Climate change - commitments and actions of professional service providers

Most professional service providers are shirking responsibility on climate change.


This article outlines the actions and commitments of other types of organisation, what professional service providers are doing, and what we could be doing.





What other types of organisation have been doing about climate change


There have been fantastic moves by other types of organisation.


The Net-Zero Banking Alliance, the Net Zero Asset Managers initiative and the Net Zero Asset Owner Alliance collectively represent well over $100 trillion in assets under management. The obligations on their signatories have teeth - requiring them to aggressively reduce emissions in the short term and through to net zero by 2050, not just for their own activities but also those of the organisations that they provide funding to.


There are a bunch of other groups that have similarly onerous requirements, and companies are stepping up. Industry players are attacking some of the hardest areas - some examples amongst our customers and friends:


  • Laing O'Rourke is committed to net zero before 2050. This includes scope 3 emissions, which is a big deal for a major construction company that needs to use vast quantities of supplies like concrete.

  • Viridor is aiming to be net zero by 2040. Impressive, particularly considering that waste emissions are hard to abate.

  • The Octopus Group is committed to net zero by 2030. This may sound easy if you are only aware of their renewable energy electricity generation, however Octopus is a conglomerate - they retail electricity and gas to consumers, they have a substantial supply chain, and they are fund managers. For large, complex organisations, 2030 is just around the corner.

Kudos to everyone who is taking meaningful action!


What other service providers are currently doing in the climate space


As a group, professional service providers are uninspiring at best. Some firms pledge to reduce their own carbon footprint - such as the electricity supplied to their office, the embedded emissions within their equipment, and travel - and at the same time they support the harmful activities of their clients on a far greater scale. Buying green power for your office and incrementally reducing travel is insignificant against facilitating millions of tonnes of pollution. Supporting the deployment of a few dozen solar parks does not offset your involvement in the development of a new coal mine in a rich country.


Despite sounding like a leap in the right direction, the NZFSPA (Net Zero Financial Service Providers Alliance) is a sad showcase of the above. There is a sensible aspect to the NZFSPA that we will return to and I would give them a pass if they presented themselves as a group of institutions that offer some particular services, but their marketing is false. Their signatories claim to be "committed to supporting the goal of global net zero greenhouse gas emissions by 2050 or sooner, in line with the ambition to limit global temperature increases to 1.5ºC above pre-industrial levels" while the actual commitment allows behaviour directly opposed to that goal and, for example, each of the Big Four accounting firms has thousands of staff dedicated to the oil and gas industry.


Some service providers genuinely deserve credit. Most of these seem to be specialists that naturally serve particular industries or small teams with generalist capabilities who focus on particular things. Either way, these are skilled people and organisations who had options and chose to do good - thank you!


What White Box Financial is doing


We have been trying at this for a while. Our first climate policy required unanimous board approval before supporting any emissions intensive projects, and that approval was only to be given when justified. This was ineffective. We love our work and there were too many excuses: "sure it will burn gas but it's a highly efficient CCGT - the lowest emissions dispatchable electricity source that will be considered at scale in the region for the next decade so it helps support the rollout of renewable energy, it's for a great customer whose portfolio is greening, there are plenty of others who will do it if we don't, doing this will help us begin a relationship with the other sponsors and they do a lot of projects that perfectly align with our values...". The discretionary element was a problem.


Our current policy is much more effective. We implemented it in March 2021 and since then we have have not taken on any work that we later felt dubious about. The simple prescriptive nature suits us because we are a small team and we work on projects based in rich countries - we can easily err on the side of saying "no" without hurting anyone. We decline to support projects on account of our climate policy and people understand - I think they would understand regardless, and they definitely do when the policy is presented in simple language on the front page of our website. Our experience has been that customers we decline do come back when they have projects we can support.


What professional service providers can do to address climate change


Avoid supporting harmful initiatives


It is that simple.


Big players can divest. I am talking about the likes of large accounting firms, law firms, engineering companies, investment banking divisions and management consultancies. This is where most of the weak excuses come from:


  • You can divest. Package up and sell off teams that support harmful initiatives. These are dying offerings, and you will realise value by selling now.

  • We are not talking about laying people off or treating anyone badly.

  • It will make a difference. This is distinct from selling a coal mine to someone else who will keep burning the stuff. You have sway. Minimising the influence of bad actors will enable a myriad of positive systemic changes.

  • It will not diminish the ability to hold bad actors to account. That could only happen if you went about this in a sloppy and irresponsible manner. For example you can establish industry standards for emissions reporting and audit (this is the sensible aspect of the NZFPSA) and strictly comply with those rather than negotiating with or otherwise staying beholden to industrial polluters.

  • There is nuance in determining what is harmful - many activities have good and bad aspects, and a lot of comes into play for you because you support a broad range of clients and projects. This is a disingenuous argument because you currently continue to support projects where very little nuance is required. You constantly handle multifaceted issues and can deal with this one. Start by making a smaller commitment if you need to - you will still be free to ratchet up your ambition.

  • There will be challenges and it will require work. You have it much easier than other types of organisation and they are pulling their weight.

For big companies, all it takes is leadership. This is easier said than done - there is nothing to be gained by one brave executive pushing the envelope and getting kicked out by scores of colleagues who lack tenacity and are influenced by bad actors. Internal and external pressure can fix this. Employees can say that they want effective climate action - it is 2021 and the wave of other organisations that do take their climate responsibilities seriously has finally arrived, so employees do have weight provided they make their voices heard. Customers can factor it in when considering proposals and tell service providers about it. Investors can articulate their preferences and commit to supporting responsible decisions even if there are difficulties along the way.


For smaller businesses it is just as simple, but harder because the divestment option is not practical for them. It generally means turning away customers that you otherwise want to work with.


Band together


If we can build a critical mass of professional service providers who are truly taking responsibility for their actions, then we can band together and further help drive positive change.


Conclusion


Professional service providers are far behind other types of organisation when it comes to addressing climate change. It has been amazing to see how quickly industry, banking and asset management have accelerated in the past few years. We can follow their lead, and help create a better future. We can use our voices to enable change from within, and customers and investors can apply external pressure.


This article appears on LinkedIn and White Box Financial.