The Daily - Can Corporations Stop Climate Change?

Episode Date: February 24, 2020

In recent weeks, several of the largest and most profitable American companies have introduced elaborate plans to combat climate change. So why are they doing it now? And just how meaningful are their plans? Guest: Andrew Ross Sorkin, a financial columnist for The New York Times. For more information on today’s episode, visit nytimes.com/thedaily. Background reading: Laurence D. Fink, the founder of the world’s largest asset management company, sparked the shift toward climate-focused corporate policies in his annual letter to C.E.O.’s. Here’s what the letter said, and why it matters.Protecting the environment and tackling climate change have climbed the list of Americans’ political priorities this year as economic concerns have faded. But the issue is as partisan as ever.

From The New York Times, I'm Michael Barbaro. This is The Daily. Today. Over the past few weeks, several of America's largest and most profitable companies have unveiled elaborate plans to combat climate change. Andrew Ross Sorkin on why they're doing it now and just how meaningful the plans really are. Plus, the results of the Nevada caucuses.

It's Monday, February 24th. Andrew, tell me about this letter. So, every year, usually the second or third week of January, Larry Fink, who runs BlackRock, which is the largest money manager in the world, they oversee $7 trillion. That's with a T. Wow. Basically 401k plans, pension plans, all of that money lives under BlackRock. And so Larry Fink has huge influence. And he writes a letter every January to the CEOs of the world. So I've made it my, I don't want to say life's work, but I've made it my job for the past several years to try to get my hands on this letter.

Because typically what he says changes the conversation. And it is the letter that sent shockwaves through corner offices across America yesterday. BlackRock CEO Larry Fink issuing a warning to corporate leaders about the dangers of short-term thinking. Back in 2016, he wrote a letter telling CEOs, stop issuing quarterly guidance. Stop telling us what you- Expect your earnings to be.

Expect your earnings to be, because then it creates this artificial expectation, and then you're trying to manage to that number. And he wants CEOs to think more long term. And what happened? I personally think that's a very good recommendation. Huge companies like Unilever stopped issuing quarterly guidance. Warren Buffett publicly came out and said that companies should stop issuing quarterly guidance.

came out and said that companies should stop issuing quarterly guidance. It was to give encouragement to companies that really felt uneasy about giving guidance to perhaps have a little more backbone about it. But Larry Fink was the first. Okay. In 2018, Larry Fink wrote a letter. I've now been to a number of dinners where your letter has already been the topic of conversation. Saying, you know what? It's not enough simply to have profits.

You have to have purpose. I believe the involvement in a community to have a purpose is vital for long-term survivability, but long-term profitability. And then a year and a half later, the business roundtable, which represents all the big companies in the world, said, you know what? It's not just about profits anymore either. So his letter really has a kind of biblical quality in the world of business. It has weight because he genuinely is the largest investor in the world. And as a result, Larry Fink controls huge chunks, stakes in these companies. And he, to some degree, can control whether people on that board, the CEO, sinks or swims. He can vote that board out if he doesn't like what they're doing. In certain cases, he can pull his money from their companies if he doesn't like what they're doing.

Which explains why every year, it seems like you go to pretty extraordinary lengths to get your hands on this letter. And this year, it's early January 2020, and I get my hands on a draft of the letter. And two paragraphs in, I was stopped cold. He writes, Climate change has become a defining factor in companies' long-term prospects. Last September, when millions of people took to the streets to demand action on climate change, So what is he really getting at here? rapidly changing, and I believe we're on the edge of a fundamental reshaping of finance. So what is he really getting at here?

He's saying for the very first time as the largest investor in the world, that climate change has to become an integral part of the investing thesis for companies. And more importantly, that CEOs and companies themselves now have to change and think about climate change. And if they don't, he's going to be pulling his money from them. Wow. You know, and he even says it explicitly in the letter, quote, we will be increasingly disposed to vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the

business practices and plans underlying them. Part of the Fink assessment is not simply that he's some kind of tree hugger, do-gooder, and wants to change the world, though I think he may on a personal basis, but that he thinks that the world has shifted in a way and the climate risk is now so real that it actually will have an economic impact in a way where as a fiduciary for pensioners and investors that he needs to now push this in a way that he didn't think he had to before. So it's not an act of advocacy. It's an act of kind of wise business. I think he would say this is not driven by ideology. It's not driven by politics. It's driven, frankly, by money. He thinks that there's now a genuine business risk and cost

to not doing anything. To not doing anything. And maybe even to these businesses. And therefore to these investors. Exactly. So, right. A tipping point to reach where you have to do something.

Exactly. This is the first time that a major investor has genuinely taken on the issue of climate change and said, you know what, corporate America, I know you guys have been talking about this, thinking about this, maybe, but now you actually have to do something about it. And if you don't do something about it, investors like me are going to do something about it ourselves, which means that we're

either going to vote you out of your job or we're going to pull our money from you. He's throwing down the gauntlet. And what are you thinking when you finish reading this letter? So I'll tell you something funny. I know when the letter is going to come out. It's about a week beforehand. And I go to a meeting with Satya Nadella, the CEO of Microsoft. As one does.

As one does if you're a business reporter who covers companies like this. As one does. As one does if you're a business reporter who covers companies like this. And he says that the company is about to reveal a sweeping climate change plan. Now, of course, I'm thinking in my head, this letter that Larry Fink is about to come out with, are they connected? What's going on here? And I later find out, in fact, that Larry Fink had been talking to Microsoft. Huh.

And I start to think to myself, you know what? I think something big is about to happen here. So what happens when this letter is actually delivered to all these CEOs? Headlines are everywhere. Consumer News Now, one of the biggest airlines in the world, has committed to going carbon neutral. Starting next month. And literally within the next 21 days. This is the decade for urgent action for Microsoft and for all of us. Company after company. The tech giant said

it has created a climate innovation fund, which will invest $1 billion over the next four years. Starts announcing new initiatives around climate. Jeff Bezos out with his next big idea. And then you have Jeff Bezos, the world's richest man who runs Amazon, pledging $10 billion towards combating climate change. towards combating climate change. This global initiative will fund scientists, activists, NGOs, any effort that offers a real possibility to help preserve and protect the natural world. And presumably, these are all companies in which BlackRock, run by Larry Fink, is an investor. In some cases, he may be the biggest investor.

So you're seeing all these major corporations fall in line. But. all these major corporations fall in line. But. I'm thinking to myself, how much of this is about really just placating investors like Larry Fink and, frankly, the public? Is it spin? Is it marketing?

Is it greenwashing? Or is it genuinely going to have an impact on the climate? So I start to go through the plans, individually, one by one. And the answer is pretty interesting. Some of these pledges may have huge, real impact.

Others, not so much. And seeing which is which was fascinating. We'll be right back. Andrew, tell me about these corporate climate plans that you looked at. So I went back to look at Microsoft's plan and Amazon's plan and Delta's plan. These are all big household brands that people know. Welcome aboard. And thanks for flying with Delta. Let's start with Delta because in many ways it was the most surprising.

Here was an airline. The entire business is based on fossil fuels. Right. It just is a carbon emitter. That's what it is. That's what it's going to be for a very long time. And we are announcing that starting March 1st, Delta Airlines will become the first airline to go fully carbon neutral on a global basis.

Delta just came out and said they're going to become carbon neutral. And a lot of people are going to do a double take. An airline becoming carbon neutral is... Just to explain that term. It effectively means that they're going to neutralize all of their carbon emissions. So their carbon emissions are going to somehow become zero. And I'm thinking to myself, how is that going to happen? And what's the answer?

Well, the answer is that when they say we're going to become carbon neutral, it's not that they're going to stop flying and it's not that they're going to stop using fossil fuels. What it really means is buying carbon offsets. What does that mean? Well, you could invest in planting trees, which naturally stores carbon, or you could invest in a wind farm. And so Delta says they're going to spend a billion dollars over 10 years. That's real money. A hundred million dollars a year. What are they going to buy? One of the things they're going to try to do is invest in new biofuels.

They're going to try to make their planes more fuel efficient. You know, they're hoping to use some of that money to invest in technological innovations. But in the short run, given that that technology, for the most part, doesn't really exist, they're basically going to be having to buy these offsets. So they're not going to be making the carbon problem any better. They're not making it any better. But they're not going to be making it any worse by offsetting it? Theoretically, philosophically, that's the concept.

