Transcript
Speaker: This is HSBC Global Viewpoint, your window into the thinking, trends and issues shaping global banking and markets.
Speaker: Join us as we hear from industry leaders and HSBC experts on the latest insights and opportunities for your business.
Speaker: A heads up to our listeners that this episode has been recorded remotely, therefore the sound quality may vary.
Speaker: Thank you for listening.
Speaker: Welcome to the Business Plan for the Planet podcast, a series centered around ESG insights.
Speaker: In these episodes, you'll hear from experts whose work is at the heart of sustainability linked trends and opportunities, as well as from businesses that are delivering change for a better future for us all.
Speaker: Join us as we shine a spotlight on their commitment to a sustainable future.
Speaker: Welcome, everyone.
Speaker: My name is Emily Farnworth.
Speaker: I'm the deputy director of the Centre of Climate Change Engagement at Hughes Hall at the University of Cambridge.
Speaker: and we're the secretariat for the Climate Governance Initiative.
Speaker: I also had the pleasure of being at the very early stages of setting up the Climate Governance Initiative at the World Economic Forum.
Speaker: The Global Climate Governance Initiative is a global network of local chapters of non-exec directors who are extremely passionate and interested in ensuring that they're building their skills and knowledge about climate change and how to bring that into a board level conversation.
Speaker: The global network has been developed by non-exec directors for non-executive directors.
Speaker: And I think this is what makes it such a powerful network that we have this incredible group of national chapters that are really leading the conversation and also coming together to share their experiences on this international level.
Speaker: And today we've had some fantastic conversations with regards to engaging with investors and needing to sort of
Speaker: think about how do we work all of these things in across the board.
Speaker: What we've heard a lot is how important it is to collaborate.
Speaker: And I think that's really going to highlight the conversation today, which is the need for collaboration and how essential it is to future proof business to enable delivering net zero emissions by 2050 or sooner.
Speaker: We're going to be hearing from an incredible range of speakers today and I think really honing in on some of the other themes that have come up during the week, which is the importance of integration, not just integration across the business, but recognising that existing systems of risk management, of disclosure, of reporting need to embed climate change directly.
Speaker: This is not a bolt-on activity that happens within the board conversation or within the corporate conversation.
Speaker: There's also been a lot of discussion around the need for long-term vision.
Speaker: recognising that decisions that are being made today are going to affect how we can tackle climate change in the future and how important it is for leadership in the context of really driving change.
Speaker: I'd like to introduce our speakers for today.
Speaker: We have Claudia Sender-Ramirez, who is a non-exec board member of Telefonica, Lafarge Holsem and Goddard.
Speaker: So a really broad range of different boards that she sits on.
Speaker: Emma Marchigallia.
Speaker: who's the chair of the B20 and was instrumental in setting up the Climate Governance Initiative.
Speaker: Mark Tucker, who's Group Chairman HSBC.
Speaker: Nigel Topping, high level champion in climate action for COP26.
Speaker: And Praneet Venjan, who's the Global Chief Executive Officer for Deloitte.
Speaker: So as you can see, an incredible panel of speakers today.
Speaker: I'm going to turn first, Emma, if I may, and just to sort of really, you know, the incredible role that you've had both as chair of ENI, the Italian oil major, and I would love to kind of talk to you about the beginning of this journey in the context of that role.
Speaker: And also in your current role as the chair of the B20 and obviously the important conversation that we need to have around governance in the context, governance in all sorts of levels.
Speaker: but also in this context of climate governance in that piece.
Speaker: So maybe firstly, in the context of your role in helping to initiate the principles for effective climate governance, maybe you could have a little bit of a, how did you sort of, what drove you to really push for that?
Speaker: Well, first of all, thank you, Emily, for giving me the chance to talk with you about this.
Speaker: So, well, as you said, I have been the chairman of AINI, and I have to tell you that we started in AINI to project implementing a strategy on climate change since 2015.
Speaker: And while we were doing that, we realized as board, as primarily non-executive directors, that when you talk about climate change, this was a kind of new and complex issues.
Speaker: It was an issue also linked to scientific, microeconomic policy issues with a lot of uncertainty.
