Game Changers: Beyond Net Zero

Henning Stein:

Environmental, social and governance consideration, collectively known as ESG, are now high on the agendas of companies, investors, policymakers, but also citizens around the world. This wasn't always the case. If we wind back around a quarter of a century, for example, it was really considered extraordinary for senior business executives to discuss these matters, not least on a public stage. And it was almost as if to do so was to break ranks.

Henning Stein:

That's precisely what my guest did and his actions are still making a difference today. It's my great privilege to welcome Lord Browne, former CEO of BP and now chairman of climate growth equity venture BeyondNetZero. Welcome Lord Browne.

Lord Browne:

Thank you very much.

Henning Stein:

Maybe let's start by going back to 1997 and the famous speech that you delivered at Stanford University. That was when, as CEO of a major oil company, you stepped up to the stage and endorsed the science of climate change. You famously said the world was no longer defined by ideology and it was time for a fresh perspective on the nature of society and responsibility. What led you to this landmark speech?

Lord Browne:

It was the weight of evidence that was being built up that humans caused greenhouse gases. Anthropogenic greenhouse gases were changing the nature of the climate. And that evidence was getting stronger and stronger. It wasn't just models, it was observations from ice cores, it was many, many things. And in 1995 when I became CEO of BP, I made a big tour of people who had opinions in this area. And we concluded as the leadership of BP that the time was to do something. And we decided to set out a plan to reduce greenhouse gases inside BP to begin to set an example that change was possible in a company that was the cause of much of greenhouse gas emissions. We could become part of the solution to reducing them.

Henning Stein:

It's been said your speech was really crucial right? In upsetting the balance of power, if you will, in the battle for hearts, for minds over climate change. Was that actually your intention when you went into that speech or did you feel actually you succeeded with that emotional part by bringing in the hearts and the minds of people.

Lord Browne:

So the beginning of the speech, I did point out that the time for pure ideology was over. I wish that were the case still today. And it was in my mind the point that much of the oil and gas industry and other heavy carbon emitters believed that to say anything about climate change was to create an existential threat to their business.

Lord Browne:

And I didn't think so. I think it was facing reality.  And we said we have to do something about this. And we wanted to be importantly part of the debate on the solution rather than simply the object of someone else's solution. So we wanted to be around the table to solve the problem.

Lord Browne:

And many of the lobby groups including the American Petroleum Institute didn't agree with that. And when I made the speech they said that rather famously that I'd left the church, whatever that had meant. I may say I wasn't quite sure what church I was leaving at that point. But it was a demonstration of, I think, ideology, which is you just don't agree to things that could be a threat, rather than trying to solve them.

Henning Stein:

Right. And if we fast forward to the present day, you are now chairman of BeyondNetZero, which aims to support high growth businesses that have the potential then to combat climate change at scale. From what you see today has the transformation shift so far met your expectations or maybe even exceeded them and what are your feelings about the pace of change now?

Lord Browne:

Over the last 25 years, if we take a 25-year period, dramatic change has taken place. I think many, many corporate executives, many boards believe that something must be done to improve our handling of the environment, of society and making sure our governance is in good order.

Lord Browne:

The focus now is on the environment: what to do about it? Can you actually reduce the chances of us succeeding a one-and-a-half degree temperature rise in the world? Can you reduce those chances down to zero. Can we actually get to net zero by 2050?

Lord Browne:

So everyone is saying we must try, there's a lot of signaling of which I may call virtue. People saying I want to be on the side of good here. There are however very few plans of how to get there. So people are beginning to think about targets, setting targets and having action plans to get there. But that's in the minority. The majority are at least saying the right thing; we now have to get them all to do the right thing.

Henning Stein:

And history really shows humanity has a knack for innovating itself out of trouble. So, what are likely to be the keys to our escape route this time and how ambitious might we dare to be actually given the threats we face? And is simply aiming then what these targets do for net zero or do we need to go beyond that actually?

Lord Browne:

So I think we've obviously got to get beyond that. And I think the important thing is not to just have targets which are 30 years out; that's a long time, a long, long time. We need targets which are five years and 10 years and 20 years and 30 years. And those five- and 10-year targets can be established nowadays by the very convenient work of the science-based target industry (SBTs), which set you on a path for net zero over time.

