Paul Polman: Nagorno-Karabakh crisis reveals CEOs’ ‘shyness’ on human rights

Receive free ESG investing updates

We’ll send you a myFT Daily Digest email rounding up the latest ESG investing news every morning.

As Russia’s invasion of Ukraine dominates the global political dialogue, the humanitarian crisis in the Nagorno-Karabakh region of the south Caucasus has been pushed to the margins.

A group of senior business figures is trying to do its bit to address that today, with an open letter intended to put pressure on companies operating in Azerbaijan. Read on for our interview with former Unilever chief executive Paul Polman, who spoke about the initiative yesterday — as dozens were killed and hundreds injured by an explosion in the breakaway enclave.

Also today, I report on the growing demand for air conditioning technologies as ChatGPT and other robots drive up energy demands at data centres. Thanks for reading. — Patrick Temple-West

The B Team’s human rights challenge for the corporate A-list

The disputed Nagorno-Karabakh region is low on most companies’ lists of target commercial markets. Today, though, a group of business leaders is voicing its alarm at the military operation launched by Azerbaijan that has prompted thousands of ethnic Armenians to flee the breakaway region.

In a letter to Azerbaijan’s president Ilham Aliyev, executives including Sir Richard Branson, founder of Virgin Group, and Jesper Brodin, chief executive of Ikea parent Ingka Group, are urging Baku to uphold human rights.

Geopolitical risks have loomed larger for boards since Russia’s full-scale invasion of Ukraine, but risk mitigation is not what is driving business concern for the people in Nagorno-Karabakh, Paul Polman, the former Unilever chief who organised the letter, told Moral Money. Polman chairs the UN Global Compact, whose principles state that businesses should support internationally proclaimed human rights.

“If you let these things go, it has a risk to society and it has a risk to business,” he said, but admitted that it was harder to muster support from chief executives to speak out on human rights than other issues.

“We got all the businesses to speak out on climate change . . . [but] when it gets to tax or human rights or corruption there’s still a bit of shyness in the business community,” he said.

So while Polman approached large multinationals operating in Azerbaijan, including BP, none of their chief executives signed the letter. “That is a test; they have big interests,” he said, but “what we have asked those companies is to bring that matter privately to the government there”.

Polman, Branson and Brodin are all members of the B Team, a group of corporate veterans founded to promote responsible business. It is easier for an ex-CEO to speak up publicly than a sitting executive with a board and shareholders to please, Polman conceded, but “the beauty of why we have the B Team . . . is to give a little bit more courage to others”.

We are waiting to see the corporate A-list’s response. (Andrew Edgecliffe-Johnson)

Why cooling tech could pay off for investors amid AI boom

One of the hottest economic forces of 2023 has been artificial intelligence, but the market is not the only thing that’s heating up.

Graphic processing units, the engines that bring AI chatbots such as ChatGPT to life, create additional heat in traditional data centres. And as governments raise concerns about the businesses’ increasing carbon emissions, more energy-efficient systems will become crucial. Already, representatives in Oregon this year proposed a bill that would require these facilities to cut emissions by 60 per cent by 2027.

“You have to be more innovative as to how you cool data centres,” Dave Regnery, chief executive of heating-and-cooling company Trane Technologies, said in an interview in New York during Climate Week.

Dubin-based Trane is one of the world’s biggest suppliers of heating and cooling systems, with 80 per cent of its revenue coming from commercial sales. The company has become a darling for stock market analysts in part because of an early embrace of clean technologies. In an August report, Morningstar had a “positive long-term outlook for Trane’s growth prospects”, citing its energy-efficient offerings.

The new technologies needed to improve data centre cooling are “in the beginning innings”, Regnery said, pointing to Trane’s investment earlier this year in LiquidStack, a start-up that makes cooling systems for data centres.

Investors would be wise to give these companies a look if they want a clean-energy play on the AI boom. Trane looks pretty well valued at the moment. Its price-to-earnings ratio is 25, not far from the broad S&P 500 ratio of 20. Compare that with Nvidia, one of the biggest winners this year from the AI boom, which now has a price-to-earnings ratio of 105.

Big technology companies such as Microsoft and Alphabet have prided themselves on being corporate sustainability leaders. Indeed, Microsoft is the most widely held stock in ESG funds. But as Big Tech continues to fuel an AI race with investments such as the $10bn that Microsoft poured into OpenAI, they will want to ensure their data centres release as few emissions as possible — a sustainability AI play that bodes well for Trane and its competitors. (Patrick Temple-West)

Smart reads

• If the argument is that ESG is dumb investing, then are the anti-ESG funds the source of bountiful returns? Our colleague Rob Armstrong over at Unhedged this week probed the selection of anti-ESG funds to see how they are performing. Check out his findings here.

• The transition to net zero carbon emissions was never going to be an easy win for workers, writes our colleague Sarah O’Connor. As politicians on both sides of the Atlantic try to articulate a winning green transition, it will inevitably involve trade-offs that they would rather not talk about.