The two years of the pandemic, as well as the conflict in Ukraine now, have demonstrated that a need to have more renewable sources of energy is not only desirable but also a necessity.
Photo by Wang Qing
By WANG Qing
Sustainability-related agendas have long been the focus of the World Economic Forum's annual meetings. But this year’s meeting is rather special. Many are worried that the global effort towards net-zero may be hindered by the war and the pandemic.
On May 24, Olivier Schwab, managing director of the World Economic Forum and head of environmental, social, and governance (ESG) projects, spoke to Jiemian News. Schwab was executive director of the WEF China office from 2012 to 2015.
Jiemian News: With the planet facing all kinds of immediate crises, how would you describe the importance of your ESG agenda?
Schwab: I think that this notion that there has to be a tradeoff between short term and long-term priorities is what is called a false dichotomy. Actually, companies have to do both. So of course, we are in a very difficult situation now, where we have a war, which has an impact on energy, prices of food, supply chain, and of course, a humanitarian cost. We have an inflationary environment, which puts pressure on particularly those who are not so well off, and who see the price of goods increase, and of course, these things need to be addressed. But the climate crisis, which could be thought of as a longer-term crisis, is actually not. It is also an immediate crisis. And in that sense, it's very encouraging to see that the focus on climate, and ESG more broadly, has not diminished.
Despite this, despite the two years of Covid, despite the numerous crises we're facing now. On the contrary, there has been a tremendous evolution. I would say just in the past six to 12 months. The International Sustainability Standards Board was created at COP 27, supported by, I think, close to 50 nations. China, the EU, as well as the US already has in consultation, their draft climate framework proposal, and so these efforts are not only ongoing, but they have accelerated and that is a good thing.
Jiemian News: What are your goals for this year's conference?
Schwab: What we've seen, particularly on the sustainability agenda, is that businesses are ready to take a leadership role. At the World Economic Forum, we've been working now for two years, to create a common framework, basically, a set of common metrics that are practical and pragmatic for businesses to implement. It's a framework that consists of 21 metrics around four pillars, people, planet, prosperity, and principles of governance. And we have today over 170 companies that have committed to adopting these metrics, and over half of them already reporting on them.
This is an example of the private sector taking a leadership role and demonstrating to the policymakers that they are capable of taking on such climate-related, but also more broadly ESG-related, measurements. And what's important here is the comparability and the transparency. So, if only we have a set of common metrics globally, just like we have for the accounting, the Financial Accounting Standards, that we will be able to really measure the impact we have on the environment and take the necessary action.
Jiemian News: What do you see as the biggest challenges to these standards in different parts of the world?
Schwab: The challenges are numerous. On the one hand, of course, there is still a relative fragmentation of measurement standards. And we're working very hard at the World Economic Forum together with the ISSB and other standard setters to really encourage the policymakers to adopt a common set of standards, a common framework.
The other one is that, for large companies who have a team in place to measure and implement the standards, many are already on this journey, and are able to adjust to what the regulators are demanding of them relatively quickly. However, in order to really have an impact, we need a much broader set of companies, not just 170, but thousands, tens of thousands of companies to adopt ESG standards. That can prove to be difficult for some of the smaller enterprises which may not have the tools. This is why we also believe that a common set of metrics is extremely helpful.
The third point is we have companies in what is called hard-to-abate sectors, oil and gas, mining, sort of the carbon-intensive sectors, and these companies will need time to transition to cleaner energies. And we have to recognize that this takes a certain effort and a certain amount of time. And this is, of course, a challenge in our common objective to reach net zero. But we believe that we can get there.
Jiemian News: How do you see the impact of the conflict in Ukraine on sustainable goals?
Schwab: The two years of the pandemic, as well as the conflict in Ukraine now, have demonstrated two things. One is that a need to have more renewable sources of energy is not only desirable but also a necessity. We see a lot of governments now really accelerating their green programs.
Also, what we have seen is that our supply chains are fragile. This is not something new. I think the realization of that has been accelerated in the past couple of years, where we've seen supply chain shortages, and where we’ve realized that a simple ship that gets blocked, for example, like what's the case in the Suez Canal, can really disrupt multiple supply chains. So, this is in a sense, a wake-up call.
What we're seeing is companies rethinking and reorganizing their supply chains to be more resilient, and less prone to certain shocks. What's very important here is that we continue to build global supply chains. So that, the broader actors in the value chain can benefit from it. They simply need to be rebalanced to be more sustainable.
Jiemian News: How do you see China's involvement in and contribution to the ESG process?
Schwab: China's contribution is absolutely essential. It's very encouraging to have the delegation here in Davos to show commitment. We also know that Chinese companies are engaged in conversations with the ISSB to understand how to best implement these frameworks. So, what I would say is, that China and the Chinese business community are absolutely engaged in the process of deploying global ESG standards, and we think that's a great thing.
Jiemian News: Do you see any change in the interests of Chinese stakeholders change?
Schwab: We were very honored to have President XI Jinping talk at our virtual Davos this January. We continue to be very well engaged with the Chinese business community. You know that we have an office in Beijing, where we are running a number of projects. And we certainly look forward to having large Chinese delegations here in Davos in the future.
Jiemian News: How will the forum contribute to the sustainability disclosure standards that the ISSB proposes?
Schwab: The ISSB has incorporated metrics that the forum proposed into the non-industry-specific part of its framework. So we, together with other standard setters, are helping to define these global standards. The second thing is that, together with our business community, we really encourage them to start this journey of implementing these metrics, measuring these metrics.
We have a community of practitioners of over 350 individuals, these are managers from the CFOs office, and the accounting departments of our partners, and these are people who get together on a regular basis, they exchange best practices, the exchange processes, and learn about how to measure and implement these metrics. And this is the sort of value that the forum now can add to this process to help the businesses get acquainted and onboard.
Jiemian News: Do you have any interesting cases or practices from around the world that you would like to share?
Schwab: What I would say very simply is that today a business that does not have sustainability, inclusion, or proper governance in mind, will struggle to be competitive in the future. Why? Because their employees will demand it, the young generation will demand it from them. Their investors are demanding more transparency on businesses' impact on the environment.
We've seen many businesses who've gone, in a very strong way, into developing sustainable products, and they found that many of these products are actually more profitable, and some have better consumer acceptance than the older products. In my opinion, for businesses to be competitive in the future, the sustainability agenda has to be absolutely part of that.
Jiemian News: Finally, who do you think should take the lead in ESG, the public sector, private sector, or NGOs?
Schwab: We believe that the standards the ISSB has defined will be adopted by different jurisdictions around the world. As such the ISSB will lead in the implementation of non-financial reporting standards. In the same way as we have the IFRS, which leads the Financial Reporting Standards.