Lord Browne:

So people need to adopt these and they need to get on to get that pathway sorted for business after business after business. Try and exceed it. Because we know that some people will fall short so therefore some people have to do more, and that is very important. We have to go if you will, beyond net zero, which is exactly what the name of my venture is: Beyond Net Zero. It means that we can go beyond the science-based targets and beyond the targets that we can achieve ourselves in each company we invest in. But what are the targets that they can achieve by doing things with other companies?

Lord Browne:

So if we make a battery, for example, and install it in a company and they don't use, let's say, gasoline, that's an advantage that you share with that company. And it's about going beyond net zero. So that's very important indeed. And there are plenty of ways that we can get there. When I say 30-year targets, one of the big debates has been: would you do something that only lasted 20 years? The answer is absolutely. Because if it's the first 20 years, it's better than the second 20 years.

Lord Browne:

And eliminating methane as a greenhouse gas, letting that go to the atmosphere, (methane is, as you know, natural gas), letting that escape is a very dangerous greenhouse gas. In fact it's about 85 to a hundred times more powerful than carbon dioxide. So keeping that bottled up, avoiding leakage, is a very powerful thing to do. And a very interesting piece of low hanging fruit that can be picked right now. Right now.

Henning Stein:

Right. And when I listened to you it seems like you have a lot of confidence in the power of markets to solve that, right? And then the question comes : are businesses and investors actually become almost like a substitute for policymaker action in tackling this problem or do you think it's really both coming together in terms of public/private sector cooperation?

Lord Browne:

Well first of all, the public sector cannot solve this problem without the private sector. Private sector is the sector that is capable of delivery. And that's the important thing. Delivering things is what business does. And so the framework has to be established by politics, and by policy makers.

Lord Browne:

So here's the target: we need to get to net zero by 2050. Here are some things that will help share the risk between the public and private sector. These such things as investment tax credits, production tax credits, 45Q in the US, tax credits in Europe. Even carbon taxes are a form of incentive policy instrument which makes things possible that couldn't otherwise be done unless you gave people credit for reducing externalities. And it's pricing the externalities that really makes a difference there. It's also reducing the risk that the private sector probably can't take by itself. The public sector can share.

Lord Browne:

So all these things are policy instruments. You don't need too many of them but you need some very powerful ones that will make a difference for the future. It's why for example I think when we started this all those years ago in BP 25 years ago, we said one of the most important things we had to do was to price carbon--to put a price on carbon. Because when we did a project, we knew what we were doing. We knew if we reduce carbon dioxide emissions, we knew what we were doing, what the value was. And that's meaningful. Whether it's through pricing or taxes, these are policy instruments which are critical.

Henning Stein:

Right. And public and private leadership requires ESG leadership as you said right?

Lord Browne:

Yes.

Henning Stein:

So, can you talk a bit about what you mean by ESG leadership.

Lord Browne:

So I think the first thing that the public private partnership needs is good data and alignment of objective. I think everyone has to be absolutely convinced that we've got to get down to net zero by 2050. More importantly we've got to halve our carbon dioxide emissions in the next 10 years, that makes it real.

Lord Browne:

And the consequence of not doing that is probably evident all around us. About temperature rises, about wildfires, about extra hurricanes, about sea level. You name it, about desertification. A lot of things that people can now begin to see. So if we don't get that right we will do very bad things to the surface of the earth and therefore to humanity.

Henning Stein:

And environmental considerations still tend to dominate the conversation about ESG...which is good, though, because it's one of our biggest challenges right?

Lord Browne:

I agree. So I think ESG came... there was a whole drive originally about corporate social responsibility. And before then the word stakeholder had been invented. I think a good word I may say. And it was a counterbalance to the school of Chicago University's business school, Milton Friedman and people like that, which said the only purpose of a CEO is to drive a company to generate more profits short-term.

Lord Browne:

Actually that's not true. It is true that CEO's have to generate profits, but on a continuous basis for the long term, and that means creating a sustainable company. So corporate social responsibility came in and people began to think: how can we make that possible? How can we align stakeholders to make a company that could sustain in the future?

Lord Browne:

That then morphs into factors to do with environment, social behavior and governance. Governance was a bit easier, the first thing to sort out, which was rules and regulations on how you run a company, what you reported on, how you fix executive pay, still a big issue. But it's all there. And how you have rules inside the company that allowed you to operate.