Speaker: Although all of us, all the non-executive directors were coming from good experience and we were experts of, let's say, normal, ordinary governance, we understood that this was not enough and that probably we needed to
Speaker: have a specific recommendation, specific benchmarking, some practical guidance, because we felt that if we want to be responsible of implementing and projecting, implementing a real strong strategy on climate change, we needed that.
Speaker: So we talked with the West that was also working on that.
Speaker: And we were involved as directors and also as managers from the very beginning to set up these principles.
Speaker: And I think it was very interesting.
Speaker: I had also the honor to present this principle at the community of chairman of the West.
Speaker: And if I can summarize, I can say that probably there are three main points in this principle.
Speaker: The first is responsibility.
Speaker: We wanted to say that the board is the final responsible for long-term value creation for stakeholders.
Speaker: So we have to take responsibility on that.
Speaker: That means to implement a risk manager that, as you said, embedded climate change in a very
Speaker: important way.
Speaker: We set up some new committee where sustainability and strategy work together.
Speaker: We, for example, create an advisory board with experts of climate change.
Speaker: Of course, we work on the remuneration committee to have a strong link between remuneration and climate change objectives.
Speaker: And we did a lot of training and induction for ourselves.
Speaker: So the first is responsibility.
Speaker: The second is transparency.
Speaker: We work a lot also on disclosure.
Speaker: The metrics in disclosure is a key point.
Speaker: I think in this year, some implementation has been done, but still there is a lot of work to do.
Speaker: And the third is engagement.
Speaker: So the idea to engage with investors, with stakeholders on all this.
Speaker: So this has been a very interesting journey.
Speaker: I'm very proud that now I heard that
Speaker: A lot of new chapters are going on, and so I'm very happy.
Speaker: On the B20, what I can tell you very quickly is that, of course, climate change will be one of the core issues on which we will work.
Speaker: We have a lot of tax forces, but climate change is central to all the different tax force when we talk, of course, of energy, on energy efficiency, on trade, on finance infrastructure, on
Speaker: compliance and integrity compliance.
Speaker: So climate change is very important.
Speaker: And I was also to add that we will also, we are creating an advocacy caucus with a lot of very important managers of the most important companies in the world.
Speaker: And we will focus there on climate change, on taking responsibility and commitment by the corporates from one side and also to suggest
Speaker: some policy recommendation to the head of state to really make good progress on climate change.
Speaker: Thank you so much, Emma.
Speaker: And I think that, you know, your leadership and as you say, kind of really taking responsibility and embedding responsibility into ENI is an incredible, you know, an incredible kind of case study, if you like, for other organizations to look to.
Speaker: And I think bringing that experience into the B20 at this important time
Speaker: is just, you know, is really incredible.
Speaker: So we're certainly looking forward to hearing more about that.
Speaker: Let me now turn to Mark.
Speaker: We have to thank you for your leadership in the Climate Governance Initiative.
Speaker: You know, you've been instrumental in supporting the UK chapter, but also Hong Kong, Mexico, Singapore and Ireland, you know, as we grow this incredible network.
Speaker: In terms of your perspective,
Speaker: What's the message you would give to capital providers in the context of needing to work with clients on addressing climate change in the transition to net zero?
Speaker: Emily, thank you.
Speaker: I think, again, the commitment both personally and from the HSBC group to this whole subject area is enormous and significant.
Speaker: I think the
Speaker: Maybe just a few words on a few subjects.
Speaker: I think Emma set out a sort of a journey that I think many of us have been on and are very familiar as Emma spoke.
Speaker: Just a few things, I mean, on targets.
Speaker: I think targets here are important, but they have to be operationalized.
Speaker: And I think while we've seen in 2020 the number of businesses and governments have made commitments to reach net zero emissions roughly double,
Speaker: That's not enough.
Speaker: Setting ambitious targets does set a clear signal or send a clear signal to economies and investors.
Speaker: But the target has to be credible, has to stand up to scrutiny.
Speaker: And there needs to be a clear underpinning with a science-based strategy with short and medium-term goals and appropriate transparency.
Speaker: And here, I think the board and the non-executives play and have a very significant role.
Speaker: In October last year, we made a further commitment at HSBC to align our financed emissions to net zero by 2050 or sooner.
Speaker: Three specific elements.
