As President and CEO of Ceres, Mindy Lubber is a world-leading voice on sustainability and finance. She tells Laurence Eastham why the private sector must act now on climate change or risk being left behind.
Ceres has been there from the very start. The sustainability advocacy organisation, founded in the wake of the Exxon Valdez oil spill of 1989, has been pushing for companies to change their behaviour before many would consider listening. And for Mindy Lubber, CEO since 2003, the acceleration in corporate attention has been remarkable to witness.
“Seventeen years ago, when we invited the world’s financial leaders to attend a UN seminar on climate risks, they wanted to send their interns. There was no connection to the fact that sustainability was a material financial risk and impacted the bottom line” says Lubber. “Now, companies and investors realise they need to act on climate. Both as a matter of values and as a matter of the planet and economy. When we ask a company to commit to net zero, they’re not rolling their eyes and saying it’s impossible.”
The organisation has grown similarly, empowered by the shift in attitudes and an increasing ability to effect change. Ceres advises around 120 companies on integrating sustainability into their operations. And it currently counts 575 investors, representing $54trn (£38.5trn) in assets under management, as part of its Climate Action 100+ initiative to lobby a target list of 167 companies on governance, emissions and disclosures. That’s up from the 225 investors and $26trn at launch in December 2017.
“There have been some lightning rods over time,” explains Lubber. “When you see $20bn (£14.2bn) in storm damage in one year, for example, it becomes a bottom-line financial issue. I think the reality of questions around sustainability and their connection to finance has become more clear. And the pandemic has been the latest lightning rod. What we learned from the pandemic is the interconnectedness of public health and the economy.”
There’s another factor in the direction of global travel that shouldn’t be overlooked: the election of Joe Biden as US President. The return of the Democratic party to the country’s highest office has also meant the return of sustainability to domestic and international policy after a four-year hiatus. It was an important missing link in the chain at a time when consumer, investor and executive sentiment was becoming ever-more closely aligned.
“I don’t think I can overstate the difference between an administration that asked the Environmental Protection Agency not to use the words climate change, and wanted to ignore it, and an administration that has said every single agency of federal government must be assessing their suppliers and contractors, ” says Lubber. “They’re not only talking the talk, they’re walking the walk.
“We work daily with regulators. It used to be just the Environmental Protection Agency or the Department of Energy. But since the new administration has come in, almost every meeting is with the Securities and Exchange Commission, the Federal Reserve Board and the Department of the Treasury, all of whom are seeing climate risk as a material financial risk affecting our economy. As a result, over the next couple of years, we will be seeing new regulations as well as the need for voluntary standards.”
Standard-setting is yet another area where Ceres has long been ahead of the curve. The organisation founded the Global Reporting Initiative (GRI) in 1997 with the support of the United Nations Environment Programme. The GRI launched its first set of guidelines three years later and has since become the world’s most widely adopted sustainability reporting framework. In 2021, nearly three-quarters of the world’s 250 largest companies are using the GRI.
Despite the GRI standards’ popularity, sceptics typically point to the fractured landscape of sustainability reporting as discouraging more widespread adoption. They say there are too many reporting frameworks and too little comparability between them. That’s all about to change, though. Late last year, the GRI and four other leading standard-setters announced their intention to harmonise their reporting frameworks. Either way, Lubber thinks the naysayers are just grasping at straws.
“I don’t want to wait five-to-10 years for the solution,” she says. “And I would argue that it’s sometimes an excuse – ‘we don’t know which is the best standard so we’re not going to act’. Companies are very smart and have large numbers of people. They can figure out how to look at the most material ESG issues and set goals.
“We are arguing to the Securities and Exchange Commission in the US that there should be mandatory reporting. If something rises to the level of material risk – where it really is a risk to our economy – then it doesn’t make any difference whether it’s ESG, inflation or currency risk. Climate change is an example of a material risk. And I would argue that diversity is one: if you have a company and a board that doesn’t reflect the world around you, you’re going to be less able to look at the world around you.”
As Lubber suggests, sustainability is just one area of widening expectations around the private sector. Consumers and investors are increasingly voting with their wallets – they want to know that their money is funding companies that have expressed values that align closely with their own. The height of the Black Lives Matter movement last summer was the first litmus test of the era of conscious capitalism – would companies be able to respond sensitively, credibly and at pace?
“CEOs are telling us every day that they’re being asked to opine on hundreds of matters. They weren’t before. And they’re clearly picking and choosing, but they are seeing their role as trusted leaders in a different way,” says Lubber. “Black Lives Matter became a societal issue, as it should. Any company that did not stand up, speak out and agree to change what they were doing was a company that lost ground. And consumers are responding favourably, as are employees, when companies stand up on some of the most important issues of values and democracy.”
In this vein, Lubber’s advice to the CEO of today is to not wait for change or leadership to emerge from some external source: “You need to be proactive and, if you’re not, you’re going to get caught up short by the 575 global investors we work with. They want to hear how companies are addressing climate risk and water risk. If you’re not looking at some of the biggest challenges to our economy, then you’re not doing your job as CEO, CFO or financial analyst.
“We are witnessing a mini revolution. The world of finance is waking up to the fact that these issues will profoundly impact every sector of our economy in a material way. And it will be integrated into financial analysis in every sector. That’s new – it didn’t even exist as an assumption a year ago – but it will be the way forward. And anyone in accounting needs to understand that it is not a theoretical risk to our economy.”