Peter Harrison: why climate change is creating a 1929 moment

The battle against Covid-19 has been brutal, inflicting a terrible cost on society. But it will be overcome; scientific endeavour will prevail.

Looking decades ahead, my greater concern is climate change. By 2050 we may find the effects of the pandemic will be dwarfed by the consequences of unchecked global warming.

The future actions of companies is critical to solving this crisis, yet too little is known of their long-term plans. Asset managers, such as Schroders, are in constant dialogue with the companies in which they invest, but a step change is needed.

This week, Schroders has written to the UK’s largest companies asking them to publish detailed and fully costed transition plans on climate change. (There is a PDF of the letter at the bottom of this article).

The detail is crucial. We want to see exactly how each company will play its part as the UK economy re-orientates towards the government’s target of net zero greenhouse gas emissions by 2050.

Initially, we have contacted companies in the FTSE 350 index. We have offered support in the execution of their plans but also made it clear that we will monitor progress closely. Looking ahead, we will expect the same progress beyond these shores. We would like to see all medium and large companies, regardless of where they are listed, publish their plans.

Naturally, as a member of the FTSE 350 we will be publishing our own plans for transition. While we have invested heavily, we recognise our own journey is closer to the start than the end but we are committed to that journey.

Making this request of CEOs was a natural next step for us. We have spent the last few years developing tools that will drive better outcomes. Our Climate Progress Dashboard, for instance, has flashed red since 2017, warning of insufficient action from all who could and should be helping.

More specifically, our ground-breaking analytical tool, CarbonVAR, has warned individual companies about the cost – the “value at risk” – for the past five years. Unlike usual carbon footprint measures it focuses on the risk to profits rather than the pure environmental cost. Deployed in 2016, it has been making clear the potential cost of inaction to both our clients and the companies we invest in. With it, we can help companies make choices that are good for the planet and good for profits.

On that note, let’s be clear – this is about profits as much as planet. Our purpose, our primary aim, is to provide excellent investment performance for our clients. We do this by seeking out companies with sustainable and robust business models. In tomorrow’s investment world, profits and planet are interlinked.

I would go so far as to say that this is a 1929 moment, a once-a-century shift in the way companies are valued. Before the Wall Street crash, a company could report whatever level of profits it chose. In the aftermath, and amid the Great Depression, robust accounting standards were introduced and remain with us today.

But now there is a new dimension to investing. Investors must understand the cost of a company’s entire activities – they must value their stocks based on “impact-adjusted profits”.

For most companies, climate change is the greatest impact they will have. We believe that good plans, carefully considered, will benefit company valuations and help in the fight against climate change.

CEOs should act now by opening their climate change road maps to closer scrutiny. Further delay will be costly for their investors and for us all.

The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested