Pavan Sukhdev

Pavan Sukhdev

Pavan Sukhdev is Founder-CEO of GIST Advisory, an environmental consulting firm that helps governments and corporations discover, value, and manage their impacts on natural and human capital. He has been awarded the 2011 McCluskey Fellowship by Yale University. Previously, he was Special Adviser and Head of UNEP’s Green Economy Initiative, lead author of their “Green Economy Report”, and Study Leader for the G8+5 commissioned project on The Economics of Ecosystems and Biodiversity (“TEEB”). A former banker at Deutsche Bank, he founded and chaired Global Markets Centre – Mumbai, a leading-edge front-office offshoring company.  Pavan chairs the World Economic Forum’s “Global Agenda Council” on Biodiversity, was a speaker at Davos in 2010 and 2011, and serves on the boards of Conservation International and the Stockholm Resilience Centre.

#ForewordFriday: Corporation 2020 Edition

Earlier this week, Corporation 2020 author Pavan Sukhdev wrote about...

Earlier this week, Corporation 2020 author Pavan Sukhdev wrote about Peabody Energy filing for bankruptcy protection in light of news that the company has funded dozens of climate-denying groups. Read what he had to say about how this funding undermines the resilience of business and relates to lessons from Corporation 2020, and check out an excerpt from his book below. 

 

Evolve or Perish: Lessons from Peabody Energy

On its way to bankruptcy, Peabody, along with four other major U.S. coal producers spent nearly $100 million over the last ten years on political lobbying to help protect federal tax-funded fossil fuel subsidies.

Pavan Sukhdev, author of  Corporation 2020reflects on Peabody Energy filing for bankruptcy protection in light of news that the company has funded dozens of climate-denying groups. He offers his thoughts on how this funding undermines the resilience of Peabody and how it undermines the resilience of all businesses. 

Peabody Energy, the world’s largest private-sector coal producer, applied for “reorganisation” under Chapter 11 of the Bankruptcy Code on April 13, 2016. This means it will retain control of its operations, but under judicial oversight, and present to the court a reorganization plan within 120 days, and persuade its creditors to accept the plan within 180 days. The company had been struggling to stay afloat due to a drop in coal prices, competitive natural gas prices, the Chinese economic slowdown and increasing environmental regulation.

In late-2015, Peabody settled an investigation launched in 2007 by the New York State Attorney General, recognising the need for and agreeing to make full disclosures around the business risks posed by climate change to its investors. The AG’s office accused Peabody of “providing incomplete and one-sided discussions” of the International Energy Agency’s findings by only reporting the highest future coal use projections in an attempt to mislead investors2. Further, a consulting firm hired by Peabody projected in March 2014, that a $20/tonne carbon tax would reduce coal demand for power generation in 2020 by 38% - 58%; it did not disclose this either to its investors.

Photo Credit: Shutterstock
Photo Credit: Shutterstock

Investors ought to have been sceptical of a carbon intensive company claiming inflated future profit projections, as Peabody’s bankruptcy was by no means an outlier. Since 2012, around 50 coal companies in the U.S. have declared bankruptcy, including three of the four largest coal producers in the U.S. - Peabody, Arch Coal and Alpha Natural Resources - accounting for 41% of total output. Given such adverse conditions, investors now find themselves in a risky environment where, on a conservative scenario analysis, global assets worth $2 trillion risk becoming stranded assets. Over 500 institutions valued at $3.4 trillion have already divested from the fossil fuel industry.

Peabody’s stock price has fallen from a high of $72.71 in April 2011 to $1.37 in June 2016. This is not the first time we have come across such a story. Years ago, Enron also pursued risky investments under highly leveraged structures to the point that they declared bankruptcy. Their stock also tumbled from $90 in 2000 to less than $1 in 2001. Much of Peabody’s downfall can be ascribed to its poorly timed $5.2 billion purchase of Macarthur Coal in 2011, for which it borrowed $4.1 billion, even as industry experts projected a grim outlook. Peabody’s pursuit of size and overleveraging, much akin to Enron’s, placed in danger the futures of its 7,000 employees, its creditors, and its investors.