Lord Browne:

S still in debate. It's very much about equity, about diversity and inclusion and about how you treat people outside the company. So communities as well as your own team inside the company. And E started off, I think, as a push to almost do what Rachel Carson indicated in Silent Spring, which was to deal with the local environment you're on. The land and the water. Make sure you don't destroy the biodiversity. And then it became more and more extended from air and water, land, biodiversity and climate. And that's where we are today.

Lord Browne:

And we have to balance all these things. You can't do good things for the climate and do bad things for biodiversity. You just can't-

Henning Stein:

It's a very conservative course actually and most people don't see that right?

Lord Browne:

Exactly.

Henning Stein:

It's about conservation, as you mentioned.

Lord Browne:

And I think SBTs will do that because they speak into the sustainability goals of the UN and are meant to be in conformance with them. So I think that's all very important. Now, what has become really interesting is the requirement to report on these matters in a way which is consistent and to measure your progress against these matters.

Lord Browne:

And more and more things can be measured remotely. So for example, methane emissions can now be detected by satellite. And if you report that you're not putting any methane in the atmosphere, someone can come and check on you. This is no bad thing, it keeps everyone on the straight and narrow path. So there are plenty of things we can now do to validate what people are saying.

Lord Browne:

And there will be I believe more and more demands to report in these areas to improve... not reporting for the sake of reporting, but to report for the sake of improving year on year.

Henning Stein:

You mentioned aligning stakeholders and diversity and inclusion right? A few years ago you wrote a book entitled the Glass Closet, describing really your own experience as a member of the LGBT community in the corporate world. And that book was very important I think for me, and I know many other people who found it very inspiring. How is the standing of the LGBT community changing now in the age of ESG do you think?

Lord Browne:

Well again I think it's a matter of the glass being half full. It's not much more than half full, but it's half full. People have now understood and have welcomed more and more diversity in corporate life. I noticed that not only the law has changed... laws are important because they set the backdrop. So for many countries there's now the possibility of two people of the same sex getting married. There are rules and laws to outlaw bigotry and discrimination against gay people. So all of that is good progress.

Lord Browne:

Behavior is getting better too. I think most companies realize that to include people in one entity and to really demonstrate that you are including is a great act of leadership which creates the possibility of doing better because you have a team which is working together. And the thing about LGBT is that it's very often not identifiable. You can't identify that someone is gay. You have to allow them to participate in the whole team and at the right moment tell people, if they wish , that they're gay or not gay. But not to threaten them and not to make them feel unsafe.

Lord Browne:

And it's that approach of creating the safety of inclusion which is I think something that great companies, many companies are now doing better than the past. Having said that, there are still people who don't want to identify what their sexuality is. They absolutely don't because they believe that will get in the way of promotion, it will get in the way of doing business with others. And so there's still that barrier there.

Lord Browne:

And with a barrier, one has to be very careful that the barrier doesn't get bigger. So I always think that the most important thing to remember is that while the glass is half full, constant vigilance is needed. To keep reminding people that equity is part of a human right, inclusion is part of a human right, diversity is what is needed.

Henning Stein:

Right. And ultimately it leads to better performance and meritocracy right?

Lord Browne:

Much better.

Henning Stein:

Rise in shareholder value.

Lord Browne:

It does. Data shows that a bigger approach to inclusion leads to higher returns.

Henning Stein:

Right. And taking into account everything we've just talked about, do you feel humanity has found this fresh perspective on the nature of society and responsibility you mentioned back in 1997?

Lord Browne:

Well I'm an optimist. You have to be an optimist to be in business. And I believe, I have a real belief that the best is yet to come. My mother, an Auschwitz survivor, always reminded me that without a thought for the future there is no hope. So the best is always yet to come. And it is the human being, it's their ability to innovate, to learn from the past that I hope will drive us on balance to better things. We always have to be careful. Constant vigilance is needed on all these matters.

Henning Stein:

Lord Browne it's been absolutely fascinating to hear from someone who was ahead of the ESG curve from really the outset and is still ahead of this today. So you mentioned the importance of ESG leadership and you very much embody that idea yourself. Thank you so much for joining us and thank you for watching Game Changers. We look forward to seeing you again soon.