COP26 and the changing world – will you change with it or be forced to change by it?

Written by Stephen Gregson, corporate finance director, MHA Moore and Smalley. 

“Perception is reality!”  

How often have we heard that phrase thrown around? Its history is an interesting one. It was popularised in the late 1980s by Leo Atwater, political strategist for George Bush Snr. Leo’s advice (or his Machiavellian manipulation of ‘the message’ if you prefer) helped turn around a 17-point deficit into Bush Snr convincingly winning the 1988 US presidential elections over his Democratic rival, Michael Dukakis. 

What Leo’s phrase means is that if you can make people believe something it becomes a de facto (no pun intended) fact.  

Clearly there were other factors also at play here; but getting the message right was of fundamental importance to George Bush. Getting yours right in relation to climate change and how you are reacting to it might be just as important. 

Strategically relevant or a distraction? 

Against the backdrop of the end of the COP26 talks in Glasgow, Atwater’s insight seems particularly relevant to those of you facing the endlessly tricky task of charting the strategic direction of travel for your business. 

Some business commentators say that adopting ‘green’ policies is too expensive and that it will damage the economy. Others suggest that that shows a fundamental misunderstanding of Venn Diagrams - the economy is a subset of the global ecology not the other way around.  Put simply (and hopefully far too pessimistically), in the absence of a sustainable global climate there is unlikely to be any kind of ‘economy’ which we would recognise as such. 

What Atwater might say is that, in relation to climate change, it doesn’t really matter if you think it is overblown or not.   

The widespread perception is that this is a challenge to our world; to our accepted way of life; that we bear a collective responsibility to take steps to deal with it (howsoever it has been caused) and that those steps will be a mix of those we choose to take and those we are forced to take as a result of either Government legislation or changes in market trends / sentiment (and very probably, both). 

It is hard to think of a sector or business which will not be impacted to some extent by either climate change itself or the policies governments adopt to address it or the changes in the behaviours of its customers. Not all will be impacted to the same degree and / or over the same timescale that is certainly true; but it seems inevitable that climate related risks, changes and opportunities will need to be factored into any long-term business plans.   

Opportunities  

Opportunities –  that is an important word.  It is easy to fall into a sense of gloom and feel that, at best,  the ‘glass is half empty’.  But let’s just pause a moment – one thing that history teaches us is that when there is radical change it is very easy to sense what might be lost - it is much more challenging to get a sense of what new opportunities might emerge. 

Climate change is happening in the climate (of course) but it is also happening in the policies and behaviours which shape our everyday lives. 

Like any change (gradual or a revolutionary pivot) it will have an economic aspect; and like any change there will be costs and also opportunities for businesses. 

Taking the long view? 

In many ways it feels like we have been here before. In Victorian Britain, some mill and factory owners decried the legislation which was being enacted to curb some of the more egregious excesses of child labour and exploitation in 19th century Britain. Yet, despite the shrill voices of alarm from some, laws to curtail the ability to send children up chimneys to scrape them clean did not bring about the economic collapse of Britain.   

In many ways it could be seen as helping to give rise to the opposite – a much more just and therefore sustainable political economy (Adam Smith’s term for what we now call ‘the economy’). If the economy is more sustainable it becomes a little more predictable (though not without risks of course); and if it is more predictable that encourages business owners to take risks and invest. Which in turn drives improvements in operational efficiencies, technological innovation and the evolution of economies - all of which can help facilitate ‘good’ economic growth.  

But what if climate change risks might be overstated?  They could be. But why do most of us take out home insurance?  Statistically it is unlikely our houses will burn down.  Yet we insure against the risk.  Isn’t the reason because, although it is a ‘black swan’ event and hence highly unlikely, if it did happen it would have a massive adverse impact?  We would regard as ill-judged someone who did not take out house insurance because the statistics say that it is unlikely to happen.   

Perhaps that same logic also applies to climate change policies?  

‘Greenwashing’ 

If you are still unconvinced, you might think that a bit of judicious ‘greenwashing’ of your business and how it presents itself will suffice. 

But do you really think that is going to work? Won’t your customers see through it – as might regulators and Government agencies if you try and bend the rules and regulations too far.   

In many ways the climate change policies are part of something much bigger; the Environmental, Social and Governance (ESG) characteristics of each business.  ESG is a key evolving area of focus for many businesses; particularly those with scale and operating at the top of supply chains. And if it is important for them, they will make it important for those smaller businesses within their supply chains.   

Interestingly, the announcement earlier this year by the Bank of England that it will actively consider the ESG climate policies adopted by large businesses which then apply for support under its Quantitative Easing bond buying programme could be seen as a ‘straw in the wind’ that ESG is now firmly in the mainstream of business.   

ESG is not just about climate impact, it goes wider than this to encompass how you treat your workers, your supply chain and your communities - and communities which are increasingly global in reach. The internet has a lot to answer for with many of us rather too attached to our mobile phones, but it does seem to have had the effect of building a sense of greater connection with other communities worldwide.  And that may go hand in hand with a greater sense of ethical connection to others. What Adam Smith called our ‘fellow feeling’.    

The ‘Why?’ of your business 

Purpose and meaning can seem a little woolly or ‘tree hugger’ but these are big issues (and, let’s say it again, big opportunities) for many businesses. As Simon Sinek says in one of his TED talks, many of the most successful international brands have become so because of their effective communication to their markets of ‘Why’ they do what they do. Not what they do or how they do it; but ‘Why’ – what is their purpose? And can they communicate that in a clear, understandable and, crucially, an engaging way. 

Even if you disagree, your customers and your future markets are very likely beginning to think like this. They are sharing information on which businesses ‘get’ their worldview - and potentially changing their purchasing behaviours accordingly.   

It’s coming? 

At this time of year there will be a rash of adverts saying, in several different ways, that ‘Christmas is Coming’.   

If climate change and, as a result, political-economic changes are coming, we all have the chance to choose the extent to which we move with these or behave like Seneca’s dog which is tied to the back of a cart. The dog can resist all it likes; but when the cart moves, it will too – whether it wants to or not.    

Which is it to be for you?