More than 2,000 people gathered in Vancouver last week for GLOBE 2016, North America’s Largest International Environmental Business Summit, to learn how businesses and investors are meeting the growing demand for innovations to move the world toward a low-carbon future. Business executives, government officials, investors, and delegates from 50 countries shared their views on the state of play on dozens of topics, most focused on the contributions the private sector is making and can make to adapt to climate change, meet the climate targets that 195 countries and the European Union committed to at COP21 (the 21st Conference of the Parties to the United Nations Framework Convention on Climate Change) in Paris last December, and accelerate the shift toward a clean-energy and environmentally sustainable economy.
Scientists have warned for decades that global climate patterns are shifting in ways that are dangerously different from historical patterns, with some places getting stormier, others getting drier, some getting cooler, and others getting hotter. Along with those shifts has been a rise in the average global temperature that, above a certain point, would melt the planet’s permafrost, devastate small islands and coastal communities with rising sea levels, and permanently change weather and storm patterns in ways that would endanger agriculture, marine species, and the economies that depend on them. The scientific consensus has been that these changing patterns are a result of the growing volume of greenhouse gases being released into the atmosphere by certain carbon-heavy economic activities. And only by dramatically reducing the volume of such emissions, climate scientists have argued, will we be able to slow average warming to a point where risks to human lives and assets can still be understood, a level estimated at around 1.5° or 2°C above the current average. As pension actuary Karen Lockridge of Mercer put it, “A two-degree world might be insurable. A four-degree world would not be.”
Some damage has already been done. Droughts leading to urban migration and political instability have already contributed to outbreaks of war (followed by refugee crises). Some communities in the tiny islands of the Pacific and Indian oceans are preparing to relocate (one already has). Entire industries are at risk (how will changing temperatures in France affect the quality of its wine grapes?), and while some businesses, investors, and governments are preparing to mitigate those risks, the more entrepreneurial ones are recognizing that with such a large shift in economic forces comes the potential for large opportunities. For that reason, the theme of GLOBE 2016 was “innovation,” the search for opportunities to adapt, mitigate, profit from, or contribute to rapid changes in the global economy.
My three big takeaways from the week: Heading toward a low-carbon economy, demand is moving up, supply is catching up, and policy is lagging behind.
Demand: Moving On Up
The shift to a low-carbon economy did not begin with government regulations or international treaties. It began with consumers who demanded more and more environmentally friendly products and climate-friendly business operations, and who increasingly turned away from products and companies that did not meet the demand fast enough. Not all climate-friendly companies have succeeded, but many of the companies that predicted where social demand, environmental changes, and likely regulation were heading and got out in front of their competitors have turned out to do very well. Philips certainly has not regretted its move into LED light bulbs, BASF has profited nicely after reformulating some processes and products, and Boeing’s increasingly fuel-efficient planes are lowering its customers’ operating costs. In the mid-19th century, the whale-oil industry collapsed in a few short years as consumers turned to kerosene amid volatility in oil supply from declines in the whale population. As the Rocky Mountain Institute founder Amory Lovens put it, “Whalers were surprised that they ran out of customers before they ran out of whales.” It is likely that, as innovators meet the demand for clean technologies and materials, and industrial designers find more efficient uses of existing technologies and materials, peak oil might turn out to be a peak in demand rather than a peak in supply. It is market forces that will drive the low-carbon economy — if corporate boards and government regulators will let them.
Supply: Catching Up
Corporate social responsibility (CSR) came about in response to consumer divestment movements and investor activism, but CSR efforts were generally housed in public affairs offices rather than integrated into business operations. By contrast, a growing number of corporate directors and officers, as well as investment analysts, are recognizing the value of accounting for social, environmental, and governance (ESG) factors as part of their calculations of risk and opportunity. Some investment analysts are responding to investor demand for social impact and ESG performance with financial products based on simplistic screens. But more sophisticated analysts are digging deeper and encouraging more standardized reporting of ESG-relevant corporate reporting. More and more are recognizing, as Cornerstone’s Erika Karp has pointed out, that sustainability is just another term for “corporate excellence” or, according to the UN Global Compact’s Ingvlid Sørensen, “good corporate governance,” both of which demand that companies examine the real risks they face from climate change, climate adaptation, and the social disruptions that will emerge from both. But many boards still do not see it that way, instead simply waiting for policy makers to introduce the regulations they will need to follow.
Policy: Lagging Behind
Many companies are not waiting for policy makers. And many are not even looking for subsidies to support their innovations against dirty-energy products, although many did express a desire for a simplification of tax incentives and the removal of subsidies for their less climate-friendly competitors. What most businesses and investors are looking for is a predictable policy environment. It helps to know the commitments that most countries have now made to reducing their emissions, and at the Climate Action Summit in Washington DC in May, many of those countries will meet to begin developing an action plan. In the United States, the Labor Department ruling that allowed pension fund managers to account for ESG factors as part of their fiduciary duty was a welcome development, although there is still some confusion about how to interpret the ruling. But there is still a long way to go. Delegates to GLOBE 2016 wanted to see reforms in the financial sector to encourage more disclosure of risk and a policy framework that rewards longer-term investments, for example. And the policy change most speakers and delegates at the GLOBE conference wanted above all was a price on carbon pollution, a change that would give them a quantifiable way to incorporate climate considerations into their plans and reporting.
None of this will come easily. Corporations that are deeply concerned about climate change and spend a lot of money on policy advocacy for other issues are not asking their lobbyists to encourage policy changes on climate. That needs to change. In fact, it was clear from the talk on the panels and in the hallways of the convention center in Vancouver that adapting to and moving toward a two-degree world will require work at every level. Policy makers need to set a predictable framework. Corporations need to lobby them to do so, even while finding ways to create innovative new products and ways of doing business to reduce the carbon footprint in their operations and supply chains. Index, rating, and research agencies all will need to create the standardized data and tools that are needed to analyze climate risks and sustainability impacts. Social movements will need to advocate for communities and sectors who inevitably will be negatively affected by climate change and climate action alike, and businesses and policy makers will need to respond, both because it is the right thing to do and to reduce the social and political risks that could be associated with climate action. Consumers are going to need to shift their spending habits even more toward low-carbon products. And investors and investment managers are going to need to move billions and probably trillions of dollars into the companies that are best positioned to thrive in an economy that will see rapid changes in the next decades.
Robert Lamb, PhD, has been a strategist, policy adviser, public speaker, and collaborator in Washington, DC, for more than 20 years. Hi research focuses on hidden systems and barriers that affect strategic success in organizations and societies, from social dynamics in war zones to intangible factors in business relationships. This academic year he is a visiting research professor at the U.S. Army War College’s Strategic Studies Institute, working to improve U.S. and international policy in fragile and conflict environments.