The Paris summit on climate change coming up in December will be a test of the ability of world leaders to read science accurately, and to act in the long-term interests of their countries and their planet.
But the spotlight is also on business.
Traditionally understood to be a major source of the problem, the private sector is now becoming a necessary part of the solution.
The first cracks in the ice of corporate inactivity came in 2009, as the United Nations mounted a climate change summit in Copenhagen. On the sidelines of that effort, a handful of corporate leaders started to advocate for low-carbon solutions. They are continuing their efforts this week, at an advance meeting of business on climate in Paris.
The vast majority of businesses, however, are missing in action. Or worse, they continue to lobby, often through national trade associations, against useful climate policies. This is done to protect market share associated with carbon-intensive processes. Or, on ideological grounds, to counter policy intervention as a distortion of free markets.
In fact, ignoring the costs associated with destructive carbon externalities is where the perversion of free markets lies. Until these costs are accounted for, the resulting market distortions will detract from the long-term interests of business as well as society as a whole.
As the realization sinks in that carefully calculated carbon pricing in fact restores the proper functioning of markets, the correlation of forces in the corporate world is changing in other ways.
Innovation and new technologies are cutting the costs of and upping the potential returns on low-carbon solutions, as the strong upward curve in market opportunities for more efficient and cleaner products and services takes hold.
Meanwhile, new regulations and the certain expectation of more to come, is putting the heat on high-carbon holdouts. And the ability to play North against South is dissipating, as the stereotype of high-regulation North and laissez-faire South breaks down under the aspirations of developing countries for climate solutions. The recent China-U.S. concordat on climate is a sign of the times.
As well, stakeholders increasingly are expecting or demanding, that the companies they deal with are green and clean. Large institutional investors, for example, are seeing immersion of any business in carbon-intensive operations as a long-term risk factor. Whereas clean and cost-efficient operations and the utilization of alternative fuels by a company go into the plus column.
Principles for Responsible Investment, a U.N.-endorsed international investor coalition with $44 trillion in assets under management, is just one of the networks pledged to make climate and environment, as well as clean governance, foreground investment criteria.
Leading corporations now realize that a major market transformation is inevitable. It is no longer sufficient to underwrite a few showcase projects. Or to place glowingly self-congratulatory image ads in glossy magazines, while lobbying or participating in lobbying that is contra-green.
In countries like those in the European Union and Korea, governments have instituted carbon-pricing regimens. What is needed is more heavy lifting by business, especially in terms of making the business case for this kind of pricing.
With the Paris business summit this week, it is a good time to advance the argument. Among the CEOs in Paris are those affiliated with the U.N.-based “Caring for Climate” coalition. Companies, they say, should set an internal carbon price (per/unit cost of greenhouse gas emissions) that is high enough to materially affect investment decisions and, effectively, to drive down emissions. Moreover, they should publicly advocate the importance of carbon pricing and communicate on progress in public reporting.
Other coalitions of climate-friendly businesses and business organizations are taking root, and the World Bank is engaged in a massive effort on enlisting companies on carbon pricing issues as well.
More CEOs need to be speaking up on climate matters in general ― engaging in peer dialogue, influencing policy makers, writing articles or addressing audiences. It’s good for the planet, and it will support negotiations underway among governments. In the crucial run-up to the Conference of Parties in December, more companies need to show their true colors on climate.
By Georg Kell
Georg Kell is the executive director of the U.N. Global Compact, the world’s largest voluntary corporate sustainability initiative with 8,000 corporate participants in 145 countries. ― Ed.
