Some companies aren’t drawing up credible transition plans
Here’s a note from Nawar Alsaadi:
The transformation of the world economy to meet our climate change challenge is the singular most significant economic risk and opportunity of our life time. If you are not reassessing your professional career, or if you are not reevaluating the risks and opportunities facing your business in light of the ongoing economic transition then you have much in common with the Titanic’s captain, Edward Smith. A man believed to have ignored multiple iceberg warnings, and was engulfed in a state of shock after the accident: “As the Titanic headed out to sea, it received several warnings about icebergs in its path. The ship’s captain, Edward Smith, was warned by both the ship’s owners and the company that operated the wireless telegraph system. However, he dismissed these warnings, believing that the Titanic was unsinkable.”
The fact that you don’t believe in climate change, or care much about the sustainable transition, wont make it go away. The world is going to transition whether anyone of us likes it or not. This is not a choice, this is a historical inevitability. And yet, supposed “captains of industry” are sailing their companies and legions of employees and stakeholders into a climate iceberg.
In a comment about his experience at sea, Edward Smith had this to say in 1907 “When anyone asks me how I can best describe my experience in nearly forty years at sea, I merely say, uneventful. Of course there have been winter gales, and storms and fog and the like. But in all my experience, I have never been in any accident.” The above can explain to a large extent Smith complacency amid the imminent threat facing the Titanic. And it equally explains why the business and investment community is generally sanguine about the climate threat. No business leader today ever witnessed a world devastated by a climate calamity.
We are all conditions by our own experience. It is hard to fathom or understand a rare threat we’ve never faced or experienced, or what’s known in the mathematics as tail risk. During the financial crisis of 2008, in his article, Never Saw It Coming, Greenspan explains, how tail risk contributed to the financial crisis:
“The Federal Reserve, and other regulators failed to ensure that financial institutions were adequately capitalized, in part because we all failed to comprehend the underlying magnitude and full extent of the risks that were about to be revealed as the post-Lehman crisis played out. In particular, we failed to fully comprehend the size of the expansion of so-called tail risk.” Greenspan and Smith had something in common, both failed to appreciate tail risk, and so those who are underestimating climate risk today. A risk that’s increasingly edging from tail to central with every additional ton of carbon we inject into the atmosphere.