Once again President Trump has taken the world by storm by announcing that the US is withdrawing from the painstakingly put together 2015 Paris climate agreement with Trump saying the accord “punished” the US and would cost millions of American jobs. In an address at the White House, he said he was prepared to negotiate a new agreement or re-enter the accord on improved terms. His decision has been greeted with widespread international condemnation and even some members of his President Business Advisory Council have resigned in protest with both Tesla CEO Elon Musk and Walt Disney boss Robert Iger doing so while global giants like Google and Facebook said they would continue to work towards a cleaner environmental future .
Long before the Paris deal was signed, many of the world’s biggest companies were addressing their impact on the environment and their role in tackling climate change, and in the hours after the announcement, major firms were quick to emphasise that whatever the US’s official position on the Paris deal, their own environmental focus would remain. Even energy firms, such as ExxonMobil, and Chevron whose businesses have depended heavily on oil and fossil fuels, have long been looking to the future, pouring hundreds of billions of dollars into researching and developing more sustainable, clean sources of energy. Other major producers including BP and ConocoPhillips already publish reports on how rising temperatures would impact their businesses.
It is not only energy companies that are committed to alleviate climate change but those whose business depends on stable weather conditions and that’s why companies like Kellogg and General Mills, which depend on the weather to grow grains to make cereals for example, are looking for ways to protect their supply chain.Dr. Mohamed Ramady
It is not only energy companies that are committed to alleviate climate change but those whose business depends on stable weather conditions and that’s why companies like Kellogg and General Mills, which depend on the weather to grow grains to make cereals for example, are looking for ways to protect their supply chain.
But the issue of “going green” is not only a business decision but is driven by demographics as new and future customers are the millennial generation, which will make up half of the global workforce by 2020. This younger demographic is far more passionate and vocal about social and environmental issues, particularly on social media and company reputation can be made or broken through the use of this new powerful communication medium.
At the same time, shareholders, led by religious and other special lobbying groups , are making their voices heard at company general assembly and voting for more ethical ad environmentally friendly operations and investments. This pressure sometimes works at the national level , with the Norwegian parliament now mandating its national Sovereign Wealth Fund, one of the largest in the world, to invest in socially responsible companies and this changes market perceptions, as fund managers now have to take this into account and change their portfolio mix accordingly.
This bold ethical and transparent sovereign decision , might cost the Norwegian state a loss of revenue in the short term , but is a model that other long term Gulf sovereign Wealth Funds should aspire to. Climate change is now at the front and centre in investors’ engagement. As the oil giants are a standard bearer for the oil and gas industry, analysts are now warning that even smaller companies should take note and respond accordingly.
What can businesses do to join this bandwagon , despite Trump’s rejection, of ensuring economic sustainability and ethical investment , both of which are entwined ? The reason is both pragmatic and ethical; it has been noted that firms following such ethical and sustainable investments produce superior financial returns over time, as investment in their own environmental performance achieves, through better technology, cost savings and process efficiency. This leads to outperformance over the long term, compared to their competitors, both in terms of stock market and accounting performance .
In some countries, banks are now assessing a company’s social and economic responsibility investments before granting loans, by offering lower rates leading to reduced cost of debt and cost of equity. Of course for some companies , especially those in the Gulf dependent on large scale government subsidies , doing nothing is an option but the consequences to reputation and financial risk from environmental disasters could be enormous as evidenced by the long list of fines imposed on companies involved, as well as wiping out significant company value on the stock markets .
Most progressive companies have now instituted ethical investment and socially responsible activities and have hired Economic Sustainability Managers to oversee this at various company level.
The aim is simple: to address the broader economic and other factors beyond mere profit and loss bottom line accounting . Sometimes making that decision is hard as well as converting climate change sceptics within one’s company, but there is no escape from the fact that global weather is changing as seen even in the countries of the Gulf, with the most recent unusual weather patterns.
While President Trump has the right to stress “America First”, it would seem that his latest action is one of “America Alone” .
Dr. Mohamed Ramady is an energy economist and geo political expert on the GCC and former Professor at King Fahd University of Petroleum and Minerals, Dhahran, Saudi Arabia.