A Change of Tides for Sustainability

By Dr. Maximilian Martin

“By 2050 global business must be carbon neutral.” —Sir Richard Branson, Virgin Group founder, at the 2015 World Climate Summit / Sustainia Awards Ceremony, a companion event to COP21

Held on Sunday at the Chamber of Commerce and Industry, the World Climate Summit — the private-sector companion to COP21 — and the subsequent award ceremony held by Sustainia, a Danish think-tank focused on identifying leading green economy solutions — offered a fascinating counterpoint to the official negotiations at Le Bourget. Organized with the support of R20 Regions of Climate Action, the event provided a window on a number of promising corporate and public-sector commitments. It offered one overarching insight: We are now hitting the change of tides in sustainability.

Just as the amplitude of tides and their timing are a function of multiple factors—including the alignment of the sun and moon, deep ocean tide patterns and the shape of the coastline—four variables will co-determine how the current change of tides in sustainability will play out.

First, there is compounding evidence of the fundamental viability (if not always cost effectiveness) of renewables. Wind and solar have vastly overshot predictions of capacity added, and become serious business. Sustainia founder Erik Rasmussen called this “the rise of the solution revolution,” and asked participants “to change the world in 15 years.” This by modeling their expectations and actions on the disruptive changes we have seen in the world of digital with the fast adoption of tools such as the Google search engine or the iPhone and the associated implications for the way we work, interact, and allocate resources. For sure, the quality and speed of rollout of green economy solutions will condition the ultimate outcome.

Second, across town at the main COP21 meeting, it is becoming evident that introducing countries’ self-reporting of national adaptation plans and carbon emissions reduction goals was a productive move. When 185 countries hand in so-called “Intended Nationally Determined Contributions” (INDCs), these plans may only reflect forward-looking intentions. Notwithstanding, they have the inevitable side effect of injecting more concreteness into climate negotiations. This is comparable to the experience of the Carbon Disclosure Project, which had nearly 2,000 large businesses report carbon data in 2014—a very respectable result in just a bit over a decade after starting data collection in 2003. Add to this the changed stance on climate by the world’s two largest polluters, China and the US, and we can get much closer to a clear carbon reduction signal. This is precisely what many business leaders are asking politicians to provide. The strength of the demand signal and the stability of the policy outlook will condition the amount of private and public investment flowing into decarbonizing the economy.

Third, in the private sector, more and more companies are working on the introduction of carbon shadow pricing, thus anticipating tightening climate regulation. One thing we know from the world of management is that when things start to get measured consistently, they start to be managed.

This is also playing out in the financial industry, where investor attitudes are changing. Think tanks such as CarbonTracker and front-running professional investors have successfully injected the notion of a carbon bubble waiting to burst into the debate.

They have been lobbying for fossil fuel divestment for several years, and the argument is now gathering steam. As a result, institutional investors are compelled to take a view whether they still consider fossil fuels the same solid investment as in the past. If not, the decision question is if and when they should take steps to reduce exposure to potentially over-valued “stranded assets,” which will become uneconomical due to tightening climate regulation. Sir Richard Branson and his B Team colleagues even called for global business to go carbon neutral by 2050. This aiming to limit global warming to 1.5 degrees Celsius, as opposed to the generally agreed-upon goal of 2 degrees Celsius.

Knowing what we know about capitalism’s ability to over deliver, this may be less farfetched then it seems. As an example, take the 10,500 of 2.8 million members of the Dutch €345 billion civil-service pension scheme Stichting Pensioenfonds ABP. This spring, they presented a petition to divest the pension fund’s stakes in coal, tar sands and shale gas within two years. One might tend to discount the influence of this mere 0.38 percent of members.

Notwithstanding, in October 2015, ABP announced that, with its new socially responsible investment (SRI) policy, it would divest more than 1,500 holdings as a measure to help reduce the carbon footprint of its entire portfolio by 25 percent by 2020. Put simply, with beer giant Carlsberg yesterday presenting its initiative “cheers to green ideas,” which aims to increase resource efficiency and decarbonize beer packaging and distribution, it was obvious that sustainability has now arrived.

Notwithstanding, a fourth variable will condition how high the sustainability tide will ultimately rise: reaching the advances in fundamental science and their deployment in commercial products that are needed to render renewables fully cost competitive. Not only do we need to make fossil fuels comparatively more expensive by internalizing the price of carbon, we also need to make renewable energy cheaper. When asked to give up its expansion plans for coal to power national development, a country such as India will otherwise consider decarbonization to be “carbon imperialism” as recently argued by Arvind Subramanian, the Indian government’s chief economic adviser. Redistribution schemes where the countries that industrialized first foot the bill to decarbonize those economies that are industrializing now are morally legitimate. We live in a second-best world however. In real terms, such policies suffer from a budget constraint and are alone insufficient to unblock the road to staying within two degrees Celsius.

If we cannot significantly boost the supply side of clean energy in terms of lower prices and higher quantities, this is bound to have an adverse impact on the transition path to the 80-100 percent renewable economy in our lifetime. There is lots of work to do on this front. An international climate agreement would surely reduce free-riding, as former European Commissioner for Climate Action, Connie Hedegaard pointed out at the summit. Yet if Paris really is to mark the time to take fresh economic thinking from the periphery to core of the global economy, we need to step up our solutions. To divest on a major scale, we need corresponding quality investment content to invest in much greater resource efficiency and cost-competitive clean energy generation and storage. Bill Gates & friends’ Breakthrough Energy Coalition and Mission Innovation can provide an important boost. This is a promising start—let’s now cross our fingers the R&D support idea will grow really big by the end of COP21, and then be replicated on a massive scale.

Image credit: Flickr/Cris

Maximilian Martin is the Founder and CEO of Impact Economy. Dr. Martin created Europe’s first global philanthropic services and impact investing department for UBS and the UBS Philanthropy Forum. In 2013, he wrote the primer on impact investing “Status of the Social Impact Investing Market” for the UK G8 social impact investment summit. His new book “Building the Impact Economy” shows how to reconcile responsibility with opportunity to seize the multitrillion-dollar opportunity of building a sustainable economy. Among other things, the book synthesizes insights from a review of over 9,000 cleantech startups and technologies.