Speaker: The first in setting out the clear sector and science-based strategy, aligning to the Paris Agreement goals with short and medium-term targets.
Speaker: Second, in publishing and implementing a policy to phase out
Speaker: the financing of coal power, coal-fired power and thermal coal mining by 2030 and by 2040 globally.
Speaker: And finally, with the report on our progress annually, starting with a 2021 annual report and accounts, putting our money there as well, we've put aside up to a trillion US dollars to support this transition.
Speaker: The second element, again, which I think is relevant to
Speaker: to boards is looking at some of the innovation and the financing elements of this is material because we do need to unlock next generation solutions to enable us to reach net zero.
Speaker: The new technologies are fundamentally needed to really just help us transition away from historically cheaper fossil fuels and to import new technology into business models and move away for all of us as companies and some very significantly from the way that things have been done before.
Speaker: And here you can see there's a fundamental financing challenge from a credit risk perspective, because the technology is often unproven.
Speaker: And we've got to work with governments, regulators and others to make it easier to provide finance, attract investment.
Speaker: And it's absolutely essential that this transition is made.
Speaker: We also look and are seeing a growing role for nature in next generation climate solutions.
Speaker: And we've got a joint venture, as an example, with Pollination, a specialist climate advisory group aiming to become the world's largest natural capital manager.
Speaker: So all of these, I think, are significant.
Speaker: Just a couple more things in terms of customer engagement.
Speaker: There are some...
Speaker: here who think that banks and other financial institutions should just simply divest, abandon clients with high carbon emissions with no consideration of the social and economic disruption that might cause.
Speaker: And clearly, if we wanted to reach our target quickly, reducing our financial exposure to these clients will help us achieve that target.
Speaker: And the argument from many is that if banks adopt that approach, the collective pressure will force companies to change.
Speaker: Our view is not that.
Speaker: Our view is that just reshaping balance sheets would likely damage those companies in the short term and will be unlikely to help the planet at all.
Speaker: So we've made a firm commitment, and I think this is, again, as boards think about this, a firm commitment to working with our clients and identifying and financing solutions that will help them on their journeys to ensure their carbon footprints are sustainable.
Speaker: And the route we're taking is more complex, more difficult, but it isn't a box ticking exercise and it's not governance for governance sake.
Speaker: I think it's got to have a deeper meaning.
Speaker: And I think, again, overall, the most important contribution we feel we can make to the low carbon transition is to help our clients transition their business models and to decarbonise.
Speaker: Thank you, Mark.
Speaker: I mean, I think this gets to the heart of one of the biggest challenges that we're facing really is, you know, how do we help companies that need the most help in the transition, particularly companies where it's not just as straightforward as them, you know, their boards saying, OK, we're not going to stop.
Speaker: We're going to stop doing that today.
Speaker: We're going to do something else tomorrow.
Speaker: There's a need for
Speaker: collaboration of transitioning kind of gradually, but also potentially kind of government support to help with investment into new infrastructure, as well as the sort of private sector push.
Speaker: And I guess that's an incredible segue into introducing our next speaker, Claudia.
Speaker: You're sitting on some of these companies in the cement and steel sectors.
Speaker: who are facing some very real challenges around kind of where they are today with regards to their carbon footprint and the need for banks and others to stay with them on this transition journey, as well as sitting on the board of an organization in the tech sector that's actually enabling this process.
Speaker: So really interested to hear from you both how you're seeing this conversation on transition playing out in some of these harder to debate sectors
Speaker: and sort of, yeah, what your kind of view is on collaboration that's needed to support those companies.
Speaker: All right, Emma, thank you so much for the invitation to participate in such a distinguished panel.
Speaker: I'd like to start by answering your question on what is the role of boards in propelling the climate agenda, and then I will address the importance of collaboration, which is absolutely paramount.
Speaker: I'm a strong believer that in order to create an enabling environment to address climate issues, companies have to establish an adequate governance.
Speaker: And what I mean by that is having the right organizational structure using appropriate science-based metrics
Speaker: Establishing both targets that are also achievable, as Mr. Tucker said, and also aligning management incentives.
Speaker: And as Mrs. Marcegaglia mentioned, the board is the ultimate responsible for making sure that the organization has the right resources to implement all that.
