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Inclusive Development & Climate Change: Implications for the Private SectorArun KashyapPrincipal

GLOBAL AMERICAN BUSINESS INSTITUTE & KOREAN INSTITUTE OF ENERGY RESEARCH ROUNDTABLE

KASHYAP DEVELOPMENT ASSOCIATES

CLIMATE CHANGE – WHY ADDRESS IT?• Perhaps greatest threat to the global humanity

• Serious dangers and costs to their health and prosperity• All countries in the world are seeing its first-hand drastic effects

• Caused in large part due to human activities• Science is unambiguous• Result of the greatest market failure that the world has seen

• Affecting global water cycle• Irregular rainfall, floods and droughts

• Disrupting the planet’s weather• 15 of the 16 hottest weathers on record have occurred since 2000; 2016

already experiencing record temperatures

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A TRANSFORMATIONAL AGENDA• Limit the global average temperature increase to well below 2°C and, if possible to 1.5°C

• Transition to a zero-emission and climate-resilient economy• Regardless of the efforts some climate change will occur

• Tradeoffs depend on combination of emission reduction, adaptation and suffering chosen• An enduring and a resolute commitment necessary

• Climate change at the heart of development strategy• An integrated, innovative and a participatory approach

2⁰C THRESHOLD – CLIMATE CHANGE IMPACTS ACROSS THE WORLD

Image courtesy of PricewaterhouseCoopers, from the report “Low Carbon Economy Index 2014 - Two degrees of separation: ambition and reality”.

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CONVERGENCE OF NEED & OPPORTUNITY FOR CHANGE• Sustainable Development Goals (SDGs): Transforming Our World -the 2030 Agenda for Sustainable Development

• 17 Goals and 169 Targets; Universal, Integrated, Indivisible• No one will be left behind• All countries need to change, each with its own approach

• Historic Paris Agreement on Climate Change • Agreement on climate action influence 13 of the 17 SDGs• Globally the governments are committed to decarbonize their economies; also felt in banks, stock exchanges, and boardrooms.

• Agreement on the “Financing for Development” Package• Domestic policy reform and resource mobilization• Resource flows from the private sector, investments frameworks, etc.

MOVING MARKETPLACE: EXPLORING INNOVATIVE SOLUTIONS• The private sector is key to meeting the SDGs & tackling climate change – getting to a less that 2⁰ Celsius pathway

• Shared vision of governments, civil society, the private sector and media• UN Global Compact and KPMG International collaborate on creating ‘SDG Industry Matrix’ to inspire private sector opportunities

• A call for focus beyond solely on “critical global energy shift” • Two dozen of nation’s biggest corporations incorporate pricing carbon• Rising number agreeing to net zero deforestation in their supply chains • Renewable energy – complete power of choice for several companies• Civil society call for a climate-tax on red meat; Campaign to divest from fossil fuels • Bring accurate, mainstream climate science to climate skeptics

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U.S. CONCERN ABOUT GLOBAL WARMING AT EIGHT-YEAR HIGH

SIGNALS OF ADVANCEMENT• Motivation & Apprehensions

• Companies that embrace sustainability outperform their peers• Ongoing and potential physical risks because of climate change• Policy and regulatory risks that could affect investments• Pressure from consumers, especially younger ones to take action

• Energy - a prime example• Clean energy investment quadrupled over the past decade; Renewable energy alone accounted for 56% of new global power capacity in 2014 • RE100: World’s most influential companies committed to 100% renewable power• Creation of Renewable Energy Buyers Alliance (REBA) to empower MNCs to transform electricity systems with renewable energy

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• 68 of the world’s most influential companies committed to massively increase demand for, and delivery of, renewable energy.• The private sector accounts for around half of the world’s electricity consumption. • RE100 Annual report has company case studies• Progress towards their commitment is reported annually to RE100 via CDP’s CC questionnaire• Consumption and production of RE need to meet credibility and transparency requirements and be verified by a third party.

