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Link executive pay to climate change

Link executive pay to climate change

Things are coming to a head in the fight against climate change. A UN summit is meeting this week and the verdict is in: we are the last generation able to stop the destruction of our environment. If we don’t then the world’s poor will suffer first and longest, but no one will escape unscathed. David Attenborough has warned that the collapse of civilisation is on the horizon.

Recent news confirms that we have a major problem. The last four years have been the hottest on record and carbon emissions are on the rise. Conversely, to achieve our goal of stopping runaway global warming we need them to fall by half in the next 12 years. It is becoming increasingly clear that warming more than 1.5 degrees above pre-industrial levels will be a disaster, but to meet this target leading authorities on the matter say that we need to increase our current level of action fivefold.

Whilst major polluters such as the USA, China and Brazil continue to grow their emissions in the face of looming disaster, organisations like the World Bank are beginning to step up to the challenge. The organisation has announced that it is doubling its financial commitment to the fight, investing US$200bn to help countries adapt to the changing climate between 2021 and 2025.

Funding will be made available for the likes of early warning systems and high quality weather forecasts in the developing world, protecting food production and saving more than 100 million hectares of forest around the world. It is a measure of the damage we have done that, realistically, even such bold measures are no more than a drop in the ocean.

Without full-throated support and action from the world’s leading governments, the World Bank cannot do much on its own. An extra US$100bn is welcome, but isn’t much compared to the resources which can be marshalled by states. Even the EU’s recent commitment to become climate neutral by 2050 won’t be enough on its own despite being a significant measure.

In the absence of leadership from that direction we must look to industry for radical progress – something which is normally the last resort of the desperate.

Unfortunately the problem is becoming so severe that even energy companies are finally taking serious action, whether that is divesting from fossil fuels or beginning to seriously develop alternatives. The latest encouraging move is from Royal Dutch Shell, one of the largest fossil fuel energy companies in the world and a major negative contributor to climate change.

Given that the world’s leading energy companies have known of the dangers of climate change for decades and done nothing to address them, it is clear that relying on corporate good will is a path to failure. Much more effective is for its shareholders to apply pressure and demand change – which is exactly what is happening at Shell.

For the first time Shell is to set carbon emissions targets and link those to how much money the company’s top executives get paid. The new plan is subject to a vote by shareholders but it is hard to see it failing.

Only a few months ago Ben van Beurden, the CEO at Shell, was lukewarm on potential action regarding setting carbon targets and linking it to executive pay; now he is enthusiastically stating that "we are taking important steps towards turning our Net Carbon Footprint ambition into reality by setting shorter-term targets.”

It is hard to overstate how important this move could turn out to be. It sets a benchmark not only for other companies to follow but also by demonstrating the power of activist shareholders who see more value in ensuring the future of the planet over easy short-term profits.

Shell was pressured into this move by groups as diverse as asset manager Robeco, the Church of England and Climate Action 100+, a group of more than 300 investors in charge of US$32tr in assets which aims to use its financial might to drive business towards curbing carbon emissions.

Given the neglectful inaction of many global governments it is clear that we need to get creative, and the rise of investors concerned with environmental, social and governance investing is a huge positive. By forcing Shell to set annual three-to-five year targets on this matter, and by linking it to money rather than vague sentiments of goodwill, we might well start to see a real change.

Other oil companies will be forced to follow suit in short order, and an industry governed by targets other than how much money they can make will be better for everyone. As much as we like to imagine that individual actions such as using fewer plastic straws might save the world, the reality is that approximately 100 companies are responsible for more than 70% of global emissions. If we can change these companies then we can change everything.

All the indications show us at a tipping point. The world needs to get creative and this week’s announcements are a good start.

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