Speaker: And I wanted to bring some examples that will maybe add some color to and bring bring these points to life.
Speaker: Right.
Speaker: So starting with the importance of having the right organizational structure, which we don't often think about that much.
Speaker: When in back in 2018, Lafarge Olsoum decided to appoint a chief sustainability officer.
Speaker: One of the decisions was that this position would be set at the executive committee level at par with all of the business leader business unit leaders.
Speaker: The fact that Magali, the CSO, today sits at the Exco level means that not only she's not pushing a parallel agenda, but it means that she's part of all major business decisions as a peer.
Speaker: And that is a game changer.
Speaker: Sustainability has to be understood within the company as part of its score and not a parallel area screening for attention.
Speaker: Now recently, she has also embraced the innovation area and that increased even more the sustainability focus in the new products and services that are being developed.
Speaker: Edgar Dow here in Brazil, it's the largest steel manufacturer, for example, all of the relevant investments that are brought forward by the investment team to the board have to bring along and must quantify and include the environmental impact.
Speaker: not as a separate measure, but as an integral part of any project.
Speaker: Moving to using appropriate science-based metrics.
Speaker: I think, you know, I always think about how boards are super rigorous on how we look at financial disclosure and all of the reports that we publish.
Speaker: And I am a strong, again, a strong believer that we must look at sustainability reporting with the same level of rigor that we do with financial reporting.
Speaker: For example, a Telefonica company that is not among, as you mentioned, the heaviest greenhouse gas contributors.
Speaker: The sustainability journey started back in 2002 before most telecom companies.
Speaker: And very early on, it has adopted a science-based emissions target validated by SBTI, which also validates the targets for most of the companies in which board I sit.
Speaker: If we, as Mr. Tucker mentioned before, if we are to take the target seriously, then they have to be science-based.
Speaker: They have to be audited by third parties and they have to focus on what is most relevant to each individual industry because it does vary.
Speaker: The board also has the responsibility on raising the bar when the time comes to bold sustainability goal setting with the same intensity that we put in discussing budgeting and we use in discussing M&A activities.
Speaker: And for that, again, as Mrs. Marcegaglia mentioned before, having an educated board that can discuss alternative technologies and solutions to make sure the targets are both bold and achievable is paramount.
Speaker: And here is where collaboration plays a key role.
Speaker: The path to net zero for many industries is a very complex and very expensive one.
Speaker: No company will get there alone.
Speaker: This is why many companies have decided to engage with multi-industry or industry-wide collaboration forums.
Speaker: I wanted to highlight a few collaborations that I believe can have a real impact in technological development and adoption.
Speaker: One example that I really like is the partnership that LaFarge Holcim has made with diverse industries like Schlumberger,
Speaker: to test carbon capture technologies with steel companies to recycle mineral byproducts and startups to recycle CO2 and pilot different uses for it, such as alternative fuel or vertical farming.
Speaker: It has also joined the MIT Climate and Sustainability Consortium as a founding member with companies from very different industries like Apple, Dow, and Boeing to accelerate the development and adoption of new technologies that might work with a cross-industry approach.
Speaker: As an example of intra-industry collaboration, the work that is being done at World Steel Association, where Gerdau is a member, is also very interesting.
Speaker: Last year, we were on one of the protagonists of a case discussion, which was 100% centered around Gerdau's path to decarbonization.
Speaker: And it was very interesting to see how industry leaders from different companies brought different and complementary points of view focused on one single objective, decarbonization.
Speaker: And the last example I wanted to bring is a great case of supply chain collaboration, which is Telefonica, as I mentioned before.
Speaker: Last year alone, Telefonica helped its customers reduce by 9.5 tons of CO2 emission.
Speaker: And here the efforts range from optimizing water and energy consumption, facilitating remote work, increasing factory productivity and reducing waste, traffic planning, among many others.
Speaker: Last point, but not least, to make sure that leaders are aligned with this mandate, it is very important to make sure that employees' monetary incentives also reflect this focus.
Speaker: Sustainability goals have to be reflected in the long-term incentives and should reach as deep in the organization as possible.
Speaker: but at least they must cover the main decision makers of the organization.
Speaker: So in summary, if boards guarantee that companies have the right organizational structure, use the appropriate science-based metrics, embrace both targets and align employees' incentives, at least we will have created an enabling environment to address these issues.
