Memo to CEOs: It’s Time to Commit to Net-Zero.

Our topic this week: The compelling opportunity for CEOs to commit their organizations to a net-zero economy.

Encouraging news about business leaders addressing climate change and other environmental challenges has really surged over the past few months. More CEOs and prominent investors are stepping up and leading on the environmental front. This makes sense and is great news.

Larry Fink’s recent letter to CEOs — this year telling them to prepare a plan to be net-zero or suffer market consequences — was an especially high-profile and welcome shot across the bow. We can expect others (see hedge fund leader Chris Hohn) to be more assertive.

I’ve been trying to persuade CEOs to lead on the environmental front for more than 15 years. Maybe I was a bit ahead of my time. But I’m declaring now as plainly as I can: We’re at a tipping point. It’s time for business to move.

I have two main arguments for CEOs to consider:

  1. From a self-interested point of view, if you step up and lead, you and your organizations will be well rewarded.
  2. From an environmental point of view, if your organizations engage fully, it will make a big difference in society’s efforts to reach critical goals.

Could The Glass Be Half Full?

Back when I ran TNC (2008–19), people always asked me the following question: “Are you optimistic?”

This is what they meant: Did I think humankind would successfully address the daunting environmental challenges we face?

My bold answer was always the same: “It depends.”

It depends on what we do. Humankind has the tools, know-how, and resources we need to address our challenges. Whether we will do so, however, is another matter. That’s where all of us come in. We need people across society and in all walks of life — but especially leaders of influential organizations — to step up and push for the change we need now. If we do that, yes, I’ll be optimistic.

But Do We Know What to Do?

The other question people liked to ask me: “What’s the plan?” The people asking this question were often trying to assert that we environmentalists had never formulated an actionable plan to address the climate challenge. Therefore, they implied, it was our fault that more wasn’t being accomplished.

Well, I have good news for them. We’ve now got the plan. Just two words: Net-Zero.

Our plan to address the climate challenge is to achieve a net-zero economy by 2050 and to get halfway there by 2030. (Looking beyond 2050, we’ll want to go further and remove enough carbon to get back down to pre-industrial levels. But one step at a time.)

What’s a Net Zero Economy?

A net-zero economy is one where we add no more greenhouse gases to the atmosphere than we remove. Picture a landscape in which 1) any emission that can be eliminated is eliminated, and 2) any residual emissions are removed through nature-based projects (like restoring ecosystems) or technology-based ones.

Net-zero is not carbon neutrality. The latter usually refers to programs where one entity (company, country) can compensate for its emissions with offsetting reductions purchased from another entity. There’s no room for that in net-zero. Unavoidable emissions must be balanced with carbon removals.

What does a net-zero economy look like?

Princeton’s Jesse Jenkins and his team have produced a detailed study explaining exactly what we need to do to reach net zero in the US over the next 30 years. It’s a complicated plan but mainly calls for two big things:

  1. The electrification of everything that can be electrified (home and building heating, stoves, cars, etc) and all of the electricity needed comes from renewables.
  2. An enormous build-out of new infrastructure. Envision huge expansions in wind, solar, transmission lines, EV charging stations, and so on.

It’s a very positive, exciting outlook.

Why do we need business to take the lead?

The private sector has important strengths here — thinking big, moving fast, innovating, keeping costs down, raising and deploying capital effectively, and generally executing well.

More specifically:

Of course, business can not — and should not — try to do all of this alone. Policymakers, other government officials, NGOs, academics, and all citizens have key roles to play. This should be a team effort.

Case in point: who did society turn to for urgently needed COVID vaccines in the midst of the pandemic? The private sector (which in turn engaged academics and others as appropriate). The pharma companies moved quickly; accessed the capital, technology and R&D they needed; and executed brilliantly. We need those same capabilities in the climate battle.

But what’s in it for you, CEO? Why should you take this on?

Here are four reasons why it’s in the best interest of CEOs to act immediately:

1) On the DefenseProtect your company. Without a net-zero plan, you should worry about:

True, all of these risks might not be realized right away. Maybe you can dodge some of them. But most are likely to be realized over time. Why not prepare now and avoid getting caught flat-footed?

Consider Exxon. Probably no leading company has been more outspoken about its decision to stick with fossil fuels, nor suffered more consequences (see here). Just look at what’s happened over the past few weeks: Rating agencies say Exxon should prepare for credit downgrades. A new hedge fund is leading a high-profile assault. Exxon disclosed that it was recently in merger discussions with its biggest competitor in order to buffer its financial position. And investors are now encouraging the company to add a prominent activist as a new director on the board. Maybe Exxon is getting the message — just this month the company announced a $3 billion investment in carbon capture.

2) Play OffenseTake full advantage of all of the new business opportunities presented by net-zero goals.

3) Getting started is not difficult, and you can manage risk carefully.

4) FOMO. Look who’s announced net-zero goals — some 1500 companies (and more than a quarter of the S&P 100). The list keeps growing every day. Don’t get left behind.

What about financial institutions?

They’re not exempt. The same principles hold true.

It’s a bit harder to see exactly what’s happening in this sector, mostly because there is less transparency. That’s easy to fix — just disclose more about your efforts. Or, if not ready, it’s time to formulate your plan.

Financial asset owners are starting to throw their weight around. They want their capital to be invested in ways that align with their values. I expect they will keep pressing for more say on exactly how their capital is deployed. I think we’ll see a shrinking of the “distance” between financial asset owners and investment managers.

I recently “put my money where my mouth is” by making an investment in the start-up mobile banking platform Ando. The company’s business model is simple and elegant. They eliminate all of the “distance” between climate-concerned asset owners (today, depositors; in the near future, insurance and credit card customers too) and managers of their capital. 100% of customer capital is invested in climate solutions, period. No exceptions. Total transparency too. My guess is that we will see more ESG-aligned and customer-oriented innovations along these lines.

I’m Not Saying This is Easy.

Not long ago, I was a CEO myself. By and large, I’m enormously proud of everything the team accomplished during my 11-year tenure at The Nature Conservancy. Looking back, however, there are of course some things I wish we had done differently. One is that I didn’t follow the advice I’m giving you now.

I brought up the idea of developing an ambitious plan for TNC to reduce its greenhouse gas emissions significantly. I got a lot of pushback. Some colleagues were concerned it would take away resources from higher priorities. Others thought it would be too disruptive to the way we did business. And others just slow-walked everything I asked for on this front. Fully aware that CEOs have to pick their battles, I eventually moved on. In retrospect, I think that was a big mistake — one I’m hoping others will learn from and not repeat. You’ll likely run into headwinds just as I did, but you should persevere. Reach out and find those colleagues, shareholders, and customers who share this aspiration and recruit them to support your efforts. I should have done that. But the good news is, there are likely a lot more of them today. The timing for this couldn’t be better.

My Recommendations to CEOs

In sum, there are lots of upsides if you act and lots of downsides if you don’t. So what are you waiting for?

Former CEO of The Nature Conservancy CEO. “Nature’s Fortune” author. Family man, yogi, ice climber, vegan.