DAVOS, Switzerland – The outcry about climate change and other sustainability challenges far outweighs the action that executives are taking to solve them.
This was according to panelists at the World Economic Forum in Davos, Switzerland, where attendees focused on environmental, societal, and governance matters.
Multiple corporate executives are taking sustainability seriously for the first time but without concrete next steps, according to Christian Mumenthaler, CEO of the reinsurance giant Swiss Re.
“My intuitive feeling is 90% of the conversations were people standing up saying how bad climate change is without a solution,” Mumenthaler said during a panel discussion on Tuesday.
Mumenthaler hailed BlackRock CEO Larry Fink, whose recent annual letter warned about the financial impact of climate change, for increasing the pressure on companies and their shareholders to act. However, the challenge for executives who agree with Fink is to come up with a plan.
“The pressure has really reached to the investment side,” Mumenthaler said. “I think most companies now feel the pressure and want to do something. It’s a gigantic task, and there’s no plan at hand. So I think there’s a big problem here.”
In making sustainable decisions, companies do not necessarily face a trade-off between stakeholder and shareholder benefits, he said.
He recounted that he agreed to rotate the majority of Swiss Re’s fixed income assets to ESG-related funds without causing a shareholder uproar. He also said shareholders do not clamor for more underwriting of coal power plants, even though the firm declines to insure the industry in some countries.
However, American public companies may not be able to implement similar policies without friction, according to Jim Coulter, co-founder of the private-equity firm TPG Group. That’s because the US has a “systems problem” regarding how to legally act in the best interest of stakeholders without hurting shareholders, according to Coulter.
“We haven’t yet, in the US, dealt with the systems issue of what fiduciary duty means,” Coulter said.
As companies translate their angst about climate change into action, they must also figure out how to disclose the associated costs to shareholders, he said.
For example, Mumenthaler said his firm was giving up about $20 million in insurance premiums by divesting from coal in some countries. His shareholders seem OK with forgoing this income now for a cleaner climate in the long-term – but not every chief executive may be as fortunate.
“I feel for the CEOs that are going to have to make that discussion clear to their shareholders as they have trade-offs,” Coulter said.