Speaker: Thank you so much, Claudia.
Speaker: And I think you've just illustrated
Speaker: why the role of non-exec directors is so valuable in this sort of race that we're on now to net zero in the context that by sitting on a number of different types of boards, you can sort of share best practice around something that's relevant for any company at the same time as being able to recognize the different partnerships that those different businesses need to take.
Speaker: And I just think it's fascinating to kind of get both your perspective on
Speaker: what needs to happen at the board level in terms of setting those targets and having that ambition, but at the same time, recognizing that, you know, things need to happen on the ground.
Speaker: And so you do need to sort of start thinking about partnerships and the newer startups with some of the technologies that we're going to need.
Speaker: I'm going to move now to Nigel.
Speaker: And Nigel, I think it would be great to just get your, obviously, a little bit of background as sort of what you're doing in the run-up to COP26 and where you see that process right now.
Speaker: But in particular, your perspective on what non-exec directors in particular can do to support this corporate race that we have towards net zero?
Speaker: Well, first, I'm going to agree wholeheartedly with everything that my colleagues have said so far.
Speaker: I mean, I think
Speaker: So what I'm doing in the context of trying to build momentum to Glasgow from the private sector in particular is really driving this race to zero, which requires exactly what Mark and Claudia have described, you know, robust
Speaker: science-based targets so a clear long-term commitment to get to zero by 2050 at the latest but then the as mark said the operationalized version of that which is a short-term target which is in line with the science and a plan to execute and then really as clad was saying then moving from there to the kind of pre-competitive collaboration you know we're very familiar with this in in the mobile tech world right we're all moving from 4g
Speaker: to 5G, 6G's already been defined.
Speaker: I think the engineers are working on the definition of 7G, which might be 20 years away.
Speaker: But a lot of other industries are not used to working like that.
Speaker: That's why we've launched what we call the Race to Zero Breakthrough Challenges.
Speaker: We're trying to get at least 20% of the major actors in each sector to commit to science-based target.
Speaker: But then all align around part.
Speaker: And we have a pathway for every sector.
Speaker: We haven't necessarily converged on every sector, but I think we're seeing a huge amount of innovation
Speaker: The forum has been very involved with building on the work of the Energy Transitions Commission to launch the Mission Possible platform, which now has pathways for all cement, steel, and I think then moving that from being kind of company collaboration to then the trade bodies is crucial.
Speaker: One thing I would say that really starts to flow as an inevitable consequence of making those commitments is the need to look at advocacy.
Speaker: And if we're honest, most
Speaker: trade body advocacy tends to have been predicated on the belief that slowing down regulation is good for business.
Speaker: And so what we're seeing is most trade bodies actually are slowing down regulation until the trade bodies kind of flip and get, you saw this with them,
Speaker: at Euroelectric in Europe when it basically got taken over by SSE, Vattenfall and NL, it went from trying to slow down regulations to actually being ahead of the regulators.
Speaker: So I think that's one of the most important things that non-execs can do is make sure that the management team are aware of the voice, their proxy voice that is given to trade bodies, because often it's operating against the interest in the stated strategy of boards.
Speaker: I guess the last thing I was saying that I think
Speaker: particularly important for non-executive boards is paying attention to the diversity of voices both in the among the non-execs within the management team because a lot of sectors and i think claudia talked about lafarge i was really struck um in some interactions with with jan jan the ceo um back end of last year two things one how that company has now started to embrace innovation in a 2000 year old industry right um in fact when we when we partnered with ted on the countdown initiative some of the talks
Speaker: which most inspired people were cement as a source of innovation which is supposed to most people but also making sure diversity and then I think both the CSO and the US CEO at Lafarge are women engineers and again that sort of reinvention of the DNA around the decision making in terms of gender in terms of geography in terms of age I think one of the things which not execs need to really pay attention to as many sectors are going through disruptions
Speaker: of the scale that they've never faced in the living memory of most people who've built the companies to where they are now.
Speaker: Thank you, Nigel.
Speaker: I think it is a good reminder that there's so much disruption going on globally right now on all sorts of different levels.
Speaker: And there is a lot for boards to take on.
