Schroders CEO Calls for Climate ‘Impact-Adjusted Profits’

(Bloomberg) --

A recurring theme at the two-day Bloomberg Sustainable Business Summit was almost continuous calls from bankers, academics and at least one chief executive officer for better corporate disclosures on climate change.

Schroders Plc CEO Peter Harrison put it most bluntly, and took aim at his own industry while doing it. Money managers, he said, need to be more aggressive in tracking the impact of environmental and societal events on corporate earnings and their investments. Harrison went on to say that he supports the introduction of something he called “impact-adjusted profits.”

“We are at a transformational moment in the history of the asset-management industry,” he said, adding that investors can use “big data” to get a clearer picture of externalities that affect a company’s bottom line.

While investors once focused only on profits, “we are at a new juncture and we need to go a step further,” Harrison said. “Not all profits are created equal.”

The transition to a low-carbon economy is engendering a widespread reassessment of asset values, and transparent climate information will be critical for investors to assess which companies will thrive and which will be left behind, said Mark Lewis, global head of sustainability research at BNP Paribas Asset Management.

Lewis said the Taskforce on Climate-related Financial Disclosures (TCFD) is “helpful for us as investors to see which companies are taking these risks seriously.” With the information, shareholders and bondholders can ask more informed questions and get to the answers more quickly than they would have otherwise, he said.

The declarations enabled under the TCFD are invaluable for banks as they “provide commonality” amid a plethora of national reporting standards, said Zoë Knight, managing director and group head of the HSBC Centre of Sustainable Finance.

BNP’s Lewis said disclosures are critical now because this is the first year when wind and solar account for most of the new global capacity for electricity generation, a Rubicon that has led to a realization in financial markets that “the fossil-fuel era has come to an end.”

Fred Krupp, president of the Environmental Defense Fund, said countries including the U.S. won’t be able to meet their net-zero carbon-emissions targets without implementing federal policy. Meanwhile, he is pushing for businesses and non-governmental organizations to align with trade associates to set achievable goals.

“The most powerful tools a company has is their political influence,” Krupp said. “Having a science-based target is good, but a science-based target policy agenda to match is essential.”

Walmart Inc., the world’s largest retailer, arguably has some of that influence. The company remains on track to cut 1 billion metric tons of emissions from its global supply chains by 2030, according to Kathleen McLaughlin, its chief sustainability officer.

At the Bloomberg summit, she said the retailer has made progress with its “Project Gigaton,” which was started in 2017 to encourage suppliers to reduce greenhouse gas emissions through things like packaging, waste avoidance and product design. Walmart has sought to democratize climate action, McLaughlin said, by including both large and small suppliers in the effort.

Sustainable finance in brief

• BlackRock, led by Laurence Fink, who famously committed to fight climate change, has supported few shareholder climate and social resolutions.

• Bonds aimed at heavy corporate greenhouse gas emitters are set to roll out next year.

• A team at Harvard University has crystallized just how many ways Milton Friedman was wrong about a lot of things.

• Bank of America says it won’t finance oil and gas exploration in the Arctic.

• Three billion people live in farming regions that are suffering from water shortages.

Bloomberg Green publishes the Good Business newsletter every Wednesday, providing unique insights on climate-conscious investing and the frontiers of sustainability.

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