It was 1989. Margaret Thatcher, poster girl for conservative pro-business policy, urged the United Nations General Assembly to take remedial action on global warming. From that date at least, governments around the world should have been aware that here was an issue deserving policy attention.
Margaret Thatcher was a scientist.
Of course, a politician’s opinions on a technical matter do not automatically become orthodoxy, even if she is well informed. So the first authoritative milestone in official recognition of the risk of climate change was probably not her speech but the 1990 First Assessment Report of the Intergovernmental Panel on Climate Change (IPCC), which observed that:
“The potentially serious consequences of climate change on the global environment give sufficient reasons to begin by adopting response strategies that can be justified immediately even in the face of significant uncertainties.”
Not exactly unambiguous, but a flashing amber light.
From that date, the board of every company directly exposed to a change in policy on carbon emissions should have anticipated that policy would soon change and could have been expected to take preventive action.
In due course all companies will be affected by the biophysical and policy trends that are now in train, but some will be unduly severely affected. Companies in the transport, energy, mining, water and agriculture sectors are particularly vulnerable — this article is written about you.
“The multinationals have to take the long view,” stated Thatcher. “There will be no profit or satisfaction for anyone if pollution continues to destroy our planet.”
The lights turned to red with IPCC 2 in 1995. In its careful language, delaying mitigatory measures “may leave a nation or the world poorly prepared to deal with adverse changes and may increase the possibility of irreversible or very costly consequences”.
IPCC has never been a purely scientific organisation. At its founding, conservative voices, from the United States especially, insisted that the organisation be composed of government representatives, as they would no doubt be more cognisant of commercial pressures than scientists. In vetting the “Policymakers’ Summaries” line by line, government representatives have moderated the crispness of the scientific consensus and have caused the reports to repeatedly err on the side of caution in preference to alarmism.
It is exasperating to now read conservative commentators panning the IPCC for being politically tainted. Of course it is, always was, but not in the direction that climate contrarians pretend. We have lost crucial years through prevarication, as global indicators are deteriorating more rapidly than under the IPCC’s worst scenario.
IPCC 5 in 2014 represented a consensus of more than 95% of climate experts that the planet is suffering serious climate change, with potentially catastrophic effects on business-as-usual for both developed and developing economies: “Warming of the climate system is unequivocal.”
At what stage should a prudent board of a particularly carbon-exposed company take precautionary action?
Suppose that a board is advised that it faces a 5% risk of an event that would have disastrous consequences for the company? A prudent board would not ignore this risk. Companies routinely insure against risks of fire, accident and theft that are less likely than 5%.
At 25%, a prudent board would set off alarm bells, restructure the vulnerable parts of its organisation and appoint an expert board committee charged with investigating the phenomenon and devising preventive strategies.
Now suppose that the risk of this company-shaking event is 95%. That is the “here-and-now” for carbon-exposed industries. After IPCC 2, let alone IPCC 5, a board in an exposed industry that failed to take remedial action consistent with scientists’ warnings could be held legally liable for destroying shareholder value.
In a hypothetical court of law in 2020, it won’t be sufficient for a board to claim that it relied on assertions from commentators like Andrew Bolt or business leaders like Maurice Newman that climate change was a beat-up by radical environmentalists determined to wreck capitalist economies. The court will quickly dismiss any defence that the board took its scientific advice from polemicists.
Further, it would be disingenuous for a board to claim that it was waiting for a signal from government, as it is largely pressure from the business sector that has delayed action from governments. However, even this excuse for inaction would evaporate on November 24, 2007, the date of the election of a national Labor government committed to placing a price on carbon emissions.
Companies deeply involved in burning fossil fuels such as in coal-fired power stations know well that they can expect suits on behalf of environmental groups alleging that they have wantonly damaged the public commons. Such suits however face the well-known difficulty of attributing general effects directly to a specific cause.
But promoters of a class action on behalf of shareholders in a company with stranded assets do not need to prove direct damage to the atmosphere from their firm’s operations; they need only show that the company negligently allowed its assets to be devalued. Ignorance would be no excuse given the voluminous factual and interpretative material that is available on the pivotal subjects.
Of course, not all scientists think the same way — geologists and chemical engineers tend to view ecological systems through lenses different from those of biologists. Simply appointing a token scientist from some other sub-discipline as a director will not by itself insulate a company from loss of its capital value or collapse of its business model.
Business does not need green radicals to trash shareholder value. The business spokespeople arguing to keep coal-fired power stations open and ignore the signals of environmental distress are doing a perfectly good job of wrecking their industries’ business models by themselves.