10 Dec A speech by HRH The Prince of Wales at the Accounting for Sustainability Summit
Ladies and Gentlemen, I am delighted to see so many of you here today, and particularly so many new faces. I hope that you have already noted one or two actions that you might take as a result of the discussions over the past twenty four hours – and I give you fair warning, the next hour may give you one or two more!
Now believe it or not, it is eleven years since I first established my Accounting for Sustainability Project to mobilize action and leadership within the finance and accounting community. So, now is the time to get serious about the urgency of the situation we face. Our brave panellists, who Jessica will introduce in a moment, have kindly agreed to face a grilling from you all and answer your challenges on exactly what you can do to act, but first, I am afraid, I am going to share my rather more amateur thoughts on why it is so important that you do.
We have known for decades that we are heading towards catastrophic climate change and the point of no return, and yet still we procrastinate. Still the sceptics rubbish the climate science and ignore the accumulating disaster affecting so many communities around the world, communities of the poorest people very often. So, what right do they have, Ladies and Gentlemen, to sacrifice our children and grandchildren’s future? Even with overwhelming support, global leaders face a tremendous challenge to respond.
And, of course, the consequences of climate change will be – no, are being – felt by companies and the capital markets too. Recent research by my Cambridge Institute for Sustainability Leadership found that short-term risks stemming from how investors perceive future climate risks – in other words climate-related “market sentiment” – could lead to economic shocks and losses of up to forty-five per cent of the value of an equity investment portfolio. Investors can act to halve their exposure to these climate sentiment risks, but not eliminate it without system-wide action – in other words, they are faced with “unhedgeable risk”.
Just look, Ladies and Gentlemen, at the insurance sector – you can’t simply “adapt” to the ever-increasing, unprecedented levels of rainfall in Cumbria and the North West of the U.K. Already the flood defences erected after the last floods a few years ago have been overwhelmed. I went to visit all these places the last time and many other disastrous flood situations in the past as well. The people I visited then, and after other floods, find it very difficult, if not impossible, to get their properties insured. So how long must we wait before we tackle the root cause of an accelerating economic, social and environmental disaster? How long before people who should know better stop lobbying against the only sane course and, instead, lobby for the right kind of private, public and civil society partnership to “re-wire” our whole unfit-for-purpose economy?
Tomorrow, the U.N. Climate Change conference in Paris will conclude with, I hope, an agreement setting out the first steps towards a climate deal that could put the world on a pathway towards limiting the rise in average global temperatures to below two degrees above pre-industrial levels. On an increasingly crowded planet, humanity faces many threats – but none, none, is greater than climate change, which magnifies every hazard and tension of our existence.
The good news is that we have the knowledge and the tools to have a chance of staying within two degrees, and at a cost, of, just remember this, just under two per cent of annual global consumption – surely an investment worth making! We lack only the will and the framework to use these solutions wisely, consistently and at the required global scale. And remember, Ladies and Gentlemen, that even if we manage to keep the rise in average global temperatures to within two degrees – and we are already committed to one point five – this will still have hugely serious consequences. At two degrees, scientists predict that many small island states such as the Maldives and Kiribas are expected to disappear due to sea level rise, coral reefs will be wiped out, fisheries will be impacted, whole populations will be on the move and countries and companies around the world will need to invest significant amounts just in a rather fruitless attempt to adapt. We’ve just been attending CHOGM in Malta, and talking to the Heads of State from those countries, those island states in the Pacific. They are extremely anxious to say the least about the situation they are facing.
So we will only be able to tackle climate change if we recognize that action must be part of an integrated approach.
If I think back to the A4S Summit even a few years ago, most people gave every appearance of listening politely and attentively, but I couldn’t help thinking that many of them came out of curiosity rather than conviction. Now, it seems to me that many of you are here because you are already taking action, and are keen to share insights with others about what you are doing and how you can go much further, and much more quickly. You are not alone. Around the world, I find companies and investors who are determined to find a new way of doing business; one that recognizes the need for an integrated approach and achieves growth within environmental limits as well as delivering positive social benefit.
The Governor of the Bank of England recently raised the issue that legal liabilities could be faced by those who fail to act, which must surely be an additional spur to action. As Mark Carney said, “Such claims could come decades in the future, but have the potential to hit carbon extractors and emitters – and, if they have liability cover, their insurers – the hardest.”
So while we cannot lose focus on the serious threats facing us, innovative organizations are turning threats into opportunities and are creating competitive advantage. In doing so, it is vital that the level of ambition is commensurate with the scale of the challenge faced. In a world where we know that we need to achieve zero net greenhouse gas emissions by the end of the century, even a fifty percent reduction, which until recently might have seemed ambitious, is not going to be enough.
Imagine then if every company in the world set a carbon reduction target that reflected the science? Companies such as Marks and Spencer, Unilever, D.S.M., Aviva and Google have already committed to a one hundred per cent renewables target. As well as helping to prevent dangerous climate change, they are securing their long-term supply of affordable energy to enable future growth. Imagine, Ladies and Gentlemen, if you did too…?
Imagine if all asset owners invested in a way compatible with limiting the rise in average global temperatures to two degrees? The Environment Agency Pension Fund has committed to decarbonise their equity portfolio, reducing its exposure to future emissions by ninety per cent for coal and fifty per cent for oil and gas by 2020. Not only do they believe that it is their legal duty to consider the impacts of climate change, but that it is also entirely consistent with securing the best long-term returns. So, imagine if you did too?
More and more organizations are showing that they can continue to be profitable by transforming their business model to respond to the risks faced and deliver solutions to the challenges. Take D.S.M. whose C.F.O., Geraldine Matchett, will no doubt say more in a few moments. I understand – she’ll correct me if I’m wrong – that ninety-five per cent of their innovation pipeline is related to their ECO+ products. Similarly, I hear that revenue from Siemens’ Environmental Portfolio amounted to thirty-three billion euros or forty-six per cent of total revenues in 2014 and is a growing part of their business. Others, such as South West Water, have shown that investing in natural capital rather than ‘manufactured’ capital can deliver a benefit to cost ratio of sixty-five to one.
Now Ladies and Gentlemen, I have said all this kind of thing before – endlessly – and I sometimes feel I am just talking to myself. But these, Ladies and Gentlemen, are just a few examples of the commercial benefits that can be achieved if you change your business model to tackle environmental and social challenges, and I know you have seen many other case studies from A4S’s C.F.O. Leadership and Accounting Bodies Networks at the opening session last night.
You would think, wouldn’t you, that this is the kind of evidence that is needed to convince those who are yet to act. But it would seem the draw of business as usual is still irresistibly powerful. Which is why the finance and accounting community are absolutely vital in delivering the sustainable economy we so desperately need. You, Ladies and Gentlemen, control the investment flows and monitor the performance of your organizations and those in which you invest. As the keepers of the financial records, adding your voice to the growing chorus urging governments and companies to take action before it is too late – and underlining that action can deliver precisely the economic outcomes we so desperately need – could just tip the balance. Particularly if you note that in early November the New York State Attorney General issued subpoenas to Exxon and Peabody Energy and began investigations over claims they misled the public and investors about the dangers and potential business risks associated with climate change.
At the end of the day, we know all this is not just about the numbers. It is about our values and our legacy – one which leaves behind a better world for our children and grandchildren and ensures the survival of all those other species of animals, birds, fish, plants and trees, in other words what is called “biodiversity” – which share this over-exploited planet with us, and on which we depend for our existence. We simply have no time left in which to prevent dangerous climate change, stem the depletion of our natural resources and avoid further social disruption and unrest.
Well we will each, of course, have to make up our own minds. But to me the evidence is clear – if, if we come together in the form of the biggest private, public, N.G.O. and civil society partnership the world has ever seen, and act now, we can create the kind of sustainable, “circular” economy, without waste, in which we would all like to live. So after eleven years of boring you all to death about this, I can only hope, Ladies and Gentlemen, you feel the same!