In August this year I nominated to join the board of BHP Billiton, the world’s largest diversified resource company, on the basis that the company needs to take far more extensive and urgent action to address climate change and its potentially destructive impact on BHP’s shareholder value. BHP maintains it is well aware of climate change risk and is taking appropriate action; accordingly, the board has recommended that shareholders vote against my appointment. So why pursue this course?
Over the past 20 years it has become evident that conventional politics in Western democracies will never provide the leadership necessary to address climate change. The recent Australian election, the denialist stance of the Abbott government and the ineffectiveness of its ALP predecessors just rams the point home. It is impossible for politicians driven by short-term electoral considerations and ideological paranoia to take a balanced view on an all-pervasive, existential issue like climate change.
However, as Voltaire put it: “Men argue, Nature acts.” The latest science confirms that fossil-fuel emissions from human activity are warming the planet at an accelerating rate, and that both the extent and speed of that warming have been badly underestimated.
Current climate policies are leading to a world with an average temperature increase in excess of 4 degrees above pre-industrial levels — a world where population would fall from the current 7 billion to below 1 billion, caused by a combination of heat stress, escalating extreme weather disasters, sea level rise, disease, food and water scarcity, and consequent social disorder and conflict. Early signs of this are already evident in the conflicts in Egypt and Syria, where climate change has been a significant contributing factor.
These impacts are being locked in by our investment decisions and inaction today, but the full, catastrophic effect will only evolve over time. Typhoon Haiyan sadly is providing a foretaste.
Dangerous climate change is already happening at the 0.8-degree temperature increase we are experiencing now. The “official” limit of 2 degrees now represents the boundary between dangerous and extremely dangerous climate change. To have a reasonable chance of staying below even the 2-degree limit, we have virtually no carbon budget left to burn, not even the 20% of global proven fossil-fuel reserves frequently quoted. To avoid catastrophic outcomes we must take emergency action now to halt new fossil-fuel investment, and rapidly wean ourselves off established fossil-fuel use.
In the absence of political leadership, business in its own self-interest must act — business as we know it in a world that is 4 degrees hotter is not possible.
Sir Nicholas Stern in his 2006 report declared that climate change was “the greatest market failure the world has ever seen”. Despite having access to the best possible scientific advice, most corporate leaders have taken the view that they have to work within the confines of policy set out by government, rather than draw their own conclusions from that science and act accordingly. The result has been “the greatest failure of risk management and corporate governance the world has ever seen”, as the boards of directors of most global companies, in underplaying the real risks of climate change, abrogate their fiduciary responsibility to objectively assess those risks, and to manage them in the interests of their companies in perpetuity.
“It is essential BHP … in its own self-interest now start to publicly articulate the need for, and implement, radical action on climate change.”
Major institutional investors, with some notable exceptions, are equally complicit in not insisting far more vigorously that boards of directors confront climate risk and grasp the opportunities it brings. Unfortunately, climate change is still regarded as a secondary ESG (environment, social, governance) issue, and not the primary determinant of shareholder value it has become.
Climate change represents a strategic risk to every business — a risk that has the ability to fundamentally alter the direction of the business, or indeed to destroy it. It is a risk unlike anything the corporate world has had to deal with previously, and it requires fundamentally different strategic thinking.
The growing global carbon “bubble” is poised to burst even as companies rush headlong into more and more high-carbon investment, trying in our case to squeeze the last drop of juice out of the Chinese lemon — witness the planned doubling of Australian coal exports and quadrupling of gas exports over the next few years. The result will be to place Australia on the wrong side of history, as fossil-fuel assets are written down, shareholder value destroyed and the ability of businesses to prosper in a low-carbon world is impaired. As with banks in the GFC, free-marketers will then demand the losses be socialised, crying “we are too big to fail”. Only this time it will be the resource companies leading the rush.
BHP, to be fair, is more advanced than most companies in addressing climate change. It has long acknowledged the risks and called for accelerated action, and it has comprehensive risk management and corporate governance policies in place. However, given the latest scientific evidence, I do not believe the company has elevated climate change and its risk management to the critical strategic level that is warranted.
The board itself has impressive skills and wide experience. But, as is common with the boards of most major global corporations, it has fallen into the trap of “groupthink” in failing to grasp the enormity of the challenge that climate change poses to the business.
The board’s initial characterisation of my nomination as that of a “single-issue” director demonstrates the point. The very fact that the board sees it that way indicates that directors do not understand that climate change from now on will permeate every aspect of the company’s activities, from strategic direction to operational detail. It is certainly not a single issue in any conventional sense, any more than I would be a single-issue director.
In facing up to the challenges that climate change and other resource scarcities are bringing, greater diversity and broader thinking on corporate boards is essential. I have industry and governance experience comparable to current BHP directors; in addition I have the strategic perspective and knowledge to overcome climate change “groupthink”, fill a deficiency in the board’s current skillset and complement existing directors in guiding the company’s response to these critical issues.
It is essential BHP, along with like-minded progressive organisations and investors, in its own self-interest now start to publicly articulate the need for, and implement, radical action on climate change. The future prosperity of BHP is of great importance, both in Australia and globally. I believe I can assist in ensuring this prosperity continues in a low-carbon world.
*Ian Dunlop is a former international oil, gas and coal industry executive. He chaired the Australian Coal Association in 1987-88, chaired the Australian Greenhouse Office Experts Group on Emissions Trading from 1998-2000 and was CEO of the Australian Institute of Company Directors from 1997-2001. The BHP Billiton AGM is in Perth next week.