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EXECUTIVE PERSPECTIVE: Ex-CEO, new UN Head sees economic opportunity in sustainability

Charles Anderson, former CEO of Sovereign, New Zealands largest life and health insurance business, has joined UNEP to head up its Finance Initiative, a part of the United Nations which translates environmental, social and governance issues into terms which the finance community can measure and integrate into their strategies. Mr. Anderson will be a key leader in changing policy and business practices to mitigate and adapt to climate change risk. We sat down with him to learn more about his approach.


Sustainability:  Could you tell us a bit about your assumptions going into this role?

Mr. Anderson: Sure. I have come to the opinion that as we continue to develop the world’s finite natural resources, we have to be aware of our impact along the way. It is a simplistic view of a complicated world. When you think about it, pretty much all human activity has impacts, whether positive or not. It seems entirely sensible to me to continually ask the question: what is this impact of what I am doing? You have to then ask: why would someone do something without understanding the impact they have? Perhaps they are prepared to be unaware of it, or they don’t really care or don’t want to care.

Sustainability: So whose job is it to care?

Mr. Anderson:  We all have an impact, as persons and organizations. There was a recent article on your site where a senior executive of a major company stood up at Davos and said it’s not his job to care about the impact of climate change. I would ask this executive whether their business has no impact on the environment, no externalities, none at all?  In my view, this kind of perspective is narrow in every respect, especially at a time when there is clear evidence of constraints on global resources, which are being stretched all the time. Who would still want to continue carrying on being willfully unaware of the impact their business has? It’s everybody’s job to at least ask yourself that question.

Sustainability: When you think of impact in this context, are you thinking of just environmental impact, or is there a broader human impact and human rights issue emerging which makes the question of whether we should care even more compelling?

Mr. Anderson:  I’ll give you one example of what I think might be an indication of things to come. Just before I left New Zealand to come here, there was the first case of its kind going through the legal system where somebody had claimed to be a refugee due to climate change. Now, you can’t be a refugee due to climate change because refugee status isn’t defined in those terms. But if we are starting to think about the question of whether there should be refugee status attached to those people who are devastated by climate change, then this link to the moral and ethical issues becomes very much more obvious. The world will struggle to find solutions for refugees when refugee numbers increase dramatically due to climate change. And whether rich or poor, everyone is at risk.

Sustainability: Do you think this broader potential impact story is being told?  Does it reach those leaders and their families who are most in a position to drive change on this issue?

Mr. Anderson:  I think there is reason for some optimism here. With social media, there is no place to hide when something is going wrong. Sadly, I think many of the folks in the c-suite who look at this issue are looking at risk mitigation, and they are generally looking at a very narrow patch of risk mitigation with focuses on reputational risk: what is the least I can do or need to do to avoid being on the front page because of something horrible?  But there are so many opportunities to look at this issue, and one of the first steps is getting past looking at this as a trade off between “growth and green”. Once there is clarity on the opportunities, the finance community will overcome this hesitation.

Sustainability: Please elaborate. Where is the opportunity there?

Mr. Anderson:  There has been a lot of credible analysis done around how growth and green go together. Growth is not about doing what we have always been doing.  When you consider that all, if not most of the technologies we need to make a more sustainable world are available today, then it is easy to realize that deployment of these technologies will create jobs and growth. There is a huge green field of opportunity. Take for example energy efficiency in buildings. There is a strong case for retrofitting buildings to be more energy efficient with a very short payback on investment, at times within 2 years. If this kind of work were to be scaled, it would catalyze economic growth. That said, we should not underestimate the task at hand and what is required to change course here. A major part of this effort is narrating the new story in a compelling, evidence-rich manner. I see that as core to my job at UNEP FI. I need to excel at demonstrating the economic opportunity around the green economy, as well as the risks in not looking at this with an open mind.

Sustainability: Could you give us a sense for specifically how your background will help you do this?

 Mr. Anderson: My background is in the private sector. Twenty plus years in banking, and seventeen in insurance. I feel this has given me insight into the opportunity to carefully assess the broad range of impacts a business has on itself, the environment and society. In my previous role as chief executive of an insurance business in New Zealand, we went through a rigorous process of assessing externalities and their materiality to our business, looking at how our premiums were actually being invested. We assessed the potential impact of our investment strategy on our own insurance business. We found ourselves asking: what are the impacts of investing in a tobacco company, or a toxic chemicals company? Asking broad questions about the impact of our business on our business, led to an overall assessment of what kind of a company we wanted to become. It’s my sense many significant investors and pension funds have yet to fully embark on this kind of analysis, and this may be in part because of a lack of awareness of the opportunity and the tools available to do so. There are very robust frameworks for undertaking a social, governance, an environmental analysis of an investment portfolio, and UNEP FI can and will help investors become aware of the benefits of doing this kind of analysis.

Sustainability:  Are there significant institutional impediments to moving ahead with this?

Mr. Anderson:  I think part of the challenge is the traditional view on what is meant by fiduciary duty towards investors, specifically the notion that the duty is about maximizing returns without regard to environmental externalities or the opinions of original investors or pension holders. My philosophy is simple on this. It may be that an asset manager or pension fund interprets its fiduciary duty that way, but when are they going to look at the broader impact of their investment strategy on a planet which is so obviously encountering significant resource issues?  When will that become relevant to your fiduciary duty? Let’s at least ask the question, and be honest about the answer.

Sustainability: How does transparency factor into this?

Mr. Anderson:  It’s very important. You have a policy framework, you have concepts of fiduciary duty, and you have the public who are increasing aware of how business and finance is conducted. UNEP FI works across this framework, and creating transparency, essentially helping to tell success stories around opportunities in these areas, is very important. There has been too much silence in this area for a very long time. Further, these issues have become politically polarizing in many places, and in the process we have lost the very strong, public argument for economic opportunity.

Sustainability: Is there risk for UNEP FI in more proactively making this case for economic opportunity?

Mr. Anderson: I think we need to be cognizant that our members have voluntarily signed up, and that our signatories can come and go as they would like. My view is that there is significant opportunity for the finance sector to move further towards green from brown. Leading the finance sector towards this analysis will not be easy, and nor should it be. These are complex business problems with huge stakes. That said, we need to help lead in this discussion across our signatories and with related organizations like the PRI. With real leadership oftentimes comes risk.

Sustainability:  UNEP FI’s global roundtable discussion occurred last fall in Beijing.  What were the outcomes from this meeting?

Mr. Anderson: UNEP has commissioned an Inquiry into the policy framework which would support a more sustainable financial system. And by that, I don’t mean one which is less likely to crash, although that is also likely. I mean a framework which is more likely to guide private sector best practices which will lead to a more prosperous and sustainable world. A framework where investors are encouraged by government policy to take a comprehensive look at their external impacts. Once we have this policy framework, we can begin the more concrete process of assessing where we are with current policy, and what and who will see the huge benefits of change.  We can also begin to look at specific possible implementation of technology and investment guidance which can maximize impact. But we don’t have to wait for the Inquiry and policy. I ask you and your readers, find out who is financing you, your mortgage, your retirement savings. Are you happy with how they are investing your money? Try to begin your own journey, and your own analysis of your overall impact.



Corporate Governance

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