Take Aways Curriculum Governance of Innovation in Banking – Forum Banking in a low carbon economy, 23 November 2018

Reflections by Stephan Lems, Partner Innovation Booster, on the Hemingway/NVB Forum Banking in a Low Carbon Economy, 23 November 2018.

Hemingway asked Stephan Lems, Partner of Innovation Booster and Millennial, to provide a wrap up at the end of the forum and share insights from the perspective of his generation (millennials).The day was marked by three main speakers interlaced with reflections from a non-executive perspective by Evert Greup and discussions between forum attendees.

Stephan Lem’s observations:

Quite suitable to ask a Millennial to share his/her observations, as the results of the current banking in a “high-carbon” economy will mostly be felt by my generation, instead of the attendees of the forum. 

Even more suitable, because my generation has quite an opinion about the environment and thinks to know what should be done to save it. The same generation, by the way, that flies around the world for fun and pollutes the world even more than previous generations without realising it. In that sense, Emmo Meijer made a very valid point during his speech that: “Despite good intentions, there is a world to win in terms of awareness around the topic of sustainability.”

Emmo Meijer

Emmo Meijer was introduced as an influential figure in Dutch politics and business. It was said that he would be giving an introduction about the current state of multi-lateral climate initiatives between companies, NGO’s and government's and that he would be highlighting key opportunities for financing low-carbon initiatives. 

Emmo, asked to present a ‘Call to Action’, started of elaborating on corporate organisations; stating that although they are launching initiatives to reduce carbon waste, it is too little too late. Organisations need to fundamentally change their business models and modus operandi to generate the impact necessary to save the climate. In his words: “Corporates are mostly providing lip-service and are not making the necessary, intrinsic changes.” 

The government is following in their footsteps and is failing to provide The Netherlands with a compelling vision of how we need to change. It lacks vision and leadership. Instead; blinded by the Paris agreements, its focussing on short-term wins (such a Co2 storage underneath the North sea) to make an attempt at achieving the stipulated 2030 goals. By doing so, its potentially sacrificing long term (scope: 2050) impact.

Emmo continued his speed by summing up a list of do’s and don’ts in financing carbon-reduction initiatives. It was mostly a list of don’ts. 

When challenged on what banks, and their supervisory board members in the room, could do to actually make a change, he replied; "The best thing to do is to initiate a meaningful conversation."

To my opinion more action is required than just a meaningful conversation. His somewhat reserved call to action was quite a contrast to his speech where he kept on stating that “everything needs to change fundamentally in the way we do business”.

Tom van Aken

Tom van Aken was up next to paint a brighter picture. Asked to provide insights, challenges and opportunities on climate change and energy transition from the perspective of a highly innovative company in the field, he gave a very clear and inspiring view of what the future might hold.

Tom is passionate about bottles, is dead set on creating the perfect bottle, which requires a long breath and very large investments. Amounts of €200 million and more are required to only scale each innovation which Avantium has in its pipeline. A perfect bottle to Tom is a bio-based bottle. 

Tom described how big corporates kept blocking his ways; how the old, polluting establishment continues to put up barriers towards the advancement of new generation of companies. Another interesting fact was his description of how even Avantium, with their noble goals, has organisations scrambling against them because they are not “sustainable” enough. Implicitly, he made an interesting point: “Idealism alone is not sustainable. Idealism needs to be combined with practical usage to deliver value and has to earn its right of existence.” It was inspirational to hear how Avantium succeeds in doing so. 

During Tom’s speech I couldn’t help but wonder; Why is Avantium taking so long? Why are so many forces working against Avantium? Who is trying to stop Tom from making 200m bottles?

Floor Rink, Professor RUG

Floor Rink, in her speech about Boardroom dynamics, provided some key answers to the above questions. In her speech she elaborated on how boardroom dynamics can influence organisations and their innovation performance for the better or worse. Floor Rink is research professor specialising in governance research at Rijksuniversiteit Groningen.

