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Read the third of four summaries from the 2020 annual meeting of the Salzburg Global Corporate Governance Forum - Putting Directors to the Test: How Does Leadership Measure Up in a Time of Crisis?
The 2020 annual meeting of the Salzburg Global Corporate Governance Forum took place virtually this year due to the pandemic. At "Putting Directors to the Test: How Does Leadership Measure Up in a Time of Crisis?" from 9-10 October 2020, 58 participants spread across 18 time zones, mainly directors and principals of corporations on four continents supplemented by additional stakeholder voices, explored crisis response and leadership, addressing what it takes for a business to survive an existential threat, and how companies should tackle both the distinct issues and converging risks around income inequality, COVID-19, climate change, and broader issues of systemic inequality.
This online program – sponsored by BNY Mellon, CLP Group, the Diligent Institute, and Elliott Management Corporation, with university partner Simon Fraser University Beedie School of Business, Centre for Corporate Governance and Sustainability – consisted of four highly-interactive modules that facilitated participants engaging in candid, in-depth, and practical discussions in a conversational non-webinar format over two days. The first discussion asked, "Are Companies Prepared To Handle The Converging Risks Of COVID-19 And Climate Change?"
Salzburg Global Seminar would like to thank the Forum's Advisory Committee members for their programmatic advice, insight, and support in leading these conversations. Members include Melissa Obegi (Chair), Stephanie Bertels, Walt Burkley, John J. Cannon III, Bharat N. Doshi, Christopher F. Lee, Simon M. Lorne, and Robert H. Mundheim.
There is now widespread acceptance that climate change presents both physical and transition risks to businesses. It represents a systemic risk to financial markets that affects all businesses irrespective of their industry or geography. In many jurisdictions, government bailouts have been tied to addressing societal expectations, including those related to climate change. The global pandemic has further shifted boardroom conversations about systemic risk and the role of companies in society.
With the pandemic, public health and safety issues have dominated the corporate agenda alongside concerns about unprecedented declines in revenue from pandemic lockdowns. Many governments have responded with taxpayer-funded subsidies, but with strings attached. Under the CARES Act, US companies that take Paycheck Protection Program loans cannot pay dividends or buy back shares while the loans are outstanding. Australian companies receiving JobKeeper subsidies must commit to retaining employees. Countries in the European Union offered a range of loans and subsidies, each with its own criteria and restrictions. Companies and boards had to make choices about whether to take support.
Companies from a broad range of industries have been committing to doing their part to address the climate crisis. In the last few months, we have seen significant developments around climate goal-setting. Early in the year, Microsoft announced a commitment to capturing an amount of carbon equivalent to what it calculates is all of the carbon it has emitted since it was founded in 1975.
The timeframe on climate commitments has also been accelerated. Amazon launched the corporate climate pledge where signatory companies agree to aim for net-zero by 2040, 10 years ahead of the Paris Agreement, through business change and innovations, including efficiency improvements, renewable energy, materials reductions, and other carbon emission elimination strategies. Walmart has recently pledged to hit zero emissions from its global operations by 2040 without using carbon offsets.
Another key trend has been a movement towards moving together. In the financial sector, one day after the launch of the UN Principles for Responsible Banking, 33 of the signatories (with over $13 trillion in assets) announced a Collective Commitment to Climate Action. This commitment includes signatories aligning their portfolios to reflect and finance the low-carbon, climate-resilient economy required to limit global warming to well below two, striving for 1.5 degrees Celsius. At the end of September, Morgan Stanley, historically a top financier of fossil fuels, became the first major bank to promise to reach net-zero financed emissions by 2050. September also saw all 13 airlines in the One World alliance unite behind a common target to achieve net-zero carbon emissions by 2050, becoming the first global airline alliance to do so.
The aviation industry has been under particular scrutiny concerning carbon emissions. Environmental conditions were added to the rescue packages for Air France and Austrian Airlines. These included ceasing routes of less than 3 hours, minimum ticket prices, and commitments to reduce carbon emissions by 30% by 2050.
The COVID-19 pandemic has stimulated Boards and a range of corporation, industry, and government actors to prepare for and address the threats of systemic risks like that of climate change. Corporate Boards and senior management teams are trying to assess their role, understand the cascade of new standards and requirements (in emissions, trade and prudential standards and securities laws) that have emerged, and evaluate the cost of systemic risk disruption that may impact company operations in the future.
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