We’re just beginning to understand the myriad ways that incumbent oligopolies have preserved the status quo in global energy markets for so long. Here’s Bloomberg’s latest observation:
The world’s largest banks have issued billions in loans to sustainable businesses and taken some steps to restrict funding for some of world’s worst polluters. But the greening of global finance hasn’t reached the boardroom yet.
Executives with direct links to the clean-energy future rarely hold senior leadership positions or sit on the boards at 20 leading U.S. and European banks. Bloomberg Green analyzed the past and present professional affiliations of more than 600 directors and executives and found only a few with experience in renewable or sustainable industries.Bloomberg
Remember the banks? We let them hold onto our money, in exchange for keeping it safe and investing it towards some good productive use. Well, turns out all the people running the banks have ties to the fossil fuel industry –– and almost none of the directors have ties to (or experience in) clean energy.
This isn’t really surprising, or some kind of grand conspiracy. Energy is a big, lucrative business and its heavily dependent on banking services and investment capital. It’s not surprising to see that people sitting on the boards of the world’s largest banks have ties to polluting companies; Every company pollutes in one way or another.
But do you think this has accelerated or slowed the transition to sustainable energy? Will these people be eager to take actions that could usher in the end of fossil fuels? Would they instruct the banks to divest from assets they themselves have an interest in?
One of the clearest successes of the movement to emphasize environmental, social and governance criteria has been to make it uncomfortable for banks to ignore diversity in the top levels of management. That push for inclusion is based on the principle that having varied viewpoints in corporate decision-making, including women and people of color, is both important and worthwhile. Yet even though environment is a stated goal of the ESG movement, representation has barely budged for executives with a background in climate-friendly industries.
“Boards needn’t have a technical climate expert, but they do need to have a greater grasp of how climate impacts their businesses,” says Mark McKenzie, who heads accounting firm KPMG International Group’s global center on climate and sustainability. “Having someone with green experience at that top level—that buy-in—makes an enormous difference.”Bloomberg
Fossil fuels have a problem –– they’re becoming uninvestible.
You can make money selling cigarettes, but people don’t want to invest in cigarette companies anymore. It’s dirty money, and that means trying to grow the business will be viewed negatively by the public. You don’t want to invest in a business where doing well kills people.
The same social movement is now starting to unfold in fossil fuels, with ever louder calls for banks and other funds to divest from fossil fuel assets completely. People want to move off fossil fuels, and it’s foolish to ignore that and pretend it’s not going to effect the global economy. It’s already affecting businesses all around the world today.
It’s well known among investors that a diverse board will produce better investment returns. For example, having at least one woman on your board has been shown to have a statistically significant impact on public equity returns. Since women are half the population, it makes sense that having more people that understand them (because they are women) can boost financials.
With Bloomberg’s investigation, we’re now starting to see people make the case that board diversity isn’t just about gender or race, but background and experience too. You know that old saying, “It is difficult to get a man to understand something, when his salary depends upon his not understanding it”? If that’s true, will board members who made their careers in polluting industries be able to solve the innovators dilemma and understand the forces that will be the demise of their life’s work?
Shareholders don’t appear to believe that’s likely, as fossil fuel directors are forced off the boards of major banks:
Few people have had more power inside JPMorgan Chase & Co. than Lee Raymond, the former chief executive officer and chairman of Exxon Mobil Corp. He’s been the lead independent director at the bank since 2013, an adviser on long-term strategy, and a sounding board for JPMorgan CEO Jamie Dimon.
But now, after coming under scrutiny from climate critics and shareholders, Raymond is stepping aside. Among those seeking to oust him from the board’s leadership are New York’s city and state pension funds, which argued that the former Exxon boss doesn’t have the impartiality or understanding of global warming to fulfill his duties. Raymond was reelected to the JPMorgan board at its annual shareholder meeting in May, but the bank is planning to name a new lead director by the end of summer.Bloomberg
We need to transition to sustainable energy now, before it’s too late. We’re talking about the infrastructure that underpins the entire global economy. This is going to be an enormous, monumental shift and we need everyone behind it or we may not succeed in time to mitigate the worst effects of polluted cities and an overheated atmosphere. The way things worked in the past is not going to work anymore. It’s time to make some changes, at every level of society.