Sustained pressure from committed campaigners and NGOs can change companies, and sometimes entire industries, says Robert Blood, MD of consultancy firm, SIGWATCH. CEOs should sit up and take note
Last year, the climate protest group formed in the UK, Extinction Rebellion (XR), gleefully shut down central London with the help of hundreds of largely middle-class protestors and a fleet of ‘arks’, who blocked the city’s most important road bridges and intersections for two weeks. Last year – 2019 – was also the year of Greta Thunberg. She dominated the airwaves and captivated politicians across the globe while the movement she inspired, Fridays for Future (FFF), persuaded thousands of school children and students across Europe to quit school and march through city centres demanding faster action on climate change.
Do not be tempted to dismiss this as mere ‘noise in the street’, with no real-world implications. In the past year, many of the world’s largest financial institutions, including BNP Paribas, AXA, Allianz, RBS, Munich Re, ING, Rabobank, Standard Chartered, Barclays and HSBC have committed to exiting coal mining and coal-fired power generation – something which was a key demand of many of the people who took part in 2019’s protests. In the US, despite (or because of) an administration that is openly sceptical of the need for climate action, JP Morgan Chase, Bank of America, Wells Fargo, Citi, Morgan Stanley and Goldman Sachs have done the same. Even Japan’s major banks and insurers, and their equivalents in Singapore and China, have pledged to exit coal.
In 2018, a year before XR and FFF rocked up, Legal & General (L&G) told one of the world’s largest state-owned conglomerates, Japan Post Holdings (JPH), that it was to be dropped from L&G’s $6.7 billion USD Future World index funds. L&G said it had also instructed its other funds to vote against the re-election of JPH’s chairman. JPH’s crime? Its management had ‘shown persistent inaction’ in addressing climate risk.
Sustained pressure and historical precedent
Groups like XR and FFF are the culmination of a decade of sustained pressure from committed professional and amateur activists, a phenomenon that future executives need to take very seriously, even when it is happening far from the thick carpeted corridors of the C-suite. For example, coal divestment started as a US campus movement when student environmental groups demanded their college endowment and pension funds sell their shares in fossil fuel-related projects. Their strategy was modelled on the apartheid campus divestment campaigns of the 1980s, which aimed to undermine the economy of South Africa by forcing US firms and investors to sell South African assets. Congress imposed investment bans too. Until the Klerk-Mandela settlement of 1993, South Africa was a pariah state for investors for almost a decade.
Nor, incidentally, are activists stopping at coal. Under the slogan, ‘extreme carbon’, campaigners have extracted concessions from leading financial institutions on Canadian oil sands, Arctic and deep-sea drilling, shale gas, and related infrastructure such as liquefied natural gas terminals and pipelines. As these specific sources become demonised, conventionally produced oil and gas becomes more and more dubious. Divestment on the basis of increased risk has a tendency to become a self-fulfilling prophecy. When money flows out of an asset type, the remaining investors are, by definition, exposed to increased financial risk, and this in turn stimulates additional cycles of divestment. There is a reason why fossil fuels are commonly described by climate campaigners as ‘stranded assets’. Even energy giants like Shell and BP are now openly reconsidering their futures.
In this way, the quiet (or not so quiet) persistence of ordinary people motivated by a cause and organised by committed leaders change companies, and sometimes entire industries.
The gathering pace of ESG standards
The success of campaigners in getting their arguments heard and taken seriously is a relatively recent phenomenon, but a powerful one which is still growing. One consequence, perhaps the most striking change in the financial sector for over a generation, is the ‘mainstreaming’ of environmental and social governance (ESG) standards. Until less than five years ago, only socially responsible investing (SRI) and ethical investment funds really worried about such things, because they had been set up at the behest of non-profits and faith groups who insisted on strict investment criteria. Today, ESG is embedded across all fund management practice, particularly in relation to the institutions’ own funds, and are pushed by political stakeholders and customers to take intangible risks, such as human and indigenous peoples’ rights, seriously.
Pension funds linked to ‘politically sensitive’ workforces such as public sector employees, health and education, are especially vulnerable to this kind of pressure. The campus campaigns of the carbon divestment movement quickly moved on to targeting staff pension funds once they secured the support of a significant number of faculty. In Denmark, state pension funds have been called out by Greenpeace on the same issue. In Sweden, Greenpeace launched a boycott of payments into the mandatory state pension scheme, AP3, until it agreed to divest from all fossil fuels and related infrastructure projects.
One reason this has happened so quickly is because of pressure from campaigning groups taking advantage of the 2008 financial crisis, which had left the sector’s reputation in tatters. Leading institutions realised they had to prove they had ‘value to society’, which they did by engaging with NGOs in a far deeper and more open way than ever before. NGOs, in turn, led them to see ESG not as an eccentricity but as a way of doing finance responsibly.
The role of NGOs and protest groups
The impact of NGOs and protest groups extends well beyond finance. In the last few years, they have made plastics and throwaway packaging a major headache for consumer brands (gone are the days when the only thing Coca-Cola had to worry about was the amount of sugar in their drinks). Another rising issue driven by activist pressure is ‘green vegetarianism’. This is when consumers cut their meat consumption not just for ethical or health reasons, but out of concern for the climate and the environment. Campaigners are also successfully forcing investors and big business to take the problem of deforestation in their supply chains seriously.
With businesses and investors now engaging with campaigners and their concerns, doing nothing is no longer an option. For companies, it is no longer a question of, ‘are the NGOs being fair?’ but rather, ‘do the NGOs have the ear of our investors and other stakeholders?’ They may be small and apparently insignificant compared to a bank or investment fund, but NGOs have become critical players in transforming what society expects from business. As the Dalai Lama has told his followers, if ordinary people ever think they are too small to make a difference, try sleeping with a mosquito.
Robert Blood is managing director of SIGWATCH, a global research and strategy consultancy that tracks the campaigning of more than 10,000 activist groups to identify emerging issues and quantify corporate impacts.