FOSSIL-FUEL PRODUCERS et al• Exxon Mobil, Conoco Phillips, Chevron, BP and Shell are counting climate change as a line item by incorporating a price on carbon

• CEO of Exxon Mobil accepts the basic physics that humans are heating the climate with excess CO2; work with FuelCell Energy on CCS• The CEOs of BP, Shell, Stat Oil, BG Group and ENI call climate change a critical challenge for our world and support price on carbon• ConAgra Foods, Delta Airlines, Duke Energy, DuPont, Google, Microsoft General Electric, Walt Disney and Wells Fargo also support price on carbon

• Three of the largest US coal companies filed for bankruptcy in 2014• Tightening environmental regulations and competition from cheaper fuels hurt their business model • UK's Energy Secretary proposes to shut down country’s remaining coal-fired power stations by 2025 with their use restricted by 2023

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LINKING WITH MONTREAL PROTOCOL• The Alliance for Responsible Atmospheric Policy has committed to

• Act and support policies to reduce global HFC GHG contribution by 80% by 2050 relative to current emissions.• Air Conditioning Heating & Refrigeration Institute has committed

• Its member companies to spend $5b (next 10 years) in new R&D and capital expenditures to develop/commercialize low GWP technologies• User industries committing to reduce HFCs, GHG emissions and develop products with low GWP include

• Arkema, Coca-Cola, Carrier, Danfoss, DuPont, Emerson Climate Technologies, Goodman Manufacturing Company, Hillphoenix, Honeywell, Johnson Controls, Kroger, Lapolla, Los Angeles Department of Water and Power (LADWP), Mission Pharmacal, PepsiCo, Red Bull, SEVO Systems, Target, Thermo King, and True Manufacturing.

PROMOTING NATURAL CLIMATE SOLUTIONS• Younger consumers and good business models are pushing companies to mainstream their environmental efforts

• Nature based solutions for sequestering carbon through preventing forest loss, undertaking reforestation, investing in soil health, etc.• Improving supply chains for commodities like palm oil, soybeans and beef and preserving richest biological regions in the tropics• Palm oil production has destroyed old growth forests

• Forty companies including those managing oil palm have pledged to help cut deforestation in half by 2020 and entirely by 2030• Increasing number of ethically focused fund managers avoiding the palm oil sector discouraged by deforestation and burning peatland• Norway’s sovereign wealth fund excluded four of Asia’ biggest companies due to links to environmental damage in Indonesia

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SUSTAINABLE INVESTMENT OPPORTUNITIES• Correlation between sustainability and long term corporate performance, risk profile and investment opportunities

• In 2014 of the total global assets of $21.4 trillion managed under socially responsible strategies, US investments were $6.57 trillion representing an increase of 76% from $3.74 trillion in 2012• Financial analysis from HSBC, Citigroup, Mercer, Bank of England, IEA all indicate a significant risk to portfolios exposed to fossil-fuel assets.• FSB warned that such assets could become stranded investments

• Long term investors demanding long-term climate change policy consistency and regulatory certainty• Otherwise reluctance in making infrastructure investments • CalPERS ready to integrate sustainability across its entire portfolio• Norway’s SWF is doubling its investments in sustainability

EFFECTIVE BOARD ENGAGEMENT• Sustainability defines better corporate positioning for long term success and value creation; hence the need for Board engagement

• Over 250 shareholder resolutions were filed between 2010 and 2014 calling for explicit board oversight of sustainability issues• A new initiative “Two Degrees of Change” is enlisting the help of female executives globally to bring climate change concerns into board rooms• More women in senior roles and boardrooms focusing on climate change are expected to change the narrative

• Key strategies to weave sustainability more deeply across board functions would require integrating sustainability into• Board governance systems, and • Board actions

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LEGAL ACTIONS – CORPORATE GOVERNANCE• The US government is probing what Exxon Mobil knew about climate change.

• AG from Massachusetts and the Virgin Islands have joined New York’s AG to inquire if Exxon Mobil lied in the past to its investors and the public about the threat of climate change. • California is undertaking its own investigation.• S&P downgraded Exxon from triple A to AA+ rating as crude prices fell

• Norway’s oil fund is planning to take legal action against Volkswagen over its emissions scandal as part of a class-action lawsuit in the German courts.

CIVIL SOCIETY• The Papal encyclical depicting climate change as a moral issue resonates with many climate activists.

• The earth is a gift from God and that we are responsible for protecting it. Climate change as an issue that not only is scientifically important but also has moral and spiritual implications. It also ties the issue to others, such as caring for the poor, who are expected to bear the brunt of more extreme weather and rising sea levels. • "Climate change is the human rights challenge of our time. ….We can no longer continue feeding our addiction to fossil fuels as if there is no tomorrow, for there will be no tomorrow.“

- Archbishop Desmond Tutu, a leading advocate of the divestment movement.

