COP21: Getting Down to Business
COP21 has been hailed as a historic event because of the way it facilitated 196 countries to come together in support of a shared ambition to head off accelerating climate change before it’s too late. It’s a tremendously important moment, or at least it will be if those words and promises lead to action. It raises the unprecedented possibility of all the peoples of the world working together towards a common goal. A newly released report by Businesses for Social Responsibility (BSR) along with the We Mean Business coalition, entitled “The Paris Agreement: What is Means for Business,” lays out a set of recommended actions for businesses and investors in response to and in support of COP21.
The report translates the multiple outcomes of the Paris Summit into a concise set of straightforward statements:
- [What]: Climate ambition is universal (2°C with a stretch goal of 1.5)
- [When]: The international community has committed to net zero emissions in the second half of this century.
- [Where]: All countries are subject to the same reporting and verification framework
- [How]: Financial flows are committed to shift towards low-carbon and high-resilience investments
- [Who]: The private sector is recognized as an integral part of the solution
The days of businesses focusing exclusively on profits, while governments make sure that no one gets hurt, (minus exceptions made for special relationships)—are not yet over, but a new vision of a better way for the world, and for businesses in particular to work has been articulated and is gaining considerable traction.
An overarching outcome of the summit is the establishment of a level of policy certainty not seen before in this area. Certainty is as crucial for investment as sunlight is for the plants that feed us. For investment there is a goal of US $100 billion per year from the governments of developed countries by 2020. It is understood that substantial additional expenditure will be made. An estimated $90 trillion will be spent on infrastructure by 2030, most of it in developing countries. So, as long as the commitment is to spend that money on sustainable infrastructure, there should be no problem achieving achieving the required investment level. That, in turn, should provide ample incentive for both businesses and companies to invest further in sustainable technologies.
The main process is for each country to prepare national climate plans that will be updated every five years. We are in the preparatory phase for the first cycle which begins implementation in 2020. At that time the new or updated national plans are submitted, and the process repeats every five years afterwards until the goal is reached.
Another major elements coming out of the summit is Mandatory Reporting & Verification. This is a commitment on the part of participating countries to tell the truth when it comes to their emission levels, as least as well as they understand them. This effort will be greatly enhanced by the deployment of new technologies such as space-based verification systems. Not only will this allow countries to get a better handle, with considerable detail, on what their actual emissions are, it will also allow for independent, third-party verification.
Cross-border Carbon Pricing will provide a sizable market within which countries can match capabilities with needs, while at the same time providing continuous incentive for each country to follow a cleaner path to energy production and consumption.
Given this backdrop, the authors make the following recommendations to businesses hoping to thrive in this emerging environment. They are as follows:
- Seize the Opportunity – We are on the brink of a tremendous surge in demand for clean energy solution of various kinds. China alone invested $110 billion in clean energy last year, an increase of 17% over the previous year. Other major economies will likely follow a similar path in their effort to meet this stated goal. This is now relatively predictable. Embedded in these commitments is a 4,400 TWh of renewable supply that will be required by 2030. That will bring the renewable portion of global electricity generation up to 32%. Renewable capacity in OECD countries should surpass 54% by 2040. The dollars required to get there are considerable. IEA estimates annual expenditures close to $230 billion in the 2026-2040 time frame.
- Put a price on carbon – Based on data provided by Bloomberg New Energy Finance, onshore wind is already cheaper than both coal and natural gas in the EU. It is expected to hit that point in both the US and China no later than 2023. Utility scale solar will come down to that level a few years after that, all without new government interventions. That’s good but it may not be good enough. Those cost transition points can be accelerated immediately by putting a price on carbon, which will also allow it to more accurately reflect its true cost to society.
- Manage climate risk- According to the World Economic Forum’s 2016 Global Risk Assessment Report, failure to mitigate or adapt to climate change is the highest impact risk to business for years to come. A recent BSR survey showed that 75% of suppliers felt that climate change would impact their business, yet only 50% had taken action to prepare for this. Risks to be considered include: physical and operational risk, input risk, market risk, financial risk, reputational risk, and regulatory risk. Several detailed examples from across the globe are provided including textiles, manufacturing, agricultural and insurance.
- Be bold and recognized- Businesses that have moved aggressively on this “have benefited from an average 27% internal rate of return on their low carbon investments, alignment with incoming climate and energy regulation, first-mover advantages in low carbon markets, more resilient operations and supply chains, and a stronger reputation among employees, consumers, and other stakeholders.”