Subjects that she highlighted, which triggered me most were: Complexity of context – usually created by innovation - drives people to reduce uncertainty and lets them fall back on ‘biases’. In addition, power generates and stimulates conservative behaviour of top (non) Executives and strengthens behaviour that reduces uncertainty, resulting in the risk of falling back on biases. Mutually influencing behaviours which require awareness and carefull monitoring at Board level to prevend the negative effects of this potential behaviour in an innovation context. 

An additional key insight which Floor shared with the audience, is that mobility instead of diversity drives the effectiveness of decision making processes of (non) Executive Boards in a positive manner. When injected in a board room setting, diversity generates a short term cognitive alertness of its members. This cognitive alertness has a positive impact on the quality of decision making processes. However, this is only a short term effect. As groups, including (non) Executive Boardrooms !, have the tendency to move toward convergence of opinions, instead of convergence towards a context which provides ample room for challenging point of views and opinions.  A concluding and very important take away: A focus on mobility in boardrooms leads to better dynamics and better decisions.

Concluding remarks by the author..

When thinking back on the talks of the afternoon, the discussions that followed and about the climate debate in general, one word sticks out: RISK.

Risk is mentioned continuously, and risk aversion is the prevalent tactic. 

The word risk by definition has an element of uncertainty in it. Risk is the possibility that something negative might happen. 

But by being so risk aware, we are under threat of overseeing something very important.  We are omitting the fact that there are a lot of certainties when it comes to climate change. We can be 100% sure that the climate is changing, and it's changing fast. All we can do, is work together to limit the scope of (negative) change and act on the consequences.

The primary focus of a Supervisory Board (Member) should be on the lookout for (financial) risk immediately impacting the organisation. However, this makes it tempting to focus on the short term (financial) risks of climate change on the organisation and its immediate surroundings and it supports a reactive role. As the long term risks and consequences are of a different magnitude, much less tangible and easier to postpone or ignore. As Emmo Meijer elaborated: “Even the government plays hide and seek on these topics. Therefor it is up to organisations like yours, the Banks (red.),  to take the lead in this, as not many others will do it. 

Tom van Aken has shown us a bright new future, one that offers a financially attractive alternative to carbon-heavy alternatives. And let’s face it, who doesn’t want Tom to succeed in his mission? Yet it's incredibly difficult for him to succeed. 

Good intentions are plentiful. But aren’t we held back by decisions made in the past? Are we really able to move to this new future? One of the things I was expecting to hear more about today was the so called “Carbon Bubble”. Dutch financial institutions are heavily invested in carbon heavy industries. As NOS.nl reported on 27 November: “To date banks invest much more in fossil energy as compared to sustainable energy. More than 80% of energy loans of Banks is provided to non-sustainable companies, i.e. high carbon companies.” (source: nos.nl, 27 November 2018)

The only way to make this money back, is if fossil fuel reserves are used nearly completely. If we want to have a serious shot at making the goals of the Paris Climate Agreement, only 20% of these reserves can be used up. That’s a financial catastrophe, not only for financial institutions, but for the entire Dutch economy.

Multiple scenario’s to deal with this are imaginable. Unfortunately none were discussed during todays Forum. However, I understand that ‘solution driven dialogue’ will be the central theme of the next series of events of the Curriculum Governance of Innovation in Banking: The Themed Round Tables, which will be rolled out early 2019.

Action is necessary, and the deadline was a few years ago. Thats why I would say; please invest in and facilitate a sustainable economy. It might be risky on the short term, but the really risk is that we are too late. Look beyond the upcoming quarterly figures; it is my future that we’re talking about here. 

Lots of success with the ‘solutions driven dialogue’ during the upcoming Themed Round Tables Digital and Energy Transition of the Curriculum Governance of Innovation in Banking.


Stephan Lems, Partner Innovation Booster

 

 

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