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GLOBAL DIVEST INVEST MOVEMENT• A diverse group of students, philanthropies, and grassroots and environmental organizations from around the globe are driving the movement

• By Climate Week 2015, 430 institutions and 2,040 individuals across 43 countries and representing $2.6 trillion in assets have committed to divest from fossil fuel companies• The surge translates to a 50-fold increase over $52 billion in divestment assets during 2014 Climate Week.• Fiduciaries for pension funds, municipalities, universities, health organizations, faith groups, public charities, private foundations, and corporations all agree that Divesting and investing in the clean energy future is a prudent financial and ethical choice

CLIMATE POLICY & CLIMATE TAX• Guide for Responsible Corporate Engagement in Climate Policy

• Consultation on responsible corporate engagement undertaken by the UN Global Compact, UNEP, UNFCCC, WRI, UNGC, CDP, WWF, Ceres and The Climate Group. • Why and how companies can constructively influence climate policy

• The Danish Council on Ethics has called for a climate tax on red meat to lower its consumption and fight climate change• 26% of Earth’s ice-free land is used for livestock grazing and 33% of croplands are devoted to livestock feed.• Livestock accounts for nearly 15% of global GHG emissions. Nearly 2,000 gallons of water are required to raise a pound of beef. • 25% of the total methane comes from livestock’s burps/flatulence

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LEGAL ACTION AGAINST THE GOVERNMENT• “Our Children’s Trust” is suing the federal government on behalf of 21 young plaintiffs (teenagers and children) arguing that the US Government had ample evidence of the risks of climate change and “willfully ignored this impending harm.

• A federal magistrate judge in Oregon has allowed the above lawsuit to go forward, despite motions from the Obama administration and fossil fuel companies to dismiss it. • Individuals in Pakistan and New Zealand have sued to force their governments to take stronger action to fight climate change. • A farmer in Peru has sued a giant German energy utility over its part in causing global warming.

IN CONCLUSIONIt is not possible to have a strong, functioning business in a world of increasing inequality, poverty and climate change. Business has a unique opportunity to embrace the SDGs agenda and recognize it as a driver of business strategies, innovation and decision making. Doing so makes business sense and will give them an edge over competitors.

PAUL POLMAN CEO UNILEVERCOMMISSIONER, THE BUSINESS COMMISSION

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SUPPORT FOR THE LOW CARBON PARADIGM• “We are asking that every CEO lay out for shareholders each year a strategic framework for long-term value creation. Additionally, because boards have a critical role to play in strategic planning, we believe CEOs should explicitly affirm that their boards have reviewed those plans. BlackRock’s corporate governance team, in their engagement with companies, will be looking for this framework and board review.”

Larry Fink’s letter to CEOs at S&P 500 companies and large European Corporations Asking for a long-term business plan consistent with the commitments made in Paris

• The Task Force on Climate-related Financial Disclosures will develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders.Increasing transparency makes markets more efficient, andeconomies more stable and resilient.

Michael R Bloomberg, Chair

PROGRESS IN BABY STEPS• While there are several signals that raise caveats re progress in reaching 2⁰C threshold; the issues are manageable.

• Ratification of Paris Agreement• Oil & Gas companies exploring technical options for drilling fossil fuel resources located under the Arctic• Geopolitical tensions• Voices for change with declining trust in government and institutions across the globe even in places with increasing human development• Uncertainty resulting from the Administration change in the US in 2017

• Need a well thought-through strategy that is inclusive and has a coordinated action plan. • NGOs, businesses, investors, mayors, governors, faith groups, etc.

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SUSTAINED OPTIMISMThe success of implementation of the Paris Agreement will depend on its integration within development planning and the SDGs

• Need to integrate learning from different disciplines and foster evidence based good judgements, collaborations and implementation strategies• We now recognize that the biggest threats and dangers faced by humanity are the ones we consciously overlook• We also better understand the causes of culturally induced ignorance• The millennials unanimously support the need to tackle climate change; they are the agents of political change and represent a growing market for the private sector• Need for proven leadership - they not only do the right thing; they also help others to do the right thing

To be continued…….Thank you!

ARUN KASHYAPPrincipal

KASHYAP DEVELOPMENT ASSOCIATESIntegrated analysis - Implementation - Innovation - Partnerships

arun8.Kashyap@gmail.com825 Tenth Street NW, #1077

Washington, DC 20001O 202 290 2305 C 917 558 2411