Okay. But they're going to be flying just as many planes as they ever were. But given how much airplanes emit. It's a huge amount. It's a huge amount. Huge amount. That's potentially a huge plus just to go neutral from where we are today. But it sounds like Delta is not fundamentally changing the central source of emissions at the core of its business, which I'm sure many people who care about climate think is what a company like Delta should do.

Exactly. And by the way, you know what Delta is doing? They're the only airline in America that's announced anything like this. Now, the real question is whether these offsets are real. When you really get deep into the world of carbon offsets, it's like the Wild West. Sometimes companies are paying money genuinely to build a wind farm or plant a forest. But sometimes that forest is getting raised a year later. And some of the time, they're actually just paying money to prevent a forest from getting raised.

Raising the question of whether it means anything at all when you say you have offset your carbon emissions. Exactly. So it sounds like carbon offsets, which is what Delta is relying on, may not be everything that we think it is. It's a financial construct in many ways. It's not a fundamental change. Okay, so that is Delta. Which company's next? Let's talk about Amazon. The world's richest man, Jeff Bezos, is jumping into the battle to address climate change.

Let's take a look at his new effort by the numbers. You know, because Jeff Bezos just announced this massive $10 billion pledge to combat climate change. And we don't know completely about what that program is ultimately going to look like. But we do know what Amazon itself has pledged to do. And they have two big goals. One is to have 50% of all their shipments be carbon neutral by 2030. So 10 years from now. And presumably that might involve things like what Delta did, offsets.

Well, they plan to do it a bit differently. What Amazon wants to do is change how much fossil fuels they actually use. And so they're investing in 100,000 electric trucks, for example. So when you get your Amazon Prime package, instead of a truck coming up to the outside of your house that's powered by fuel, it'll be battery powered. Got it. They're also investing in wind and solar so that their massive cloud computing operation, which involves tens of thousands of computer servers, is going to be powered by the sun and by wind. So the way in which this is different from what Delta is doing is rather than paying somebody else, as Delta did, to offset the airline's carbon emissions, Amazon is saying we will meaningfully reduce carbon emissions by changing our own operations.

They're genuinely trying to reduce their carbon emissions, the actual emissions in the air. By the way, some people will tell you that they're not doing this fast enough. And of course, Amazon is so big, it is so profitable, it touches so many different lives, carries so many different products, that there will be people who ask, you know, why isn't every component of that company changing to deal with climate? Absolutely. Look, there are people who are going to say, why doesn't Jeff Bezos take every dollar of profit that this company makes for the next two decades and use it to invest strictly in climate if this is really the single most important issue in the world.

Okay, so that leaves us with Microsoft. The scientific consensus is clear. The world has a huge carbon problem. And they have perhaps the most ambitious plan of all. They are carbon neutral today. Interesting. So Microsoft is already where Delta is hoping it's going to be carbon neutral today. Interesting. So Microsoft is already where Delta is hoping it's going to be in 10 years. Exactly. But their big plan is to be carbon

negative by 2030. Meaning that we'll reduce our emissions by half and remove from the atmosphere more carbon than we emit. Wow. Think of it a little bit like going on a diet or exercising, burning more calories than you take in. So that goes well beyond being carbon neutral, which is just basically zeroing out the amount you put in. Carbon neutral is stasis. Carbon negative is removing the carbon from the air. is removing the carbon from the air. And even more ambitious, by 2050, they say they want to be carbon negative for their entire history starting in 1975. Well, how does that work? So they want to remove all the carbon that the company has put into the atmosphere since 1975. Wow.

How are they going to do that? I'm going to ask you, how are they going to do that? I'm going to ask you, how are they going to do that? They're going to invest a ton of money in forests, in wind, in solar. But really what they're hoping to do is invest in a breakthrough shoot the moon technology. Like what? What's called carbon capture. The idea of removing carbon from the atmosphere and building machines that do this, that do what trees do naturally. And there are a number of efforts that are taking place around the world that are trying to build technology like this. But if we're being honest,

it's not there yet. And that's what all of these companies are ultimately going to be after. That's what the Jeff Bezos $10 billion investment is going to be about. It's going to be about trying to invent a technology that's going to change the game. I'm shocked that the company that is promising the biggest transformation and the most ambitious plan, Microsoft, probably has the smallest carbon footprint, almost assuredly. I mean, if you compare Microsoft, a maker of computers and software, to a company that delivers millions of packages or an airline company that has a thousand planes in the air with all their emissions. So what does it tell you that the biggest polluters in this list seem to be doing the least ambitious climate plans?

