Mike Hayes, KPMG Global Head of Renewables joins Yahoo Finance Live to break down why c-level executives are looking to improve their climate change policies and weigh in on how climate risks are impacting financial firms.
Video Transcript
[MUSIC PLAYING]AKIKO FUJITA: Welcome back to Yahoo Finance Live. 2020 is already shaping up to be one of the warmest years on record. And changing climate increasingly expected to be a growing concern for some of the largest companies around the world. The financial cost estimated to be upwards of $1 trillion.
And KPMG out with a new survey speaking to C-suite executives about the key risks they see and warming temperatures. Let’s bring in Mike Hayes. He is the global head of renewables at KPMG. And he joins us from Dublin, Ireland. Mike, it’s good to talk to you. Let’s start with that survey that you conducted because I think it’s really interesting to see how this attitude towards climate change and the risk that comes with it is changing, especially at the executive level.
MIKE HAYES: That’s absolutely true. I mean, the survey confirmed everything that we saw when we started off on this journey, which we did jointly with Eversheds Sutherland, the legal firm. Not withstanding COVID-19, one thing is really clear. The climate agenda has really accelerated as a result of COVID-19. And if you think we’ve seen and heard a lot about the climate agenda today, you’re going to see a lot more in years to come.
What the survey really highlighted was the fact that corporates all over the world are now taking climate change seriously. It’s gone from the sustainability part of the organization to the board, and CEOs are taking it incredibly seriously.
One of the fascinating things we found in the survey was the fact that over 78% of executives thought their job security would be impacted over the next five years because of the company’s performance in climate. I mean, that is incredibly revealing. Two years ago, that statistic would have been closer to zero.
But it’s not just that. What we really got was a message that companies are taking very seriously. And the reason they’re taking it seriously is because they are equating climate risk to financial risk. This is no longer just something that might happen in the future. Because of the way customers are changing their preferences, because of the way regulations are changing, investor sentiment is changing.
Unless businesses adapt to climate change, they are going to suffer. And that actually– we keep talking about the physical impacts of climate, which is really, really serious. But the message I want to give to your viewers today is climate is also about financial risk. And that is a single reason why corporates all over the world, not just in the US and Europe– we looked right across the globe– they are waking up to this issue.
And the fact that executives are now very concerned about their own job security and climate tells you something. But it’s not just the executives. What we actually found was that it’s a people issue. Employees are really starting to demand that their own companies take action on climate.
New talent is using climate as an arbiter to decide where to go to work in the future. And increasingly, we’re seeing remuneration packages linked to climate performance. Again, this is all new. And for me, it’s really a sign of where things are going to go over the next number of years.
ZACK GUZMAN: Yeah, and Mike, I mean, when we think about the new administration coming in, obviously, climate is much more top of mind for a Biden administration than it has been for a Trump administration. You think about the Paris Climate Accord there, too.
The Fed, you know, is also going to be joining the network for greening the financial system [AUDIO OUT] central banks across the world, dedicating themselves to understanding the risks here and improving the impact there through the financial system. So talk to me about how that is going to change the breakdown here and how you can’t really improve the situation if you have so many Americans worried about how it’s going to impact their jobs, or can you?
MIKE HAYES: Well, you see, you know, there’s a lot of misconceptions about climate. Climate is about opportunity, and not just about cost. Clearly, as corporates start to decarbonize over the next number of years, the cost is going to be first and foremost in their minds. But ultimately, if you do not decarbonize, you’re going to suffer in the long run. Because your business model will need to be changed because customers are speaking louder, employees are speaking louder, investors and governments.
So let me go back to the earlier part of your question. The Biden administration and the fact that the US is going to rejoin the Paris Accord, the fact that China itself has committed to net zero by 2060, but in addition to that, you know, everybody looks to governments. But look at what investors are doing. Investors are now saying, we will vote with our money. And unless companies adopt climate policies, we are going to vote them down. We’re going to look to change management, or we will invest elsewhere.
You spoke about the Fed joining the network for greening the financial system. This is the other big dimension. In Europe, we have a thing called the EU taxonomy, which is really saying to financial institutions, we want you to lend and transact with a certain type of company in the future. And we’re enforcing increased disclosure to do this.
So the real point here is the sands are shifting. There are so many new pressure points from all those areas I spoke about. And actually, it is becoming really impossible for companies, including corporates right across America, to ignore this. So it’s not just the new administration. It’s a combination of all those other factors.
