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EXECUTIVE PERSPECTIVE: The private sector and climate change, standing on the right side of history

The author of this piece, Mr. Georg Kell, is the founding Executive Director of the United Nations Global Compact, the world’s largest voluntary corporate sustainability initiative with over 8,000 corporate signatories from more than 160 countries.  In a career of more than 25 years at the United Nations, Mr. Georg Kell oversaw the conception and launch of the Global Compact’s sister initiatives on investment, the Principles for Responsible Investment (PRI), and on education, the Principles for Responsible Management Education (PRME), together with the Sustainable Stock Exchanges (SSE) initiative.  He is currently Vice Chairman of Arabesque Partners, an Anglo-German asset management firm offering a quantitative approach to sustainable investing.

By Georg Kell | 23 November 2015

The role of the private sector is ever more important in shaping humanity’s future. This is especially true when it comes to climate change. Exercising a disproportionate influence over policy makers, the private sector is both a source of the climate problem – with sectors such as energy production, transportation, industry and agriculture amongst the worst offenders for emissions – and at the same time offers the solutions required to transform our current economic model into a low carbon, clean economy. A world where humanity stands a fair chance to grow prosperously in a clean and healthy environment.

In the past the private sector has by and large defended the status quo and often played a sophisticated game to demonstrate green credentials with marketing campaigns, whilst at the same time using its influence to stop or undermine climate policy action. Often, this has been done by outsourcing government lobbying to lowest common denominator trade associations. Opposition to higher fuel efficiency standards, legal action against the US Clean Power Plan, lobbying to extend fossil fuel subsidies and funding of think tanks that deny man-made climate change are just a few examples that spring to mind. Indeed, hundreds of global corporations found it convenient to call on governments to “Seal the Deal” around the 2009 Copenhagen Climate Summit while continuing with business as usual. According to a recent Thomson Reuters Global 500 GHG Report, the world’s 500 largest companies produce over 12 percent of total global emissions and continue to increase emissions on average 1% per year.

There are however unmistakable signs that the dynamics are shifting. Spurred by evolving technology, regulatory changes and broader awareness about the implications of climate change and the threats and opportunities it poses, more and more private sector actors are getting serious with climate action. In many instances, they are now prepared to lead even ahead of governments.

At the corporate level, engagement is growing rapidly with “carbon pricing” acting as a rallying cry to use market instruments to accelerate the transformation towards low carbon activities. Unlike a few years ago, leading companies are now prepared to not only measure their emissions but to also disclose them. More than 5,500 companies, representing over half of world’s market capitalization, now disclose to CDP.[1] An increasing number are willing to put a price on carbon emissions ahead of regulation. Already, over 400 companies use a shadow price and nearly 600 more are in the process of doing so.[2] Nearly 500 CEOs from all regions of the world have joined the UN Global Compact’s Caring for Climate platform and over 60 companies of the “Caring for Climate” initiative are willing to go a step further by also ensuring that their government affairs activities are aligned with their sustainability goals.[3]

Furthermore, many national efforts are spurring companies to action such as the recently launched White House American Business Act on Climate Pledge, which mobilized over 80 companies to support climate policies and to take action. Looking around the world, companies are now setting ambitious goals on emission reductions with 85 corporates now committed to set emissions reductions targets in line with science[4], and some moving ahead with greening their own energy supply such as Ikea, Microsoft and Apple. The ‘polluter pays’ principle and the simple idea that damaging externalities should not be socialized or subsidized is at last gaining traction with carbon pricing taking center stage.

Financial markets, largely absent at previous climate negotiations, are now realizing that climate change brings with it systemic risks for future returns. The world’s largest responsible investment movement – the UN-backed Principles for Responsible Investment (PRI) – and the Investor Group on Climate Change (IIGCC,) as well as other coalitions, have initiated major efforts that suggest that investors are now prepared to tackle climate. For example, PRI’s Montreal Pledge aims to commit investors managing portfolios totaling US$3 trillion to disclose their carbon footprint publicly. The ‘Global Investor Statement on Climate Change’ has brought together almost 400 investors representing over US$24 trillion to pledge to increasing low carbon and climate resilient investments. A growing number of infrastructure portfolios are also now available where energy efficiency and climate resilience are selling points. And a rapidly growing movement to decarbonize portfolios, The Portfolio Decarbonisation Coalition, has reached within a short period of time over US$ 60 billion, joined now by a variety of new investor coalitions all putting pressure on companies to come clean on climate lobbying.

These combined efforts by leading companies and investors demonstrate a significant shift and a turning of the tide. While the majority of private sector players are still holding out or resisting change – they will increasingly be seen as standing on the wrong side of history. A global sustainability movement is on the move, and it’s one that works on the assumption that long term financial success goes hand in hand with good governance, environmental stewardship and social responsibility. As empirical evidence is now emerging that shows that businesses which focus on material sustainability also are more profitable, the business case for early climate action is becoming a self fulfilling prophecy.

The Paris Climate Summit may well mark a dramatic change. For all businesses and investors, the time to show their true colours and be part of the solution is now.

[1] CDP Global Climate Change Report 2015

[2] CDP Putting a price on risk: Carbon pricing in the corporate world.

[3] Caring for Climate: Business Leadership on Carbon Pricing


Any opinions Expressed in "Executive Perspectives" are those of external parties and not those of Thomson Reuters.


Corporate Governance, Executive Perspective

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