01 MAY 2021
Is COVID-19 sharpening focus on stakeholder capitalism?
Authored by Michael Wilkins / Senior Research Fellow, Sustainable Finance, S&P Global Ratings
The traditional corporate imperative of maximizing shareholder value is increasingly under siege. Companies are fast adopting ‘stakeholder capitalism’, focusing on long-term value creation for customers, employees, society, and the environment rather than just short-term value for shareholders.
According to our recently published whitepaper "Stakeholder Capitalism: Aligning Value Creation with Protection of Values," we believe the pandemic has served to accelerate this shift, with substantial government support for businesses raising expectations of corporate social responsibility. Recent surges in sustainable investing and increasing market scrutiny of ESG factors are calling into question the purpose of corporations and asking where their responsibilities to society begin and end. Companies are now expected to invest more in employee health and wellbeing, safety protocols, and ensuring business continuity. But this means aligning these objectives with sometimes-contradictory shareholder interests.
Striking the balance
The core premise of stakeholder capitalism is to find a balance and compromise in meeting the needs and serving the interests of all stakeholders and shareholders. It implies a company's purpose is to create sustainable long-term and shared value for all.
Value creation is not just about profit maximization for shareholders but instead encapsulates a more holistic purpose, aligning the broader values of a corporation with those of society, while considering externalities. Yet, the "value" created by the pursuit of stakeholder capitalism is difficult to measure, which limits its current operational effectiveness. It requires the enhancement and standardization of nonfinancial disclosure around different metrics to ensure more transparency and accountability. Ignoring externalities such as global warming, increasing social fragmentation, and unrest may eventually backfire on a corporation's long-term operating environment and profitability. Ongoing shifts in stakeholder expectations vis-à-vis corporations may have tangible business and financial consequences. The balance between stakeholder and shareholder interests has become a delicate one.
Effective stakeholder management
Covid-19 may have acted as stimulus for sustainability-related growth but also, indirectly, as an opportunity for corporations to refocus their priorities in line with market expectations around sustainable growth.
While it remains to be seen the extent to which Covid-19 will lead to lasting fundamental changes, it is likely that effective stakeholder management will become increasingly important for companies to successfully operate in a world of weakened public finances, social scars, and environmental degradation. However, it remains difficult to measure the stakeholder value a company creates.
Improving that measurement will require enhanced disclosure.
A case for sustainable investing
The growth of sustainable investing could reflect stakeholder capitalism taking root. Companies that have focused on sustainability issues have empirically been shown to achieve lower costs, enhance employee productivity, mitigate risk, and generate new growth opportunities. Effective sustainability performance is also said to strengthen corporate resilience. Research from Bank of
America Merrill Lynch even suggests that the integration of ESG initiatives and greater stakeholder engagement could help prevent around 90% of bankruptcies.
The COVID-19 crisis has sharpened the focus on stakeholder value. The pandemic has reaffirmed the materiality of sustainability-related risks and the deep links between businesses and their stakeholders across the value chains. In response to the pandemic, governments have provided substantial support to corporations to prevent economic collapse. This in turn has raised expectations about corporate responsibility and the purpose of corporations. Companies are now expected to invest more in employee health and wellbeing, safety protocols, fortifying cyber security, and ensuring business continuity.
Redefining purpose and responsibilities
Following the stakeholder approach can raise issues around accountability because environmental, societal, and economic issues may end up being tackled by non-democratically elected leaders. Indeed, corporations may argue they are paying taxes to governments to cover these very matters. Inside of a company, employees want to see the CEO and they also want to see the company take a stand on issues that are important to them that advance social change or advance things in the communities around us. People realize that for true change to occur, they cannot just rely on the government. The change also must come from the private sector and its leaders.
In conclusion, the purpose of a corporation is being redefined. The aim is to increase economic and societal resilience by accelerating inclusive economics and societies while shaping a new concept for economic integration and digital revolution. A more inclusive and holistic approach is even more crucial during the current volatile times in which many people are without their jobs and companies are forced to shut. The values that a corporation embraces can be as important as the value that it creates. From a stakeholder perspective, the two are inextricably linked.
30 MAY 2021
Need to Know: 10 key facts about World Environment Day
By United Nations
Ecosystem loss is depriving the world of carbon sinks, like forests and peatlands, at a time humanity can least afford it. The emergence of COVID-19 has also shown just how disastrous the consequences of ecosystem loss can be. By shrinking the area of natural habitat for animals, we have created ideal conditions for pathogens – including coronaviruses – to spread.
