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Zero help on net zero—Washington and CEOs still miles apart on climate goals

June 21, 2022, 10:30 AM UTC
Updated June 21, 2022, 5:19 PM UTC

Good morning.

Not a week passes that I don’t have an interesting conversation with a CEO who is focused on reducing his or her company’s climate impact. This isn’t because they are kowtowing to the “woke left,” as former Vice President Mike Pence claimed recently, but rather because climate action has become a business imperative.

Last Friday, I spoke with Jeff Simmons, CEO of Elanco Animal Health, which recently acquired exclusive U.S. licensing rights for a drug developed by Royal DSM called Bovaer, a feed additive that reduces methane emissions from cows. Elanco thinks it can not only lead to a significant reduction in methane emissions, but also has revenue potential in the U.S. exceeding $200 million a year. The same day, I spoke with Becton Dickinson CEO Tom Polen, who has ambitious plans to reduce the climate impact of the products his company supplies to health care systems around the world—in part because those health care systems are demanding it in order to meet their own net-zero goals. 

The explosion of business net-zero commitments in the past two years has led to a virtuous circle of activity where companies are doing the right thing, not only because it’s the right thing, but because business customers, who are also doing the right thing, are demanding it. In the U.S., in particular, this has vaulted business well ahead of government in leading efforts to address the climate problem.

But most business leaders also acknowledge they can’t solve the problem on their own. Sensible government action is essential. And that’s why the SEC’s proposed climate disclosure rule, put out this spring, was so important. The current chaos in ESG investing illustrates the problems that occur without some form of standardized reporting. Business efforts to address climate quickly devolve into a chaotic, pick-your-metric world where it’s impossible to distinguish real action from greenwashing.  

Note the phrase: “sensible government action.” That’s where the road gets rugged. Friday was the deadline for comment on the voluminous SEC climate rule, and the Business Roundtable—which has fashioned itself a leader in the movement toward stakeholder capitalism—issued a voluminous response. (If you have the stomach, you can read it this morning here.) While the majority of the BRT’s members have adopted significant measures and targets to address the climate challenge, they find much about the SEC rule to be impractical, impossible, liability-laden, or counterproductive.

There is a moment of opportunity here. It would be great if the SEC and the BRT could sit down together, as in days of old, and fashion a new rule that would win the support of, if not the entire business community, at least a majority of BRT members. But Washington is a world of politics, and the political question that hangs over such efforts these days is: Why bother? If the SEC were to negotiate with business, it is sure to be attacked by true believers on the left who think any negotiation with CEOs is an act of corruption. At the same time, they won’t win support on the right, where Pence and others are now heavily invested in the position that ESG is just a tool of the woke liberal left.  

It’s been five years since Harvard business professor Michael Porter and his colleague Katherine Gehl wrote in Fortune that the biggest problem facing American business is a broken political system (still worth reading, here). Perhaps as an independent agency, the SEC can rise above the partisan warfare. But don’t hold your breath.

More news below. 

Alan Murray
@alansmurray

alan.murray@fortune.com

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This edition of CEO Daily was edited by Bernhard Warner.

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