It tells me that it's hard. In many ways, for Microsoft, it's easier. And if you really think about it, Microsoft has the biggest balance sheet. It has more money than these other companies. And in fact— More than Amazon. Yes, in terms of profits, absolutely. And in terms of thinking about all three of these companies,

all of these are the market leaders, if you will. These are all very healthy companies. So in some ways, they can afford to experiment. They can afford to try to do this. Think about all of the other companies that don't have- Billions of dollars that don't have billions of dollars in profits that they can even think about this. It's going to be a lot harder for them to catch up.

So if the biggest companies in the economy, the ones with the money to experiment in this world, are doing kind of modest things when it comes to maybe Delta or Amazon, you're saying that should make us reflect on what less profitable companies are not even bothering to do. In other words, it's only the very, very top of corporate America that's even playing here. It's only the top tier of corporate America that can afford to really go down this road right now. And the question is whether what they do forces the issue for everybody else, whether their quote unquote leadership, unless you're cynical enough to believe this is all marketing and there are a lot of people who do, leaning on climate. They are looked to for leadership, but they don't seem to have their acts together.

that doesn't believe that carbon emissions matter. But in the end, and I hate to say this, but all of these individual corporate efforts are on the margins because the reality is that China is emitting more carbon than the United States and Europe combined. And so Microsoft can do all it wants. Amazon can do what it's doing. Amazon can do what it's doing. Delta can do what it's doing.

But none of these things on their own can change the game. Until big governments do things. Either until big governments literally dictate how everybody across the world is going to do it, or somehow every business decides that they're going all in. It's interesting. In some ways, at this moment, corporations seem to be responding more lowercase d democratically to the problem of climate than perhaps some governments, because they're actually responding to what their consumers want.

These companies aren't dumb. If Microsoft, Amazon, and Delta all know that what they're going to do on a very individual basis can't fundamentally change the game, right? We know that they can't change the game by themselves. What are they really doing this for? And what's the answer? A little bit of altruism, a little bit of marketing? Probably all of the above.

There's probably a little bit of marketing. There's probably a little bit of altruism, a little bit of marketing? Probably all of the above. There's probably a little bit of marketing. There's probably a little bit of maybe the investors are going to look at me differently. I think there are executives that want to be leaders in this space. There's no question that when Larry Fink wrote his letter or any of these companies thought about their policies, they were responding to consumers. they were responding to their employees, they were responding to investors. But the real question is whether a group of companies unto themselves can actually change the game, whether their leadership is going to force every other company to follow them, whether their leadership is going to force every other company to follow them,

or whether ultimately you need governments across the globe to create rules that every company follows. And until and unless that happens, I think there's going to be a lot of fair skepticism about what these companies are doing and why they're doing it. And whether it matters. And whether it ultimately matters. Well, Andrew, thank you once again. Thank you, Michael. We'll be right back.

And now I'm delighted to bring you some pretty good news. Here's what else you need to know. I think all of you know we won the popular vote in Iowa. We won the New Hampshire primary. Hampshire primary. And according to three networks in the AP, we have now won the Nevada caucus. Senator Bernie Sanders has won the Nevada caucuses by a wide margin, positioning himself as the clear frontrunner in the race for the Democratic nomination. In Nevada, we have just put together a multi-generational, multi-racial coalition, which is going to not only win in Nevada, it's going to sweep this country.

With 60 percent of precincts reporting, Sanders' lead was more than double his nearest competitor. Joe Biden was in second place, followed by Pete Buttigieg, then Elizabeth Warren. The Times reports that given the large number of moderate candidates left in the race, it appears increasingly unclear whether any single one of them can catch up with Sanders. Which is another reason why we're going to win this election. And I congratulate Senator Sanders on a strong showing today, knowing that we celebrate many of the same ideals. But before we rush to nominate Senator Sanders in our one shot to take on this president, let us take a sober look at what is at stake. In a speech from Las Vegas, one of those moderates,

Pete Buttigieg, cautioned Democratic voters about what he said was the risk of nominating Sanders. Senator Sanders believes in an inflexible, ideological revolution that leaves out most Democrats, not to mention most Americans. That's it for The Daily. I'm Michael Bavaro. See you tomorrow.