large investor, to be telling every company that’s not moving forward, ‘We’re going to divest of all your shares.’ That’s not a good outcome; we need to be moving forward together,” says Fink.

Fink also called for more multilateralism while sharing Verghese’s pessimism. “There is a greater need, more than ever, for global political leadership. I’m pessimistic in the short term about that notion. I am optimistic that I see great leadership at the corporate level right now and they’re moving very rapidly. I’m not as optimistic seeing governments coming together and finding solutions.”

According to Fink, public companies will still place their bottom line above all else, with active financial management coming into play. “We’re beginning to see arbitrage — public companies are selling their dirtiest hydrocarbons so that the company looks much better. But the carbon footprint of the world hasn’t changed; it’s now even more opaque.”

The ‘easy part’

As the world faces mounting deadlines, today’s green options may not be enough for tomorrow. Until the world gets to zero emissions, global temperatures will keep rising, says Bill Gates.

“I think the climate movement got very focused on near-term reductions: what could be done by 2020, then 2030. If you’re going for a nearterm goal, you’ll tend to take the easy part.”

Speaking at another plenary, the co-chair of the Bill and Melinda Gates Foundation said the “easy part” would be driving electric cars or generating up to 80% of our electricity using wind and solar. “That is where we can make the most progress in the shortest time.”

“The hard areas, like how we make steel, cement and beef; how jets make long trips or cross-ocean shipping takes place; I think we were grossly underinvested in these hard areas,” says Gates. “The clarifying benefit of this net zero goal is that it says to people, ‘No, those other areas aren’t optional.’”

From here, innovation may be the world’s way out. As Fink quips: “The world does not need another food delivery service. The new unicorns are going to be related to sustainability.”

“Changing our physical economy with a deadline for doing it — this is the hardest thing humanity has ever had to do,” says Gates. “There are experts in this space who remind us that we’re not yet at the pace we need. There is no historical precedent for what we’re trying to do here.”

Photos: Temasek

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