Davos shows big business in SA must act on climate crisis

Stakeholder capitalism was all the rage at this year’s World Economic Forum at Davos, with the CEOs of major multinationals debating the details and profiling their initiatives on platforms of all sorts. For the WEF, it was a refresh of its founding principle of 50 years ago that businesses should serve society, not just shareholders. A new “Davos Manifesto” expands that to a “better kind of capitalism” in which companies recognise they can thrive over the longer term only if they help to overcome income inequality, societal division and the climate crisis, rather than focusing just on shorter-term profits. It comes after leading US CEOs in the CEO Roundtable issued a landmark statement moving away from the principle that shareholders’ interests are primary to a broader notion of the company as serving all its stakeholders. It comes also at a time when investors are starting to ask companies about their ESG (environment, social and governance) performance, not just their profitability.

Some of the South African CEOs at Davos this week spent a fair bit of time at the various stakeholder capitalism sessions. But for SA’s large companies, the concept is hardly new. Our social and political environment, and our legal framework, have long pushed companies to measure themselves not just on how much money they make but on what we used to call the “triple bottom line”.

A key reason is that in contrast to the US, where the duty of company directors is to the shareholders, in SA, the duty of directors is to the company itself — as it is in much of Europe. So boards of directors have to look at the company’s ability to create value in the long term, not just at maximising profit in the short term, and that means a much broader sociopolitical and environmental view of the risks to the company and of the stakeholders to which it needs to account. To that are added the

BEE charters and codes that require companies to deliver for a broader range of stakeholders — not to mention the intense and often hostile scrutiny from a political class which is none too friendly to big business.

All of which is why some form of what the WEF calls stakeholder capitalism has long been a must in SA.

But if companies in SA are ahead in some ways on the stakeholder stuff, they are far from it on the “E” part of ESG. Some are already coming under pressure on the climate crisis issue: there’s more to come. And it could have implications for SA’s ability to attract investment, and to trade, more broadly.

Corporate SA has already seen the start of domestic shareholder activism on the climate issue. FirstRand and Standard Bank tabled annual general meeting resolutions proposed by activist investors Raith Foundation and Just Share calling for the banks to publish policies on financing coal-fired power — which they have now done — as well as for detailed reporting on their carbon exposure.

This year’s AGM season will no doubt see more climate-related resolutions at home. But companies could face even more pressure abroad, with the likes of giant BlackRock, the world’s largest manager of retirement funds with $7-trillion under management, starting to use its power to force the companies in which they invest to take the climate crisis seriously.

In a letter this week to BlackRock’s clients, founder Larry Fink has made it clear that “climate risk is investment risk” and that the allocation of capital will start to reflect this, setting out initiatives to “place sustainability at the centre of [BlackRock’s] investment approach”. At Davos, Fink and others talked about the ways in which the sustainability and climate issues will change the whole way financial markets operate — impacting on how insurers and banks price risk and how fund managers invest.

SA’s large companies are starting to take note. But since some of those same stakeholders are more than a little ambivalent about the country’s transition away from fossil fuels, it’s going to be a delicate balancing act.

BlackRock’s Larry Fink says climate risk is an investment risk