Lopez Holdings

 

Remarks of Federico R. Lopez, chairman and CEO of Lopez Holdings Corporation at the Management Association of the Philippines De La Salle University-Ateneo de Manila University Covenant for Shared Prosperity on October 22, 2021
Held via Zoom

REMARKS OF FEDERICO R. LOPEZ
MAP DLSU-AdMU Covenant for Shared Prosperity
22 October 2021

At the outset of all the chaos and uncertainty of the COVID pandemic last year, we set about recrafting our Mission and Purpose for the FPH group, which included First Gen and all our other subsidiaries. After months of intense debate and deliberation, we centered on ten highly selected words: “To Forge Collaborative Pathways for a Decarbonized and Regenerative Future”. Since we launched it at the annual shareholders meeting last year, the recasted Mission achieved so much traction internally and has become a beacon of sorts, reorienting our strategy and choice of capabilities and businesses as we move forward.

The power of those ten words to inspire and provide direction surpassed my expectations and I can say all the executive hours we spent hammering it out last year was well worth its weight in gold. Although the wordsmithing took us just several months, its genesis began almost seven years earlier: in November 2013 to be exact.

When Typhoon Yolanda hit the country almost eight years ago, she destroyed our largest geothermal power plants in Leyte, pulverizing them beyond operability. We also lost all contact for days with our 743 employees, not knowing whether they and their families were alive. Immediately after ascertaining the safety of every one of them through search teams we sent into Leyte from Cebu and Manila, despite suffering personal losses themselves, they selflessly organized themselves into a nerve center for rescue and relief throughout the island --- clearing roads, flying and barging in fuel, gensets, lights, medicines, food, water, solar lamps, tarps, blankets, providing psychological first aid, and for Christmas, even entertainment to bring smiles back onto people’s faces. In those critical weeks and months after the super typhoon showed us its wrath, our one objective was to keep the embers of hope flickering and alive at a time when people needed them the most. Many of us to today continue to treasure that moment of service as among the highest points of our careers.

Being at the center of all that fear, suffering, trauma, loss of lives, property and livelihoods wrought by the most powerful typhoon to ever hit the planet shook our very foundations as a company and as individuals. None of us can ever unsee that; it was clear that the world had changed and business as usual wasn’t going to cut it anymore. To us then, these were what we’d call “weak signals to very powerful forces” yet it took us another two-and-a-half years till we finally pronounced at our annual shareholders meeting in 2016 that we would never develop, finance, or operate any coal-fired power plants because of their connection to global warming and our country’s vulnerability.

Over the last five years, we’ve seen concerns over climate change escalate into the climate crisis it’s visibly become today. The latest news images of record heatwaves, drought, wildfires in North America and Australia, record flooding in the Eastern US, Western Europe and Central China have all been terrifying precursors to the UN IPCC’s 6th Assessment Report issued last August. This latest report, produced by 200 scientists with thousands of volunteers from 66 countries has UN Secretary General Antonio Guterres warning that this is a Code Red for Humanity. It’s undeniable that our planet’s climate is changing, primarily from human-caused emissions of fossil fuels, and it’s changing faster and more dangerously than we thought just a few years ago.

Over the last five years, we’ve seen concerns over climate change escalate into the climate crisis it’s visibly become today. The latest news images of record heatwaves, drought, wildfires in North America and Australia, record flooding in the Eastern US, Western Europe and Central China have all been terrifying precursors to the UN IPCC’s 6th Assessment Report issued last August. This latest report, produced by 200 scientists with thousands of volunteers from 66 countries has UN Secretary General Antonio Guterres warning that this is a Code Red for Humanity. It’s undeniable that our planet’s climate is changing, primarily from human-caused emissions of fossil fuels, and it’s changing faster and more dangerously than we thought just a few years ago.

So what does keeping to 1.5 degrees Celsius really mean? The science tells us we have anywhere from 300-400 Gigatons of greenhouse gases left to emit before we exceed that number. Since the world currently emits 51 Gigatons of greenhouse gases each year, we have anywhere from 6-8 years remaining before we lose any chances of hitting that goal of 1.5 degrees Celsius and will be left with having to contend with a harsher 2 degree Celsius world or worse. The latest UN IPCC AR6 makes this very clear: the window for limiting warming to 1.5 degrees Celsius is closing fast.

Now closer to home, you may ask, if Philippine emissions only account for 0.4% of global emissions, why should we care about decarbonizing our lives and our economies? Why not just leave that to big emitters like the US and China?

Firstly, given the Philippines is among the ten most vulnerable nations on Earth to climate risks, we should be among the most driven to amplify calls for commitments to a 1.5 degree Celsius world.

Secondly, the calls for limiting global warming to 1.5 degrees Celsius in the coming years can only intensify. Talking again about “weak signals to powerful forces”, this movement is one that will not progress in linear fashion but instead will accelerate exponentially. With such forces, it pays to sense those signals when they’re still faint. While the signals are becoming clearer for everyone, in the coming years we will see Gen X’ers, Millennials and Gen Z’s gaining more voice and power as consumers, employees and even employers.