On its way to bankruptcy, Peabody, along with four other major U.S. coal producers spent nearly $100 million over the last ten years on political lobbying to help protect federal tax-funded fossil fuel subsidies. As part of its aggressive and unethical lobbying, Peabody made generous Political Action Committee (PAC) donations to federal candidates—an alarming majority of which went to Republican candidates over each of the last nine election cycles (Table 1).

Peabody’s bankruptcy filing inadvertently exposed its funding of the "climate denial" movement by means of donations to think tanks, climate sceptic scientists and lobby groups. In 2014-15, the company donated $332,000 in “charitable gifts and donations” through the Peabody Investment Corporation to organisations involved in attacks on climate science. Donations were also made to several climate deniers, most notably Richard Berman, who had once compared the U.S. EPA to terrorists. Peabody is also a vocal opponent of President Obama’s Clean Power Plan, which is widely hailed as the most  ambitious step taken against climate change and supported by major corporations such as Unilever, Nestle, eBay and L’Oréal.

By funding the climate denial lobby, Peabody acted in a self-serving manner in a failed attempt to maintain its position in the market. It was evidently trying everything it could to survive in a changing economic landscape where the vast majority of consumers have chosen to no longer ignore anthropogenic global warming.


We have been here before—with the tales of Enron, Volkswagen, ExxonMobil, BP and others.

In my book Corporation 2020 I identify some key characteristics of today’s dominant yet defunct corporate model, which I call “Corporation 1920:” the pursuit of size, aggressive and unethical lobbying, unethical advertising, leverage without limits, all leading to huge negative externalities: the public costs of private profits. Peabody ticks every box of “Corporation 1920.”

In an evolving landscape of consumer interests and citizen demands, Peabody’s “Corporation 1920” model and ethics are outdated. Peabody undermined its own future and survival by acting against the public interest. Worldwide, capital misallocation to earth-system-threatening fossil fuel fuels over the last decade has been huge, averaging an estimated USD 950 billion a year. Markets are meant to punish the misallocation of capital, and the message from investors is clear: they recognize that fossil fuel investments are stranded assets, and will gradually re-allocate capital away from them. The lesson for the fossil fuel industry as well as those that produce fossil-fuel-intensive goods and services is clear: evolve or perish.      

We have been here before—with the tales of Enron, Volkswagen, ExxonMobil, BP and several other such corporations that made considered choices to pursue private profits at the expense of public risks and losses. They all have recurring themes that revolved around the DNA of “Corporation 1920.” We must address these recurring corporate traits through appropriate legislation while improving citizen education in order to tackle the demand and supply sides of our Corporation 1920 challenge. To build an inclusive green economy of permanence, one that works for everyone, we need Corporation 2020. Its time is now.

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References
Peabody Bankruptcy Papers

Deceived: VW's Emissions Scandal

What happens when a company misleads consumers and intentionally pollutes the environment? We asked some of our authors to comment on the recent...

What happens when a company misleads consumers and intentionally pollutes the environment? We asked some of our authors to comment on the recent Volkswagen emissions scandal. Check out what they had to say below and share your own thoughts in the comments.

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Photo Credit: Manik at Flickr.com

 

Jason Mark

Why I'm Suing VW

This content originally appeared on SierraClub.org and is re-posted with permission.

As an environmentalist, I probably shouldn’t say this, but I love my car.

For starters, I love its exceptional fuel economy—an average of 37.5 miles per gallon in the four years I’ve owned it and typically up to 45 mpg on the highway, a significant boost above the U.S. vehicle fleet average of 23.6 mpg. I love its understated style—sleek, compact, and modern without looking flashy. I’ve even come to love the feline purr of its diesel engine, the little rumble that signals its latent power.

