Ivo Dimov

Businesses with the right culture can create long-term social benefits.

Our understanding of a company’s purpose has evolved quite a lot over the years, Ivo says. “In today’s interconnected global society, when something happens on the other side of the world, within seconds all eyes are on it. All businesses are under a lot of pressure to maintain an open dialogue with a wider range of stakeholders. Executives are increasingly realising that from a reputational point of view, or to maintain their customer base, there are certain impacts they can no longer avoid having an adequate response to.”

It typically comes from the top of the company, Ivo says. “It's very much driven by whether having a cohesive relationship with other stakeholders is part of the growth strategy.”  He adds: “We've seen plenty of studies that suggest that the new generation of employees has a very different view on who they want to work for, and what kind of companies and leaders they want to join. It resembles a tribe which differs fundamentally from the traditional employer-employee business relationship.”

Ivo says businesses can align their social efforts with the sector they work in. “When a food conglomerate or super brand starts thinking about how to deliver accessible food to a whole new segment of customers, then they can genuinely  help alleviate poverty and hunger. But equally, they also continue to be a successful business. When inclusion generates commercial benefits, the solutions can have a longer term impact.”

Adaptation versus mitigation: companies need a holistic view of future impacts

Ivo says the predominant focus has been so far on mitigation, particularly because the world’s scrutiny and attention has been on reducing emissions, while adaptation has tended to be reactive, where negative events occur. But he cites Marks & Spencer as an example of a company that introduced a climate dimension into planning its stores estate 4-5 years ago, and says UK planning regulations already factor in future flood risks, for instance. So adaptation efforts are gaining momentum too.

“I think businesses are still catching up in realising what adaptation means in practice, is it purely a risk and thus taking an insurance policy against climate risk events to mitigate the financial impact would be enough? Or is it also about how the real assets are designed and operated and the impact they have on people – employees and other stakeholders that might be on site?  There is a slower pace of reaction in parts of the world where projections haven't been so extreme, and the bodies that make those projections will have to take a lead in signalling the level of potential adverse impacts that need to be considered.

“As an alternative asset manager that systematically assesses climate risks, we do try to assess where future capital would have to be spent on adaptation by the businesses we invest in.”

Investors have to dig deep to check the credentials of a sustainable company

A company’s ESG priorities should be specific to the nature of its business, Ivo points out.  “What are the underlying critical dependencies? Is it raw materials, is it the loyalty of customers, is it the ability to stay innovative? Whatever that unique selling point or capability is, ESG priorities should be closely aligned with amplifying it.

“Naturally regulation is there to control economic activities where companies alone cannot solve or necessarily foresee the negative externalities or impacts. So when you combine all those factors, what we have to do is look into the longevity of the current strategy of the business. Is it linked to stranded assets? If we get onto a 1.5 degree trajectory, is there a future for their products and services? Is there going to be anyone to buy them? Those are some of the critical questions that we've started asking ourselves.”

Ivo says there is more of a challenge around social impact. “On the social side, we still haven't agreed on unified measures of impact. Naturally, we have an inclination to form our own views, but it's very difficult to objectively link social factors to the creation or erosion of financial value. It therefore requires quite a strong focus and conviction from the top that certain social matters are important for the future success of the business.”

We need to be honest about the trade-offs in climate solutions

Capital is key, says Ivo. “There are a lot of smart people that have the potential to come up with solutions, but the capital needs to be there to back them up. Once that is resolved, almost everyone has a role to play, whether it's a lender, an investor, a new CEO, it’s finding those people and then having the vision to take a solution to a global scale.  I think solutions will come from everywhere, as long as there is the right ecosystem or the right incentives in place to incubate them.”

But the wider context beyond pure climate mitigation is vital to avoid unintended consequences, Ivo says. Electric batteries for instance may have labour issues and high environmental impacts in their production. “That's why we can't necessarily solve climate change in isolation. We need to accept that we will make decisions, knowing that there will be trade-offs and almost no solution would have only positive impacts.”

Divesting: we cannot abandon industries with mixed outputs and massive employment

We need to remember that we are in a phase of transition, Ivo says, in which winners, and losers will emerge. “It’s already clear that some stranded businesses are much better prepared to evolve than others and in most cases it starts with the recognition that they must do something to change.”

“For instance, we need oil and gas companies to make plastics, and while plastics might be having significant negative impacts on ecosystems and biodiversity, they also have very positive contributions as well, such as in food preservation, and in lightweight materials which means planes or cars need less fuel. And until we have the solutions to maintain the same characteristics through other materials with lesser negative impact, it's going to be extremely difficult to totally divest from oil and gas businesses, because they are interlinked and interdependent to industries that we as a global society value too much. 

“Such products provide the kind of benefits we expect to maintain or improve our standard of living as human beings, or deliver critical solutions to our needs. From that perspective, it’s very difficult to completely divest and for such industries to suddenly stop existing. I think money should be carefully invested to help with the evolution of such industries. It is encouraging to see resolutions at listed oil and gas companies’ AGMs which require the direct link of executives’ incentives to carbon mitigation. Investors will continue to invest, but their conditions will become stricter.”

There is still time but only if we cut emissions: hopes for 2050

“I tend to be optimistic about the future of the planet and of us as human beings,” Ivo says. “I think we still have time to reverse our course in a direction where we will have a healthy planet by the end of the century.

“But I strongly believe that it’s only going to work if the political and technological solutions are complemented with a behavioural change where each and every one of us takes the responsibility to shift the emissions trajectory downwards. Because if we keep producing more emissions on the reliance that some ‘magical’ technology is going to be able to capture 50 gigatons of GHG emissions in 20 years’ time, I think probably we're going to fail.”

“We have no way around it, we have to make it work. If we don’t act, many parts of the world as we know them today wouldn't be recognisable 30 years from now; and life on planet Earth could be significantly endangered. That is not a future I want to contribute to.”