By Marc J. Lane
Climate disasters are happening at the rate of one a week, according to the UN Secretary-General's special representative on disaster risk reduction. Droughts, cyclones, wildfires, rising seas and retreating icecaps make headlines around the world. Already we've seen rising temperatures, air pollution and flooding lead to disease, food shortages, the displacement of people and disruption to property.
It's clear that climate change -- one of the defining political and social issues of our time -- presents an existential threat to virtually every company that fails to align its business principles with its moral obligation to the planet and all of us who occupy it. Businesses that shirk their responsibility by producing or relying on fossil fuels and other non-renewable sources of energy will see the value of their shares erode as institutions continue to divest their holdings in such companies. Businesses that are unprepared for climate breakdown will become increasingly vulnerable to supply chain dislocations as severe weather patterns become more pronounced. Sophisticated lenders will soon manage their financial risks by pegging a company's borrowing costs to its social and environmental performance. And revenue models are bound to be challenged by new taxes and new regulations that promote sustainability.
Here and around the world, governments are stepping in to ensure that companies are making the climate crisis a priority. On July 17 the Financial Services Committee of the U. S. House of Representatives approved the Climate Risk Disclosure Act of 2019, which would require public companies to disclose critical information about their exposure to climate-related risks. The bill's purposes are to help investors assess those risks, to accelerate the transition from fossil fuels to cleaner and more sustainable energy sources, and to reduce the chances of both environmental and financial catastrophe.
But savvy business leaders already understand that by taking science-based climate action, their companies will be best-placed to thrive as the global economy undergoes a just transition to a net-zero future. According to a 2017 KPMG study, half the world's largest companies acknowledge climate change as a financial risk, and the Global Reporting Institute estimates that over 90 percent of the world's largest companies are reporting on their sustainability impact, with smaller companies following suit.
The UN is calling on businesses to join its Campaign for Our Only Future by pledging to cut their greenhouse emissions in half by 2030, thereby helping limit increases in global temperatures to 1.5 degrees centigrade above pre-industrial levels. The Campaign's goal is to reach net-zero emissions by 2050. Companies that take the pledge will be recognized at the UN Climate Action Summit in New York on September 23, which promises to showcase scalable and replicable business solutions intended to slow the pace of climate change.
Net-zero emissions by 2050 should be the threshold of our ambition, not an aspirational metric by which success is to be measured. Let's encourage all businesses to contribute to a clean and green future powered by renewables, and offering their employees rewarding jobs in green industries.
Marc J. Lane is a Chicago attorney and financial adviser and the vice chair of the Cook County Commission on Social Innovation.
The world's first social impact bond, or SIB, was introduced in 2010 to fund innovative social programs that realistically might reduce recidivism by ex-offenders in Peterborough, England, and, with it, the public costs of housing and feeding repeat offenders. Prudently building on the strengths of that initiative, Illinois Gov. Pat Quinn is rolling out SIBs to help solve some of the state's most vexing social problems.
A SIB isn't a traditional bond where investors are guaranteed a fixed return but a contract among a government agency that agrees to pay for improved social outcomes, a private financing intermediary and private investors. SIBs shift the risk of experimenting with promising but untested intervention strategies from government to private capital markets, with public funds expended only after targeted social benefits have been achieved.
Peterborough's problem was daunting: Sixty percent of prisoners serving short-term sentences historically had gone on to re-offend within a year after their release. But policymakers were confident that a solution was within their reach. They attracted private investment to pay experienced social service agencies to provide intensive, multidisciplinary support to short-term prisoners, preparing them to re-enter society and succeed outside the penal system.
The government decided which goals would be supported, but exactly how those goals would be achieved was left to the private sector. It was the investors, through a bond-issuing organization, who ultimately endorsed the allocation of investment proceeds — how much would be invested in job training, drug rehabilitation and other interventions.
If the Peterborough plan eventually shrinks recidivism rates by 7.5 percent or more, the government will repay the investors' capital and share the taxpayers' savings with them, delivering up to a 13 percent return. If the target isn't hit, the investment will have failed and the government will owe the investors nothing.
Illinois' SIB effort was spearheaded by the state's Task Force on Social Innovation, Entrepreneurship and Enterprise — the governor's think tank on social issues, which I am privileged to chair — with support from Harvard University's John F. Kennedy School of Government, the Rockefeller Foundation and the Aurora-based Dunham Fund. A request for information issued by the Office of Management and Budget on May 13 yielded responses from service providers eager not only to reduce recidivism here but also to create jobs, revitalize communities, improve public health outcomes, curb youth violence, cut high school dropout rates and alleviate poverty.
Now the governor has issued a request for proposals intended to spur better outcomes for Illinois' most at-risk youth — by increasing placement stability and reducing re-arrests for youth in the state's Department of Children and Family Services, and by improving educational achievement and living-wage employment opportunities justice-involved youth most likely to re-offend upon returning to their communities.
Kudos to Mr. Quinn for bringing SIBs to Illinois. May they soon start delivering on their promise.
- See more at: http://www.chicagobusiness.com/article/20131007/OPINION/131009850/a-new-kind-of-futures-contract-for-illinois#sthash.ThgxeiFt.dpufThe Law Offices of Marc J. Lane, A Professional Corporation
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