Size matters in the conversation about climate change—the largest companies and the smallest suppliers, the tiniest particles and the open ocean, growing piles of garbage and shrinking forest footprints.
Some organizations have recognized the boardroom as the right-sized starting point for solving these global problems. Shareholder primacy and stakeholder interests theoretically share common ground in this endeavor: Board members respond to the bottom line for growth- and revenue-driven decisions, and increasingly the numbers in that calculus are factoring in consumer demand for sustainable goods, the community impact of resource extraction, the responsibility for industrial byproducts and potential backlash for neglecting that responsibility, and the necessary oversight of multi-partner supply chains.
Boards are familiar with the requirements of risk disclosure statements, identifying for shareholders the potential financial risk of certain corporate practices or decisions. Understanding that the risks of the previous century have grown and evolved, today’s—and tomorrow’s—corporate leaders have to understand that those adverse consequences from those practices and decisions can occur anywhere along the supply chain from raw materials to post-consumer waste management.
Along that lifecycle, there are also lives at risk. Changes to weather patterns, including heightened intensity of destructive storms, affect business choices about materials, suppliers, factory locations, shipping, warehousing, and delivery. Fires, droughts, floods, mudslides, and blizzards can endanger vulnerable workers, as can the unhealthy conditions of waste sites.
Consumer and community awareness campaigns by government agencies and conservation groups have taught the general public about recycling and reductions in residential water and electricity use. But even taken together, individuals and households can’t cause a significant shift in the gears running our global economy.
Shifting those gears from conveyor belt production to cycles of reuse and regeneration could have a substantial impact on corporate efficiency—and thus profits—and an even more drastic impact on future access to necessary materials. Many of the raw materials used as the building blocks of everyday products could be depleted, and many more materials could be added to governments’ lists restricting or banning extraction, import, or use, potentially moving beyond the current disclosure rules for conflict minerals. Government agencies, municipalities, and coalitions have begun implementing policies to disincentivize or penalize failure to account for waste reduction or material reuse. These extended producer responsibility (EPR) measures address product design, replenishing resources, and recycling stream reporting.
Corporate boards and C-suite leaders might initially balk when confronted with options to cooperate with their industry peers—and for good reason, given competition authorities’ views on consumer protection—but several multinational companies have begun initiatives to integrate the principles of the circular economy into business operations aligned with environmental sustainability. This movement includes partnering with NGOs, joining corporate alliances dedicated to finding solutions to sustainability challenges, and cooperating across internal business units, to accomplish large-scale aspirational goals to reduce single-use packaging, improve energy efficiency of consumer goods, and develop alternatives for hazardous chemicals to proactively effect a sea change in corporate behavior.
2020 could see a large shift in corporate reactions to the climate crisis as more companies start to rethink their business practices and decisions to better align with sustainability and governance efforts.
Bloomberg Law is operated by entities controlled by Michael Bloomberg, who is chair of the Task Force on Climate-related Financial Disclosures and co-chair of the Risky Business Project, as well as founder of Bloomberg Philanthropies.
Read about other trends our analysts are following as part of our Bloomberg Law 2020 series.