Summary
Cristian Rodriguez Chiffelle, resident visiting scholar and Luksic Fellow at Harvard University’s David Rockefeller Center for Latin American Studies , delved into Emerging Markets (EMs) and the contribution of green investment to overcome environmental, social and governance (ESG) challenges. Policy, scientific advancements and shareholder activism all play a significant role in shaping climate action and investment within business. Responsibilities of the Board of Directors are now considered to include assessment of climate risk and climate disclosure.
Key Takeaways
- Sustainability and the ESG movement present unique challenges for emerging markets (EMs). EMs, which are home to the majority of the global population, face challenges on all ESG fronts, including limited regulation and funding, risk of detachment from global supply chains, and the need to balance growth and sustainability.
- Green Foreign Direct Investment (FDI) has significant potential to generate positive environmental and socio-economic impacts for EMs and businesses within those markets. Organisations can benefit from overseas investment, gain a competitive advantage in the sustainability and renewable energy markets, enhance brand reputation and value, and foster long-term resilience whilst also supporting EMs to overcome ESG challenges. The shift to renewable energy in Chile exemplifies the transformative power of directing investment towards sustainable initiatives.
- It is important to build climate literacy in the boardroom. Board directors act as a bridge between boardrooms and sustainability issues and it is key that they are literate in climate topics such as green finance. Platforms like the Climate Governance Initiative facilitate dissemination of climate-related knowledge and play a pivotal role in raising climate awareness among board directors, contributing to informed decision-making within boardrooms.
- Climate obligations for the Board of Directors are becoming mandatory. Arise in mandatory climate obligations means directors need better knowledge of ESG topics, including scientific advancements and the influence of activist shareholders. Growing awareness of the connection between climate risk and share prices has captured investor attention, also increasing pressure on boards. Board directors’ duties may involve strategic resource allocation, thorough climate risk assessment and disclosure, and implementing strategies to mitigate these risks.
- Neglecting climate risk management and supervision could lead to ‘greenwashing’. This is due to under-disclosure which distorts the organisation’s true financial status, failure to disclose material caveats on emission targets, selective emphasis on good practices (i.e. ‘cherry picking’), or publication of misleading information on social practices (the ‘S’ in ESG) known as ‘bluewashing.’
Conclusion
The evolution of mandatory climate obligations, often influenced by scientific advancements and investor expectations, is altering priorities of corporate boards. Legal and regulatory obligations are transforming board directors’ duties to include climate risk assessment and disclosure, and to prevent ‘greenwashing.’ For board members to act effectively, climate literacy is key. Green finance is an important part of such knowledge, and, when applied to FDIs in emerging markets, could contribute to the sustainable development of these economies and give a competitive advantage to businesses.
Links
Cristián Rodríguez-Chiffelle (bcg.com)
Cristián Rodríguez Chiffelle | David Rockefeller Center for Latin American Studies (harvard.edu)
Foreign Direct Investment and the Greening of Emerging Markets | BCG
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