In January 2021, results of the UNDP-Oxford University “Peoples’ Climate Vote”-- the biggest global survey on climate change among a million people across 50 countries -- showed that 64 percent of the participants believe that climate change is an emergency that requires urgent responses from countries. (It’s interesting to note that almost half of the poll participants were between 14 to 18 years old). I can’t even begin to imagine the changes that are about to take place in consumer buying habits, supply chains, the rewiring of finance, and even social norms---just to name a few, as these beliefs progress and mature. The up-and-coming generations care even more deeply about climate issues than us Baby Boomers.

The combined effects of all these are being seen in how companies and brands are reorienting around decarbonization goals. I’m sure many of you in finance circles are witnessing similar shifts among financial institutions, investors, insurance companies, sovereign wealth funds and large pension funds. Many are beginning to place a shadow carbon price in their investment decisions, with many countries already talking of explicit carbon pricing from $48/ton to even north of $100/ton. Many countries and an increasing number of the world’s largest engineering firms are also saying they’ll no longer build coal plants. Even cross-border carbon tariffs that measure embodied carbon in products are also being contemplated.

A number of countries like New Zealand and the UK are also leading the way in making climate related disclosures, (along the lines of the TCFD framework), mandatory for banks and insurance companies by 2021 and 2022, respectively. (TCFD framework asks you to spell out not only your physical risks and transition risks but also your opportunities from climate change as well. Unlike other measures of carbon footprints which look at your current snapshot, this framework complements those snapshots and forces you to think forward strategically about those financial risks and opportunities from climate change. As more adopt this, winners and losers become more evident and investment decisions and potentially stranded assets become clearer.) Hong Kong, Switzerland and Canada are following soon, and the G7 has recently announced in June that they are also backing the idea of mandatory disclosures. Janet Yellen (the US Secretary of Treasury) likewise put her weight behind mandatory TCFD reporting last April, claiming it already has momentum and the support of 110 financial regulators including 50 Central Banks. The NGFS (Network for Greening of the Financial System) which includes our BSP, already has 95 member central banks and monetary supervising authorities and 16 observers such as the ADB, IMF, OECD, WB/IFC, etc. Every day, I hear of new countries and huge important companies laying down net zero targets, some voluntary but more increasingly mandating and embedding them in policy and legislation.

These are just the tips of the iceberg but the massive changes underway will alter every industry on the planet in the next ten years. Some of them beyond how we recognize them today. They will change in two ways. First, because the changes from a warmer climate are already here, baked in and even accelerating. The words of Al Gore here in Manila in 2016 still reverberate in my mind each succeeding year I see the impacts of the climate crisis: “all our infrastructure was built for a world that’s now changed”.

The second and more profound cause is because of the rapid need to transition to net zero carbon by 2050. To give you a sense of scale, Covid-19 in 2020 brought emissions down globally by 5-7%. We need that scale of reduction each year till mid-century just to limit global warming to 1.5 degrees Celsius. A child born today can only have a personal lifetime carbon footprint that’s just 1/8th that of his/her grandparent’s. This challenge is greater than anything man has ever surmounted in human history. But we don’t have a choice. It’s nothing less than an existential threat to humanity. Human activity has caused us to recklessly leave the stable climate this planet has had over the last 11,000 years. We’ve just left the Holocene epoch and now entered the uncertainty of the Anthropocene.

All that may sound terrifying but just last December came a sliver of good news. Leading IPCC scientists also revealed something described as “game-changing” and new in the scientific understanding of climate change. To quote noted climate scientist Dr. Joeri Rogelj, lead author of the latest UN IPCC’s Assessment Report 6: “It is our best understanding that, if we bring down (GHG emissions) to Net Zero, the warming will level off. The climate will stabilize within a decade or two.” I was elated and personally filled with hope when I read that pronouncement of the latest scientific consensus, which is a huge paradigm shift from the idea that decades and centuries of additional warming was already baked into the planet as suggested by previous IPCC reports. This makes Net-Zero an even more compelling and inspiring narrative for the future.

However, beyond just halting any additional warming is the Herculean task of preserving, rebuilding, and more importantly regenerating the planet and everything we’re losing. This is why we believe sustainability is no longer enough in a world that’s badly in need of healing and renewal. We specifically chose to use the word Regeneration in our recrafted mission, with all the responsibility that carries. We are not a full-on regenerative company today; no one is yet. But we chose it deliberately to signal to our people that they have a license to adopt this new mindset as our inherent way of doing business and that it’s perfectly fine for them to “bring their values to work” every day. Being regenerative doesn’t scale if it only comes from the top; it has to permeate the organization and how it does business day to day.

Being regenerative, however, isn’t just about renewing the environment. It’s even more about healing the wounds inflicted on our communities and our societies from decades of economic thinking and the resulting policies that have widened inequalities and made the dream of prosperity for billions of people even more out of reach. Today we are seeing destabilizing social forces take root in these sources of discontent. They’re even made more potent through a turbocharged social media that warps our politics.