Speaker: But actually, that sort of innovation and that sort of embracing that creativity of where to go for solutions is so critical.
Speaker: I want to turn finally to Puneet and I guess firstly, a sort of huge thanks to Deloitte who's been incredible in supporting the Climate Governance Initiative around the world.
Speaker: And it really has been a huge boost to the work that's being able to be done everywhere.
Speaker: And also for the work that you've been doing with the World Economic Forum's International Business Council with regards to the work on common metrics, which again has come up a few times in terms of this need to really get consistency on good data.
Speaker: and how important good data is for decision making.
Speaker: So I just really wanted to thank you for the work there.
Speaker: You obviously see a whole cross section of businesses and financial institutions grappling with this challenge.
Speaker: So where do you see the opportunities for the sort of solutions to facilitate this low carbon transition?
Speaker: It's great to be with you and to be with this panel.
Speaker: One of the advantages that going last is that you hear all the great ideas from everyone.
Speaker: Emma's point around measurement, transparency, exactly on point.
Speaker: Mark's point around science-based targets, really important.
Speaker: Claudia's point around governance, adequate governance, where the boards hold management accountable, very important as well.
Speaker: Listen, I think the key and a lot of the points have been made.
Speaker: Measurement is incredibly important.
Speaker: If you don't have the right metrics in place, consistent metrics that are globally consistent, it's very difficult to get something accomplished.
Speaker: You accomplish what you measure.
Speaker: And that is why the IBC project that the Big Four collaborated on with the World Economic Forum was so important.
Speaker: We looked at this group of metrics that exist, all well-meaning, and came up with four what we believe are enduring pillars that tie to not only the climate agenda, but also to the broader UN SDGs around principles of governance,
Speaker: people, planet and prosperity and came up with 21 metrics.
Speaker: We have 70 companies, I think some represented on this panel that have voluntarily signed up to disclose or to publish against those metrics.
Speaker: I think it's a really good start because it builds the momentum towards common standards.
Speaker: I think we are all the big four and others, and I can speak for Deloitte specifically, behind this notion of getting to consistent global standards.
Speaker: And what the IFRS is doing, I think, is something that we fully support.
Speaker: So, you know, from my standpoint, I think that is important.
Speaker: The other thing I want to talk about very briefly is Deloitte.
Speaker: I think Mark talked about science based targets.
Speaker: We've set a science based target to be net zero at Deloitte by 2030.
Speaker: But our view is that we certainly have to take a look at our operations and get them to net zero by 2030.
Speaker: But the power will be if you take 300,000 professionals that comprise Deloitte
Speaker: And if we train them, change their mindset, and use them as catalysts into the communities that they live and work in, we can have a bigger impact.
Speaker: And the third pillar is around our ecosystem.
Speaker: The clients that we work with, the suppliers, we are a $50 billion organization.
Speaker: We acquire a number of things.
Speaker: And whether we can work with them to get to a point where they get to net zero as well.
Speaker: So that's the way that we're looking at it.
Speaker: And the board is holding us accountable.
Speaker: Management, myself, is against the long-term target, but we are breaking it out into sprints.
Speaker: It may not seem that sophisticated, but we break the year up into two sprints, 180 days, and we have clear targets, clear accountability along those three pillars, and we hold ourselves to account.
Speaker: I think it's a great way to focus individuals on getting measurable outcomes towards a long-term goal.
Speaker: Thank you so much.
Speaker: And I think that importance of clear measurements, good measurement and metrics is such an important one.
Speaker: It's really been incredible to have such a broad range of insights into this topic.
Speaker: Thank you all so much for joining us today.
Speaker: Really appreciate your input.
Speaker: Thank you very much.
Speaker: This has been a special podcast in the Business Plan for the Planet series.
Speaker: More episodes will follow shortly, so please do keep an eye out for those.
Speaker: For more information on the programme, visit business.hsbc.com forward slash sustainability.
Speaker: This concludes the first part of our discussion.
Speaker: To listen to part two of our conversation on this topic, please click on the next podcast in this feed.
Speaker: Thank you for listening today.
Speaker: This has been HSBC Global Viewpoint Banking and Markets.
Speaker: For more information about anything you heard in this podcast or to learn about HSBC's global services and offerings, please visit gbm.hsbc.com.