Ecosystem restoration means preventing, halting and reversing this damage – to go from exploiting nature to healing it. Only with healthy ecosystems can we enhance people’s livelihoods, counteract climate change and stop the collapse of biodiversity.
This year, World Environment Day is focused on ecosystem restoration and its theme is “Reimagine. Recreate. Restore.”
This World Environment Day will kick off the UN Decade on Ecosystem Restoration (2021-2030), a global mission to revive billions of hectares, from forests to farmlands, from the top of mountains to the depth of the sea.
Ecosystem restoration is a global undertaking at massive scale. It means repairing billions of hectares of land – an area greater than China or the USA – so that people have access to food, clean water and jobs.
Global greenhouse gas emissions have grown for three consecutive years and the planet is on pace for potentially catastrophic climate change.
Every three seconds, the world loses enough forest to cover a football pitch and over the last century we have destroyed half of our wetlands.
As much as 50 percent of our coral reefs have already been lost and up to 90 percent of coral reefs could be lost by 2050, even if global warming is limited to an increase of 1.5°C.
Over 4.7 million hectares of forests – an area larger than Denmark – are lost every year.
Nearly 80 percent of the world’s wastewater is discharged to our oceans and rivers without treatment.
Wetlands are being drained for agriculture, with some 87 percent lost globally in the last 300 years.
Present in more than 180 countries, peatlands are vital, super-powered ecosystems. Though they cover only 3 per cent of the world’s land, they store nearly 30 per cent of its soil carbon.
29 MAY 2021
How to Hydrogen: The 3 golden rules to fuel the future
By Dietmar Siersdorfer, Managing Director, Siemens Energy Middle East and UAE.
The lightest element in the periodic table, the most abundant chemical substance in the universe, and the long-promised secret weapon to win our battle against climate change. These are all common features of Hydrogen. A clean-burning molecule, that can help to decarbonize a range of sectors that have proved hard to clean up in the past.
Hydrogen has been touted as the ‘fuel of the future’ since the 1970’s but five decades later, that vision has yet to materialize. Perhaps part of the problem is using the label ‘future’. That always gives us the illusion that we have the luxury of time. But today, in a post-pandemic world where the concentration of carbon dioxide in our atmosphere is the highest it has ever been in human history, it seems like that future has arrived.
With green hydrogen gaining traction around the world and in the region, it is the right time to make the dream of a cleaner future a reality today. So what are the three golden rules we need to remember to make that happen?
1. Being realistic
With more and more nations committing to green hydrogen strategies and new ground-breaking projects taking place around us, it is important to not lose track of where we stand in this journey. We are still at the very beginning. Knowing where we stand means knowing exactly what needs be done to reach our targets. The reality is that we still have many challenges to overcome when it comes to the production, transportation, and storage of an element like Hydrogen.
It all starts with the conundrum of ‘green’ hydrogen, which can be produced from water with electrolysis, an energy-intensive but carbon-free process if powered by renewable electricity. That sounds like a perfect solution, but of course there’s a catch. According to Bernstein analysts, hydrogen made from fossil fuels currently costs between $1-$1.8/kg. Green hydrogen can cost around $6/kg today, making it significantly more expensive than the fossil fuel alternatives. However, as is the case with all production processes, increased demand could drastically reduce these costs.
The transport and storing of hydrogen are also one of the main stumbling blocks in the road to a hydrogen-based economy. The nature of H2 as an element particularly makes this difficult. Its flammability, low density as a gas and liquid, and high diffusivity pose serious safety risks throughout every step of the distribution mechanism. Its transportation, storage, and final delivery to the point of use also incur significant costs. Other chemical alternatives for hydrogen storage, such as methanol and ammonia, could be the answer due to their high storage density and less electricity demand for storage. Some of the infrastructure required to pull this off is already in place because hydrogen has long been used in industrial applications. However, we are still lacking the means to support widespread consumer use of hydrogen as an energy carrier.
2. Building on momentum
Hydrogen has been in use for many decades in sectors like refining and chemical industries. However, its use as an energy source has started receiving increased interest in recent years. Over the past year alone, we saw great progress with industrial giants like Germany, Netherlands, Britain, Australia and Japan, announcing hydrogen strategies.