Unbridled consumerism and maybe even capitalism itself may be under fire for this, but we need to remember that the latter has brought tremendous and amazing progress, creativity, and innovation. However, as it’s currently practiced, it has also left too many behind. Even as we breach much of our planet’s safe environmental limits, billions of people still do not have decent access to energy, clean drinking water, toilets, food, healthcare, education, housing, income and work, political voice, social and gender equity, or even peace and justice. The Trillion-dollar question as we approach the 1.5 degrees Celsius limit in the coming decade will be, if we have such a limited carbon budget left, how will the world spend it? Producing more Louis Vuitton bags or uplifting the lives of those who’ve been left behind?

Our economics 101 classes taught us the rainbow-shaped Simon Kuznets curve (done in the 1930’s) which infers that inequality rises but eventually falls as the economy grows. There was even an environmental version of that curve by economists Grossman and Kreuger in the 1990’s which promised the same relationship with environmental degradation and that eventually, pollution all got cleaned up as countries got richer. Theories like these shaped our worldviews and policies over many decades but we now know they have scant basis for being true.

The environment is belittlingly treated as an “externality” that has no limits. Remember too that the value of a healthy and growing forest, that sequesters carbon emissions and gives life, water and sanctuary to countless unique but interconnected organisms that makeup our planet’s biodiversity, is only reflected in GDP the moment it’s cut down, killed and sold as raw materials. Yet the fixation on growing GDP is deeply ingrained in much of our policies and our thinking. When faced with an economic crisis, we intuitively seek to grow our way out of it, with panic and dire consequences for leaders and policymakers when it doesn’t. By implicitly assuming that GDP can grow forever, we were economists trained like pilots who were taught to fly but never how to land. So, ironically, despite earning academic honors in my college economics courses at the University of Pennsylvania, I feel now like I have to unlearn a lot of it.

One of the most fascinating lenses I’ve seen on how to view economics from a 21st century perspective is that of English economist Kate Raworth, author of one of the Financial Times Longlist Book of the Year in 2017. In her book titled Doughnut Economics, she illustrates this framework beautifully. She starts with the outer ring of the doughnut with an environmental ceiling consisting of nine planetary boundaries (e.g. climate change, biodiversity loss, ocean acidification, nitrogen and phosphorous loading, land conversion, acidification of our oceans, chemical pollution etc. many of which even overlap and infect each other). Exceed them and you get unacceptable environmental degradation and potential runaway tipping points in the Earth’s systems. The inner ring of the doughnut is composed of the twelve minimum social standards identified by world governments in the Sustainable Development Goals of 2015. Falling short on them not only deepens human suffering but also widens socio-political divisions that have become a source of conflict and instability in the world today.

Her book emphasizes the need, among other things, to radically transform our fixation on GDP as a measure of progress to the far bigger goal of “meeting the human needs and rights of every person within the means of our life-giving planet”. She advocates a mindset agnostic to growth, but which simultaneously seeks to build a social foundation of well-being no one falls below, and an ecological ceiling of planetary boundaries we do not go beyond. 21st century economic thinking will be about bringing all of humanity within what’s termed the safe and just space, irrespective of whether we have GDP growth. This framework and others like it will gain in importance as the world comes to grips with the brutal reality of the tiny and shrinking carbon emissions budget we’ve got remaining. As the saying goes, there will be no jobs or profits on a dead planet.

The Philippine Business Community’s Covenant for Shared Prosperity is a necessary and timely step in the right direction. Progressive (or even regenerative) businesses need to align themselves, their resources, and their capabilities towards a mission that seeks to elevate everything they touch – their customers, employees, suppliers, contractors, the environment, communities, and, of course, their investors. This is essentially the Stakeholder Pentad Framework, well expounded by Carol Sanford in her book, The Responsible Business. Applying this mindset means all decisions should revolve around balancing the needs of all five stakeholders, in a specific sequence: first, your customers; then your co-creators which are your employees, suppliers, contractors; then the Earth; then the communities; and finally, your investors. The pentad necessitates that we think in systemic wholes and not in fragmented parts. Reversing the sequence, which unfortunately has permeated the thinking of most businesses in the past, just doesn’t work when your primary goal of maximizing shareholder value leaves little room to benefit anything else.

That model of shareholder primacy above all else no longer fits with the extraordinary times we live in. It’s resulted in the mindless pursuit of growth, unbridled consumption, the overshoot of our planet’s environmental limits and widening inequalities. CSR or philanthropy may ease our consciences but the sad fact is they may never scale up enough to heal our hurting world in time. There is an urgency for all of us to go beyond incremental sustainability and transform into regenerative forces that align our profit engines with the need for a better, more just world and a safer planet. Collectively, we have the creativity and innovative energy needed to solve the world’s greatest problems. Unlocking these will be the foundation to some of the greatest business opportunities in the coming century but the time to act is NOW. This can only be a massive collaborative undertaking for our country and the world and none of us can do this alone.

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Lopez Holdings Corporation 
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