And could I add one other piece, which is really coming to the fore in 2020. The large companies are saying it is no longer good enough for us to decarbonize. We now want our supply chains to decarbonize as well. So they are starting to apply pressure right across our upstream supply chains to take action. That actually is really profound. And it’s going to have a domino effect.
And you think about all the large companies in the world really starting to push their supply chains to take action. Because if they don’t, the large companies will no longer be customers of the members of their supply chain.
AKIKO FUJITA: So Mike, when you break it down that way, what– who’s likely to take the bigger hit on the back of this? You know, we forget in January, we were talking about all these commitments that companies are putting forward on climate.
A company like BlackRock, who has been under pressure to not just set their own climate goals, but also divest from some of these investments they have placed in energy companies. I mean, does this mean increasing pressure for those players as these companies who are saying, yes, in fact, we’re going to get ahead on climate, are increasingly under pressure from their shareholders.
MIKE HAYES: They are, but also, you know– and we can talk about certain parts of the energy sector, in particular, the oil and gas sector. And I want to give you a perspective. We are not going to transition to a decarbonized economy by 2050 without full participation from the oil and gas sector. So the key word is transition. We want people to transition, and we want people to transition in an orderly manner.
Our economies will not survive, natural gas in particular, and think of all of the oil-based products. What’s actually happening is investors are saying, yes, transition, but transition in a structured and an orderly fashion. Because if you don’t, that’s where global economies will be undermined.
So what you’re finding is there will be losers here. There will be losers, and the losers are not so much the people who are conducting high carbon industries today. The losers will be those companies who refuse to recognize all of the signs that I’ve been talking about in this interview. And if they don’t, they will get left behind. It’s no different to, you know, other technologies we’ve seen over time.
But again, I emphasize, you know, we are going to rebuild a new global economy, which will be a low carbon economy. It will cut across infrastructure and will cut across business. But there are lots and lots of challenges required to actually to get us there. So I’m really preaching for an all inclusive energy transition. Everybody needs to participate. And I’m not in favor of this idea of excluding certain parts of the economy.
AKIKO FUJITA: And Mike, when you get back to earlier, you were talking about the risks that companies see, obviously, job security one for these executives. But what about the issue of added costs? Is it about the supply chain? Is it about the regulatory costs? Can you elaborate a bit more on how these executives see the breakdown of the risks that come with a warming climate?
MIKE HAYES: Yep, so in our survey, we asked people to talk to us about the big barriers. And the big barriers were cost, lack of skills and expertise, and lack of technology solutions. And, you know, anytime that you’ve got to think about changing your business model, changing the way you do business, even the type of goods and products you conduct, there is a cost involved.
But the point I want to make is, it’s not always like this. And I’m going to give you two examples. So we have a whole bunch of different solutions to help organizations to decarbonize. And two of those are actually cost reducting solutions. The first one is energy efficiency, which I always describe as the unloved child of the climate change agenda.
It is such an easy thing to do for corporates to embrace energy efficiency solutions. We have the technologies out there, whether it’s for air conditioning for cooling, for heating. And the really incredible thing is proper implementation of energy efficiency solutions delivers cost savings. So this is why I keep hammering it’s not always about extra costs.
Second example is, increasingly, we are seeing corporates, particularly in the US market, convert from brown power to green power and implement renewable energy solutions. Because the cost of renewable energy has reduced dramatically over the past 10 years, we are now at a point where we can deliver renewable power to organizations at a lower cost than conventional power. I mean, that is quite a dramatic shift.
So the message I’m trying to give is that it’s not all about cost. You know, you’ve mentioned the fact that jobs are going to be threatened. I could call loads of different reports, which are going to talk about hundreds, and I mean hundreds, of millions of new jobs across the globe that will be created. Because what we’re doing is we’re creating a global economy.
This is not just about, you know, destroying certain parts of the economy. It’s about transitioning from certain types of activities into a new society. But frankly, one thing you should never forget, we have to make this change. We have to make this transition. Because climate change is not going away. It’s here already.
And as I said at the outset, it is not just the financial risk– or physical risk, it is also a financial risk. And that means it will ultimately impact all of our own investment portfolios, whether you’re a citizen in the US or a citizen in Australia or Japan. This is going to be a global thing, and we really have to embrace it and stand up and start challenging it and implement some of these solutions.
AKIKO FUJITA: Yeah, an urgent message we have heard from a number of executives. Mike, appreciate you bringing us that insight there. Mike Hayes, KPMG’s global head of renewables.
