Being an Avatar for a Sustainable World

Climate change has become by far the most important environmental issue and will take an increasingly prominent position within the policy discussions in Sweden, the European Union, and the rest of the world in the coming years and decades. In 2009 Folksam launched a project focusing on the energy industry to help lead the way toward a sustainable society.

An enterprise from the planet earth has found a deposit of a valuable mineral, unobtainium, on the planet Pandora, located some distance from earth. What unobtainium can be used for has never been clarified, but company executives are satisfied, as are the shareholders. There is only one minor problem: A population of aliens, Na'Vi, are sustained from the nature around the mineral deposit source. These aliens are fighting to retain their land and their lives and trying to maintain a balance with nature. The film can be seen as an allegory about the critical point in time in which we find ourselves today. Most of our world’s production takes place in post-colonial states, to satisfy the West’s consumption needs. What is portrayed in the film is very similar to how the energy issue is handled in the real world.

Because climate change has become the most important environmental issue, companies and fund managers will be forced to develop strategies to reduce emissions, both for cost reasons and as an important part of brand building. Already in recent years, an increasing number of pension fund managers have opted to apply ethical considerations to their management of capital.

In line with the increased prices for their products, oil and gas companies have increased their profits dramatically. The same applies to electricity-producing companies, which have increasing their profits through emissions trading, assisted by the price of electricity. This means that fund managers (and their depositors) who choose not to invest in the traditional energy sector are likely to miss out on many opportunities because of this decision.

In the coming decades, massive investments in the energy sector will be required. The International Energy Agency (IEA) estimated in May 2005 that the amount needed for investment in the energy sector by 2030 is an unimaginable $16 trillion. The IEA warns that with “business-as-usual,” 85 percent of the world’s increased energy needs will be met by fossil fuels by 2030 and carbon emissions will increase by 60 percent. The IEA has found that the operational lifetimes of many coal-fired power plants do not extend beyond 2015/2020 and that an important part of the work to avert climate change relies on technologies that replace coal power.

Folksam has four million customers and manages $35 billion on their behalf. This gives us a possibility to influence and, over time, change the society. Active corporate governance is among the tools we use. It has become highly important for companies in industries with high environmental risks to have policies and management systems that deal with risk preparedness. During the 2009 Folksam project that focused on the energy industry, Folksam contacted 69 companies through letters, e-mails, and telephone conferences. The results of the dialogue will be published in a public report in 2010. The reason for these questionnaires and dialogues is that Folksam has set high criteria concerning the environment and human rights for all of its investments. As a consequence, we are searching all the investments we have made and are making in the energy sector to make sure that we do not allow investments in any company that would be in breach of these criteria. As a background reference, we use the ratings of the ethical consultants Global Ethical Standards. Their points system includes grading of all publicly accessible information, including annual and sustainability reports, websites, et cetera.

How do companies in the energy sector handle their sustainability work? Is it a way to avoid criticism or is there a genuine desire to take an active part in combating climate change? Is it serious work or more “green wash”? At a time when an increasing number of climate-conscious consumers want to take responsibility, it is becoming more attractive to energy and oil companies to promote their products as being “better for the environment.” Are these companies’ solutions real or false?

All 69 companies in the energy and oil industry that Folksam contacted agreed to discuss sustainability issues. However, they found it very unusual that one of the owners contacted them directly to talk about this subject. Even more unusual, it seems that environmental and climate issue have a prominent role in the communications of financial analysts from banks. For many of the companies, the Global Reporting Initiative plays an important role. It helps them to report on their carbon footprint in a structured way. Many, but not all, also use an independent party to review the reporting process. Nearly all have set up internal policies as well, consistent with the principles of the Global Compact. They have internal goals and control of its operations but have still not reached a stage where they control their subcontractors.

In the case of NGOs, there are those who actively cooperate with them and those who see them as obstacles. Those who are most hostile believe that NGOs are uninterested or otherwise hard to engage in dialogue. The main goal for the companies is to have short- or long-term goals for the reduction of CO2 emissions. Almost all companies invest large sums in developing renewable energies. They are investing in wind, solar, and biomass. Renewable energy, combined with the smart use of energy, seems to be the main solution for the climate change issue. But at the same time, the traditional oil-based solutions are the ones that dominate company activities. The most progress has been made in those countries where the authorities have intervened and regulated the market, for example energy companies in California. In Australia the situation is different. Here there is an urgent need to switch from dirty brown coal to natural gas and then to develop alternative energy.

We have to realize that humanity is vulnerable. Businesses and owners must work together to create sustainable solutions. That is what the Global Compact means and what corporate social responsibility should be about.