Think Bigger: "Universal Operator" Companies Moving Towards Collective Climate Action

Understanding the interaction of business and society has always piqued my interest. Questions such as what motivates businesses to care about and act on climate change, and if they do care, what are they doing and how can they do better, have been at the forefront of my thinking. Without realizing the elephant in the room, which is that climate change is a systemic issue that extends beyond individual companies, this consulting project I'm starting forces me to ask myself, what if our center of focus is already limited? What about the industry, the supply chain, consumers, and policymakers, as well as all of their interactions? This topic broadens the discussion of corporate climate action beyond its privately owned activities to a more systemic approach, which is strangely often overlooked for an inherently systemic challenge. The main questions we intend to answer for our clients are: when will these enterprise-level climate actions be rendered ineffective? When should businesses think bigger and take more systemic actions? How do they operationalize these questions?

Our client derives the concept of "universal operator" from the concept of "universal owner," which refers to large institutional investors who almost own the entire world. Similarly, these gigantic multinational corporations almost run the real economy. This parallel thinking is very fascinating to me. On the one hand, "universal operators" can refer to the strategies that "universal owners" are implementing, such as supporting/procuring industry solutions (similar to investing in private market climate solutions), allocating capital on operation decarbonization (similar to ESG integration in building portfolios), and engaging with suppliers, industry trade unions, and policymakers (which is similar to engagement with portfolio companies and asset managers). On the other hand, the time horizons of "universal operators" and "universal owners," as well as the influence power they wield, may differ, resulting in different motivations and approaches. What's more, if we take a step back and consider why our client is looking to explore the concept of "universal operator" rather than the more commonly used term of "universal owner," we discover that it actually serves the purpose of creating greater impact with limited influence power as a small-scale asset manager. Our client has a strong sustainable investing philosophy, but their size can limit their ability to act effectively when compared to large asset owners. However, engaging with "universal operator" companies opens the door to leveraging more impactful climate actions.

Until now, we've chosen three holding companies from our client portfolio from the consumer goods, aircraft, and agricultural equipment industries for a deep dive on the systemic climate risks each of them faces, their current individual actions and effectiveness, and the gap for collective action in their specific industry. We'll focus our analysis on the financial material impacts of these risks (likely based on internal carbon pricing, impact on ROIC/ROE, and so on) and synthesize the common characteristics and takeaways that can be generalized to other industries. I'm really looking forward to continuing the research and hopefully contributing to our client's active ownership strategy and beyond.