Why Japan is One of the World’s Safest Countries
Mairi McLaren
Illustration by Sarameeya Aree
“Without urgent, effective and equitable mitigation and adaptation actions, climate change increasingly threatens ecosystems, biodiversity and the livelihoods, health and wellbeing of current and future generations.” That’s how the U.N.’s Intergovernmental Panel on Climate Change (IPCC), framed the challenge we face—all of us on the planet—in their latest report called the AR6 Synthesis Report: Climate Change 2023.
U.N. Secretary General Antonio Guterres called this report “a clarion call to massively fast track climate efforts by every country and every sector and on every time frame,” and “a how-to guide” in his press conference. Invoking the movie that just swept the Oscars, Guterres said, “In short, our world needs climate action on all fronts, everything everywhere all at once. “
He emphasized that the 1.5 degree Celsius limit is achievable but will take “a quantum leap in climate action,” and much more financial investment.
The IPCC likely did not know that their report would show up at exactly the same time that President Joe Biden would face a Republican-led bill limiting the use of Environment, Social and Governance (ESG) criteria in investing. Biden vetoed that bill, aligning with more than 250 investors and companies who signed The Freedom To Invest statement, declaring that climate’s financial impact is integral to their fiduciary responsibility.
Could ESG expedite addressing the issues in the IPCC report?
The argument from the IPCC is that we urgently need more financial resources, more innovations and more scaling of currently available relevant technologies, such as clean energy. It is also necessary to make our infrastructure much more resilient and address the “acute food insecurity and reduced water security.”
Is leveraging ESG criteria the way? The investors and companies supporting ESG in that statement say it can: “Climate change poses a threat to the safety of our communities and the long-term value creation of the economy, and addressing its risks upholds investors’ fiduciary duty. Rising global temperatures are contributing to extreme weather, deadly heat waves, excessive drought, crop failure, rising sea levels, and other economic and public health catastrophes. Failure to address these growing threats will wreak havoc on our workforces, supply chains, business models, and capital markets.” They add that these risks are “only projected to grow.”
The investors emphasized that mitigating this financial risk and enabling their shareholders to reap the potential financial benefits evolving from addressing the crisis are critical. The International Monetary Fund’s research values the opportunity at “tens of trillions of dollars” and agrees that it is a fiduciary responsibility. It stated that, “Neglecting the robust economic benefits of the clean energy economy—and the substantial public and private investment opportunities that are necessary to achieve this shift—would represent a failure to build a stronger, more resilient U.S. economy and a betrayal of the interests of our stakeholders, shareholders, beneficiaries, customers, and the communities where we do business and live.”
Reducing carbon emissions: E is for Environment
“Limiting human-caused global warming requires net zero CO2 emissions,” the IPCC report states. It emphasized that what everyone is doing today—and have planned to do so far—is not enough.
Fundamental in the criteria of all ESG-related standards and frameworks, including the Securities and Exchange Commission’s (SEC) proposed climate risk disclosure rules, is verifiable reductions in carbon emissions. The SEC announcement said, “The proposed rules also would require a registrant to disclose information about its direct greenhouse gas (GHG) emissions (Scope 1),” as well as the emissions from energy it purchases, or that are emitted by its supply chain (Scopes 2 and 3). Kristina Wyatt, who led the SEC’s task force developing these rules, emphasized this in my interview with her on my Electric Ladies Podcast.
Market forces are pushing this, too. Consider the Glasgow Financial Alliance for Net Zero, announced at COP26 in Glasgow, Scotland, which is “a global coalition of leading financial institutions committed to accelerating the decarbonization of the economy,” and includes about $130 trillion in assets. They say that keeping the earth at or below 1.5°C “requires a whole economy transition. Every company, bank, insurer, and investor will need to adjust their business models, develop credible plans for the transition to a low-carbon, climate-resilient future, and then implement those plans.”
In addition, more and more requests for proposals and government contracts require CO2 and other climate related disclosures and many companies, even oil and gas giant BP, are publicly announcing their net zero commitments.
Therefore, the E part of the ESG-related pressures seems to be effective.
Protecting the most vulnerable: S is for Social, stakeholders
The S in ESG stands for how the company treats all their stakeholders—employees, suppliers, shareholders, the communities in which they work and society at large—including in an extreme weather or other climate-related event. It also requires diversity data.
The new IPCC report specifically states that, “Prioritising equity, climate justice, social justice, inclusion and just transition processes can enable adaptation and ambitious mitigation actions and climate resilient development.” It emphasizes that more protection is needed for the 3.3 to 3.6 billion people—about 46% of the entire planet— “who have historically contributed the least to current climate change [yet] are disproportionately affected” and severely under-resourced.
ESG frameworks today do not specifically require reporting on support for vulnerable communities outside a company’s Scopes 1, 2 and 3, but many companies do report on these communities when they are in their supply chains and/or charitable contributions.
Effective governance, policies and accountability: G is for Governance
“Effective climate action is enabled by political commitment, well-aligned multilevel governance, institutional frameworks, laws, policies and strategies and enhanced access to finance and technology,” the IPCC’s Synthesis Report says. The trifecta of the Inflation Reduction Act, Infrastructure Investment and Jobs Act and the CHIPS and Science Act collectively commit more than $1 trillion to address the climate challenge. They include funds to increase the resilience of communities, roads, bridges, rail lines and telecommunications networks, as well as financial and regulatory incentives to transition to clean energy sources and alternative fuel vehicles and infrastructure.
G also encompasses transparency and accountability, which are inherent in ESG reporting and essential for enforcement of company commitments and regulatory compliance.
Ultimately, it’s about action—fast, big and equitable. One can argue that ESG frameworks and reporting systems incentivize private companies to dramatically reduce emissions and mitigate the impact of climate change on their stakeholders.
Whether that actually happens remains to be seen.
