Climate Action: How is Finance Leading the Charge?

Vincent Manier, Chief Financial Officer at ENGIE Insight

A few weeks ago, ENGIE Insight’s CEO Jana Schmidt shared a blog outlining some of the major market drivers impacting businesses related to climate action. The COP 21 summit in Paris helped ignite the corporate world’s desire to proactively address climate change. While Jana spoke to the influential role many corporations are playing, what I have found most interesting is the leadership assumed by these companies’ finance professionals– not only to maintain a focus on climate action, but to drive top-down sustainability commitments within their organizations.

This is perhaps unsurprising when we look more closely at the Paris Agreement negotiated at COP 21. Article 2 (shown below) identifies finance as the third lever in combating climate change, following mitigation and adaptation, particularly “making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development”.

Over the past three years, the financial community—including CFOs, investors, shareholders, lenders, insurers, credit-rating agencies, coalitions and think-tanks—have been at the forefront in leading this charge. Leveraging effective financial management strategies to address climate change sounds great in theory, but in practice, what does it mean?

The Financial Community in Action

Financial leaders have supported or driven numerous actions to align business practices with energy and sustainability management, including:

  • Divestments: Major institutional investors are taking radical actions (see RBF, the Rockfeller Brother Funds or Norway’s huge sovereign wealth fund) to divest from fossil fuel assets and accelerate their investments in renewables.
  • Capital reallocation: Following other leading banks such as Bank of America, Morgan Stanley, JP Morgan Chase, and Citigroup, Deutsche Bank has just announced it would halt financing coal-mining and coal-fired power plants and gradually reduce its existing exposure to the thermal coal mining sector. This coincides with the green bond market doubling to $81 billion between 2015 and 2016, with the same level of growth expected in 2017.
  • Disclosures: In his powerful speech, ”Tragedy of the Horizon,” Mark Carney, Chairman of the Financial Stability Board and Governor of the Bank of England, turned the conversation about climate risk into one focused on financial stability risk. He recently called for more disclosures under the Taskforce for Climate-related Financial Disclosures (TCFD). Meanwhile, the CDP—a not-for-profit global disclosure firm—has united 827 investors with $100 trillion in assets to request more transparency from corporations on their climate change exposure.
  • Activism: Shareholders are also turning up the pressure on corporate practices concerning climate change. In North America, shareholder resolutions related to environmental impact increased by more than 50 percent over the past three years2. Their influence led to real policy change, from Archers Daniel Midland beginning to source deforestation-free palm oil and soy to Colgate-Palmolive Co. adopting science-based GHG (greenhouse gas) goals.

Beyond the actions themselves, what I find really encouraging is how quickly we’ve seen tangible results.

What Does the New State of Energy Mean for Corporations, Particularly CFOs?

The energy industry is experiencing a multifaceted revolution, driven by the transition to a low-carbon economy, deregulation, decentralization and technology. Why, then, does a finance leader need to care about this new state of energy? Simply put, organizations cannot afford not to be energy-efficient and not to understand, measure, mitigate and communicate their climate-related risk exposure.

With expanding regulation around carbon reduction and reporting, advances in technology such as the Internet of Things (IoT), machine learning, and evolving stakeholder expectations, it’s clear that finance leaders must take measures to proactively comply, adapt and take advantage of the energy revolution – and, from the CFO to Controllers to Treasury leaders, everyone has a critical role to play.

The topic of climate change is dynamic, leaving many confused and uncertain as events unfold—including potential changes to the carbon tax policy. Over the next few months, I will be diving deeper into issues related to risk management, compliance, existing opportunities and innovations as they impact finance professionals. This series is intended to enrich your understanding of the “greening” of finance, providing you with guidance as you explore the major implications for your organization. I hope it will also clarify how, as business and finance professionals, we can continue to take the lead on implementing energy and climate-related efforts for our organizations.

The next installment in this series will take a close look at “The New Game-Changing Finance Landscape” —a topic challenging many finance professionals today. Check ENGIE Insight’s website to make sure you don’t miss out!

1Climate Bonds
22013 – 2015 evolution of North American shareholder resolutions related to climate change according to Ceres report

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