Unfortunately, my dream car is something of a mirage. That’s because I’m the owner of a 2010 Volkswagen Jetta SportWagen TDI, one of the nearly half a million VWs that, as the company now admits, was secretly manipulated to evade U.S. and California clean air regulations. VW sold me, and hundreds of thousands of other Americans, a vehicle whose green promises (“clean diesel!”) were little more than a smoke screen.

Let’s be real: Owning a car is a regrettable necessity in our sprawling, industrial landscape. I’m lucky enough to live in a region—the San Francisco Bay Area—where I don’t have to drive much. I commute by bike and train, and I can get everything I need within walking distance of my home. Most weeks, my car sits curbside gathering dust and leaves. But on the weekends, my family and I like to get away to the seashore, the forests, or the mountains—and for that we need a car.

Continue reading more of Jason's thoughts here

 

Joseph Fiksel

Ripple Effects: What VW Means for Corporate Sustainabiliity 

The deliberate deception on Volkswagen’s part represents a breach of trust that will undoubtedly affect the company’s reputation and brand image for years to come. But the ripple effects of this scandal are even broader. For those who are cynical about capitalist motives, it simply reinforces the unfortunate stereotypes of corporate greed and manipulation. For those who respect the efforts of global corporations to be environmentally and socially responsible, myself included, it represents a setback in public perception of the business community. From my experience, the large majority of companies work hard to uphold their values and ethical standards, and are sincerely dedicated to the sustainability goals that they profess. Occasionally they are guilty of errors in judgment, and we have certainly witnessed a number of incidents where automotive companies clearly failed to protect the safety of their customers. However, even though no one was physically injured by Volkswagen’s actions, the company grossly violated the basic claim of their product—clean diesel engines. This is an unprecedented insult to society, comparable to the Enron scandal, and I expect that in the near term it will taint the credibility of corporate sustainability programs in every industry.

littlemoresunshineVWFlickr2.jpg

Photo Credit: littlemoresunshine at Flickr.com

 

Pavan Sukhdev

Beyond VW: More Automotive Deceit 

My book Corporation 2020 (Island Press, 2012) on the evolution of the Corporation – past, present and future – explored the changes that were needed in policies, prices and institutions to change the DNA of the Corporation. Today's economy and politics is dominated by the ethically challenged DNA of 'Corporation 1920,' steeped in the economic philosophy of Milton Friedman, and guided solely by the pursuit of profits, with their goals mis-aligned with society, generating trillions of dollars in social costs: the negative externalities of "business-as-usual." But I was able to find and describe many successful instances of the new DNA – corporations with social purpose, positive externalities, achieving private profits without inflicting public losses. And every so often, I hear or see something that makes me think I have found another one…. 

Such was my impression when I visited Volkswagen in Wolfsburg a year ago, to teach a seminar. I learned that their cars and assembly lines were being designed to ensure each model and chassis could take four types of engines: petrol, diesel, hybrid and electric. It seemed a very pragmatic way of staying open to business for a fossil-fuel-free world of tomorrow. But in hindsight, it was more likely a pragmatic way of staying open to a diesel-engine-free future. Volkswagen is guilty of misdemeanour on a massive scale but it looks like they are not alone. Recent research by the Institute for Transport Studies at Leeds University, UK, suggests that Mercedes, BMW, Ford, and Mazda diesel cars are even more polluting than Volkswagen, and up to the same software deceit.  How can an entire industry go so wrong? Very simple: by being driven solely by the pursuit of financial profits, totally ignoring the wider world of human, social and natural capital that they depend on and have impacts on. That is why we need a new corporate performance measuring system such as Akzo-Nobel's "4D-P&L" concept, see www.corp2020.com.  You cannot manage what you do not measure. Accountancy regulators need to wake up from their sleep of a century, and realise that the financial reporting of 1920 is simply NOT good enough for 2020!