Should business bother about climate change?

Malcolm Preston, Partner, Global Leader, Sustainability & Climate Change comments.

Remember Y2K?  Aeroplanes were going to fall from the sky and nuclear power stations go into melt down.  With fear that computers weren’t set to deal with the year 2000 leading to catastrophic results, the world invested somewhere between $300bn and $600bn.  And nothing happened.  Was it a waste of money or a good job, well done?  Who knows, but nobody wanted to look back and say “if only” ….

Climate change … nobody wants to look back and say ‘if only’

Climate change is that “if only” moment, just magnified. Atmospheric CO2 concentrations are up by 40% since the start of the industrial revolution, and at least that much higher than any time going back as far as we can tell (more than 400,000 years).  With surface temperature increasing, oceans warming, sea level rising, Artic sea ice declining and more – we’re heading for global and irreversible long term climate change.  Individual action is great, but cooperation is essential if we want to avoid that “if only” moment – and we can (fingers crossed) if we slow down our consumption of fossil fuels. Business will have a big role to play, at the forefront of innovation and the sharp end of regulation.

But, over the years, I’ve observed that it’s very easy for business to divorce itself from climate change.  The reasons are many …. Profit today is very much King. Long term strategy doesn’t always appear on the radar.  Investors want to see short term returns. Political commitment and regulation have been slow and inconsistent. And it doesn’t help that the industrialised nations creating the problem, don’t tend to feel the direct impact of it.

But a global climate deal is not far off.  I was at the UN Climate Summit in September this year that marked a key milestone in the run up to December 2015 when all the world heavy weights come together to agree once and for all their country’s commitment to reducing carbon emissions and trying to put some sort of halt to climate change.  The deal they make will have far reaching consequences for us all.

What’s the worry?

The world is warming thanks to increasing amounts of carbon in the atmosphere.  (If you want the facts behind it, Climate Change: Evidence & Causes by the Royal Society and the US National Academy of Sciences is well worth a read). And, as a planet, we’re currently not dealing with it that well (watch this video).   Scientists have worked out what it will look and feel like 2˚, 3˚ or 4˚ warmer than it is now.  High level impacts like sea level rise (low level cities including New York and London will suffer), disrupted food systems (reduced agricultural yields and low fish stocks) and water shortages as well as extreme weather events will take their toll on production and distribution. (Putting aside for one moment the unthinkable suffering it will cause around the world). 

It will hit business hard.  It will be a more difficult environment within which to operate, weakening business resilience and disrupting business continuity.  The competitive advantage will be with those who have the foresight to invest in innovation and adaptation, or who already have a sustainable business strategy. 

Hitting too close to home

Our economic growth models are powered by fossil fuels rich in carbon.  Our power systems, transport networks, buildings and industrial processes are all heavily dependent on carbon and are massive contributors to carbon emissions. It doesn’t help that it’s the energy intensive industries like power, steel, cement, glass and chemicals that are the building blocks of our economies. 

So the big question is: Can we reduce our reliance on carbon and maintain economic growth?  It’ll take serious investment into new technologies and alternative power sources.  But there are encouraging signs - renewables accounted for 8.5% of the global electricity mix in 2013, up from 7.8% in 2012, and were 43.6% of newly installed generation capacity in 20131. Sales of electric cars doubled in Europe in 2013 (it’s still only 1 in every 250 cars sold, but it’s moving in the right direction). We just need to keep going.

But, although business has a huge contribution to make in driving down carbon emissions, if left to dictate the pace of innovation, short term profit is likely to dominate. The likelihood is then that change probably won’t happen fast enough to avoid hitting a tipping point and the point of no return. 

Which leads to the big dilemma: should we decarbonise now (slowing economic growth at the same time), or enjoy economic growth now (but pay heavily for it later)?  Very few can afford to be first mover on this, there is too much at stake. So governments will need to agree and lead the way, pledging cuts in carbon emissions that will realistically make a difference and setting a level playing field with regulation, including putting a price on carbon, that’s actually adopted.  This is what faces the heavy weights convening in Paris this time next year.  But whatever happens, business will be pressured to rise to the challenge and support the pledges made, or accept the consequences.  So for the forward thinking companies, change will be both self-driven and enforced; and for the laggards, well they’ll be playing catch-up, if they can.

Best to bother about it, I think.

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1 Global Trends in Renewable Energy Investment 2014 - was produced by the United Nations Environment Programme (Unep) and Bloomberg New Energy Finance.