2020 was dubbed ‘The Year of Green Hydrogen’ and it’s crucial to build up on this momentum. At Siemens Energy we are also playing a massive role, with our partners, in steering this momentum toward the region. One of the major milestones occurred last week as we inaugurated the first industrial scale, solar-driven green hydrogen facility in the Middle East and North Africa in partnership with Expo 2020 Dubai and DEWA. The integrated facility is regarded as a pilot project and was developed with electrolysis, storage, and re-electrification capabilities, to maximize the benefits of the pilot project. Daylight solar power from the Mohammed bin Rashid Al Maktoum Solar Park, where the facility is located, will enable the production of around 20.5 kilograms of hydrogen per hour at 1.25MWe of peak power. This is the first time green hydrogen is being produced at an industrial scale in the region. How did we make this happen? Partnerships. Collaboration between the private and public sectors is the only way forward to transform the energy sector. The real value of these pilots is not in the numbers, but in the lessons that we will learn along the way that will guide us in the development of a green hydrogen industry across the region.
3. Learning from solar and wind
The good news is that we have been on a similar path before. Once upon a time, the integration of solar and wind power into the energy mix felt like a sought-after dream. Today, we are emerging from a record-breaking year for renewable energy in 2020. New renewable energy capacity – primarily solar and wind – made up a whopping 90 percent of the power sector’s growth globally last year, according to the International Energy Agency. And it’s not a one-off. The agency forecasts renewables to again account for 90 percent of the power sector’s expansion in 2021 and 2022.
These numbers would have sounded like pure fiction only a decade ago. But here we are. We have many lessons to learn from the journey of solar and wind energy, which can inform our quest for a hydrogen-fueled world. Going back to my first point, it all starts with setting ambitious and realistic targets that are grounded in comprehensive and integrated national energy plans. National plans and roadmaps mean government backing which has proven momentously integral in the growth of the renewable energy sector. Wind farms and solar parks have become an indispensable part of the generation expansion plans of almost every country in the world. That came after years of consistent planning, raising awareness and commitments made on global level from the major stakeholders in the industry.
Hydrogen has the potential, and certainly the merits, to get there eventually but it is in our hands to make that possible. Are we doing enough? That’s a question every private and public entity should be asking themselves. It all starts with asking the right questions.
01 MAY 2021
10 key facts about Biodiversity
Biological diversity is often understood in terms of the wide variety of plants, animals and microorganisms, but it also includes genetic differences within each species — for example, between varieties of crops and breeds of livestock — and the variety of ecosystems (lakes, forest, deserts, agricultural landscapes) that host multiple kind of interactions among their members (humans, plants, animals).
But loss of biodiversity threatens all, including our health. It has been proven that biodiversity loss could expand zoonoses - diseases transmitted from animals to humans- while, on the other hand, if we keep biodiversity intact, it offers excellent tools to fight against pandemics like those caused by coronaviruses.
While there is a growing recognition that biological diversity is a global asset of tremendous value to future generations, the number of species is being significantly reduced by certain human activities. Given the importance of public education and awareness about this issue, the UN decided to celebrate the International Day for Biological Diversity annually. The slogan for Biodiversity Day 2021, celebrated on May 22, is “We’re part of the solution #ForNature.”
Below are 10 key facts around biodiversity
• Fish provide 20 per cent of animal protein to about 3 billion people. Only ten species provide about 30 per cent of marine capture fisheries and ten species provide about 50 per cent of aquaculture production.
• Over 80 per cent of the human diet is provided by plants. Only three cereal crops – rice, maize and wheat – provide 60 per cent of energy intake.
• As many as 80 per cent of people living in rural areas in developing countries rely on traditional plant-¬‐based medicines for basic healthcare.
• Human activity has altered almost 75 per cent of the earth’s surface, squeezing wildlife and nature into an ever-smaller corner of the planet and increasing risks of zoonotic diseases like COVID-19.
• Between 2010 and 2015, the world lost 3.3 million hectares of forest areas. Poor rural women depend on common pool resources and are especially affected by their depletion.
• Currently, land degradation has reduced productivity in 23 per cent of the global terrestrial area, and between $235 billion and $577 billion in annual global crop output is at risk as a result of pollinator loss.
• Illicit poaching and trafficking of wildlife continues to thwart conservation efforts, with nearly 7,000 species of animals and plants reported in illegal trade involving 120 countries.
• Of the 8,300 animal breeds known, 8 per cent are extinct and 22 per cent are at risk of extinction.
• Of the over 80,000 tree species, less than 1 per cent have been studied for potential use.
• In 2016, the United Nations Environment Programme (UNEP) flagged a worldwide increase in zoonotic epidemics as an issue of concern. Specifically, it pointed out that 75 per cent of all emerging infectious diseases in humans are zoonotic and that these zoonotic diseases are closely interlinked with the health of ecosystems.