Misplaced morality

Misplaced morality in companies’ climate action

Simon Glynn
August 2022
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Most companies have both a moral and a commercial drive for their climate actions. But they are using each in the wrong place. They typically combine a moral stance with commercially-led execution. What is needed is a commercial stance and morally-led execution.

Misplaced morality
Companies are using moral arguments for why they are tackling climate change, and commercial arguments for how. It needs to be the other way round. Taking a public moral stance as the basis of your climate narrative is unnecessary, because the en­lightened commercial argument is robust; it is also unhelpful, because it makes an ob­jectively essen­tial agenda open to question. Conversely, using moral objectives to set specific priori­ties for climate action could dramatically improve companies’ climate impact com­pared with today’s commer­cially driven, technocratic approach.

Shaky foundations
The moral arguments companies use for their stance on climate change are built on shaky foundations, needlessly putting the whole transition effort at risk. They speak the language of responsible business, stakeholder capitalism, and ESG1, which opens them to increasing challenge.

The inclusiveness2 and apparent arbitrari­ness3 of ESG ratings have been getting a bad press recently, for reasons I largely antici­pated in an article for FT Adviser last year.4 In particular, ESG mixes climate and bio­diversity imperatives that are objective and existential (because the status quo is not an option we can choose), with societal aspira­tions that are subjective and arguable (be­cause the status quo is an available choice, even if many of us may wish to seek an im­provement on it). The effect is to reinforce the misperceptions that make climate ac­tion debatable and partisan.

There is a real risk of legal and investor pushback obstructing climate action that is built on moral foundations.

Taking a moral stance positions companies as moral arbiters on behalf of society, mak­ing them open to challenge and to the push-back against ‘woke capitalism’.5 Banks that try to take these positions have found that good and bad are sometimes not clear-cut;6 the banks themselves are asking if they should get to ‘play God’ on ESG, having the say on what should and should not get to happen in the world.7

Without a broader global, societal consen­sus, there is a real risk of legal and investor pushback obstructing climate action that is built on such foundations. Yet the whole advantage of the corporate-led approach has been its ability to make progress without depending on a global and societal consen­sus, which there is no time or mandate to bring about. We cannot afford to lose that advantage.

This is all an unnecessary dilemma, because companies do not need moral arguments for why they should act on climate. Enlight­ened self-interest does the job. But to make such a commercial argument hold, compa­nies need to do two things that don’t come naturally. The first is to work with unusu­ally long time horizons, exacerbated by all the unknowns of policymaking, technolo­gies and other players’ moves during that time. The second is to get the counterfactu­als right. A future outcome of climate action will rarely look attractive compared with today, but today is not the alternative. Compa­nies need to compare alternative futures, with and without their climate action, to make a meaningful comparison.8

Morality where it matters
We do need companies’ moral drive though – where it is currently often missing. We don’t need it for why companies are acting on climate; but we do need it for how.

‘Given who we are and what we do, how can we have the most im­pact?’

It is not enough to drive your ‘how’ agenda commercially or technocratically. You can put in place all the metrics of carbon ac­counting, and even a carbon price; they are helpful indicators but structurally flawed.9 They cannot see through the complexity and dynamism of the transition to reveal how you could have most impact. They tend to drive you to focus on risk to the company first, business opportunity sec­ond, and climate impact third. All three out­comes matter, but not necessarily in that order.

They are not a substitute for a morally-led vision that asks, ‘Given who we are and what we do, how can we have the most im­pact (with a sustainable level of profit and risk)?’

This is what IKEA asked themselves ten years ago, when they went all-in on LED lightbulbs – a hard decision to defend com­mercially, as the costs were far too high for IKEA’s affordable prices, but one that used their extraordinary purchasing power to help drive unit costs down by a factor of five in just three years. It is the question AT&T asked themselves last year when they em­barked on their Gigaton Goal, ‘to develop connectivity solutions that enable custom­ers to reduce a gigaton (1 billion metric tons) of greenhouse gas emissions by 2035.’

IKEA and AT&T each started with the vision and conviction to see the impact they could have and the role that they could play. That ambition set the targets – in terms of a spe­cific outcome to make happen. In both cases there is then plenty of commercial discipline to achieve that goal profitably, as for any other business goal. But the most sophisticated carbon budgets won’t achieve much without bold vision and moral com­mitment setting their agenda.

Let’s use our morality where it matters.

  1. Environmental, Social and Governance [↩]
  2. ESG should be boiled down to one simple measure: emissions – Three letters that won’t save the planet, The Economist, 21 July 2022 [↩]
  3. See for example Christian Hetzner, Musk claims S&P ‘lost their integrity’ after Tesla gets booted from sustainability index while Exxon is included, Fortune, 18 May 2022 [↩]
  4. Simon Glynn, The five tensions facing ESG providers, FT Adviser, 9 June 2021 [↩]
  5. Andrew Edgecliffe-Johnson, The war on ‘woke capitalism’, Financial Times, 27 May 2022; see also Vivek Ramaswamy, Woke, Inc.: Inside Corporate America’s Social Justice Scam, 2021 [↩]
  6. Patricia Nilsson, OnlyFans founder blames banks for ban on porn, Financial Times, 24 August 2021 [↩]
  7. Nicholas Swee Yang Lua, DBS CEO Gupta ponders if bankers should ‘play God’ around ESG, Bloomberg, 27 July 2022 [↩]
  8. Simon Glynn and Simon Cooper, To transition to net zero, model the alternative, MIT Sloan Management Review, Volume 63, Issue #3, 3 January 2022 [↩]
  9. Simon Glynn, We must stop building a Soviet carbon economy, Zero Ideas, July 2022 [↩]