Why governments must lead on climate change

Instead of waiting for businesses and consumers to act on climate change out of self interest, governments must act to speed up climate solutions, says Simon Zadek, Co-director of the UNEP Inquiry of a Sustainable Financial System.

United Nations Secretary-General Ban Ki-moon has just hosted a special summit in New York intended to spur action on climate change. Ban’s message was simple: Beyond the long-term shared benefits of such action, countries and businesses would benefit in the short term. In other words, there are no losers in the fight to mitigate climate change and its consequences.

For some, the “win-win” character of climate action seems finally to be sinking in. At the UN summit, hundreds of political and business leaders from around the world outlined commitments that constitute practical steps toward enhancing their countries’ economic prospects, improving their citizens’ quality of life and benefiting firms’ bottom lines.

Of course, today’s carbon-intensive businesses may see far more risk than opportunity in climate action. But this view not only is shortsighted from a financial point of view; it also neglects the impact of public opinion, which is already beginning to turn against obstinate companies.

With a “sustainable-living strategy,” the consumer-goods company Unilever’s CEO, Paul Polson, has demonstrated how an environmental tilt can boost business. John Brown attempted to engineer a similar strategy during much of his tenure at the helm of British Petroleum, as did Body Shop founder Anita Roddick before them.

This is not just a trend in developed countries. Developing-country firms – often encouraged by their governments, through procurement and fiscal incentives – are increasingly working climate risks into their business strategies.

Another area where significant progress has been made is clean energy, with rising investment – especially in developing countries – helping to bring its costs more closely in line with coal-generated energy. From 2004 to 2012, clean-energy investment originating from non-OECD countries soared from $4.9 billion to $72.6 billion – almost half of the global total – presumably based on their recognition that decreased pollution implies vast environmental and health benefits. Here, China has made the largest contribution, channeling $233 billion toward renewable energy since 2004.

Two high-profile economic-research initiatives provide compelling empirical evidence to support the UN summit’s message. The first – entitled “Risky Business” – was launched earlier this year by former New York City Mayor Michael Bloomberg, former US Treasury Secretary Henry Paulson and the renowned financier Tom Steyer.

The state exists to advance its citizens’ collective interests. When one group of citizens, acting in their own self-interest, threatens everyone, the state must defend the greater good.

The report, which focuses on the cost to the United States of its failure to act on climate change, indicates that up to a half-trillion dollars of US property, and some 70 per cent of agricultural output, will be subject to climate risks this century. Unmitigated climate change could also result in severe damage to labor productivity – the single most important driver of any country’s prosperity.

The second initiative, the Global Commission on the New Climate Economy, is chaired by former Mexican President Felipe Calderón. Its “Stern 2” report (commissioned jointly by Colombia, Ethiopia, Indonesia, Norway, South Korea, Sweden, and the United Kingdom) examines the economic costs and opportunities stemming from action to address climate change. The report concludes that the benefits of action far outweigh the costs – not least because they spur even more action.

Nonetheless, this selfish approach to the climate challenge does have its limits, especially at the beginning. While few doubt that renewable energy eventually will be cheaper than fossil fuels, climate change is advancing too quickly simply to wait for the market to solve the problem. Meanwhile, given that carbon-intensive industries remain profitable, they still attract significant investment. As long as powerful financial actors profit from this short-sighted approach, insufficient financing will flow toward developing and deploying renewable energy.

This means that governments must spearhead progress, pursuing long-term objectives – Germany’s ambitious Energiewende (energy transformation) is a leading example – despite short-term costs to carbon-intensive industries. After all, the state exists to advance its citizens’ collective interests. When one group of citizens, acting in their own self-interest, threatens everyone, the state must defend the greater good. Financial market reform aimed at boosting the real economy’s long-term health is a case in point.

Multilateralism may be the pinnacle of such action, but it is not enough. Global climate negotiations, set to reach their next major milestone in Paris next year, will benefit from self-interested actions and, more important, a set of collaborative initiatives that boost the speed to scale of climate-resilient infrastructure. Fortunately, the architects of the UN summit – despite their focus on the “win-win” mantra – also recognized the need for such action.

When it comes to the fight against climate change, self-interest may be a useful tool. But, ultimately, there is no substitute for social conscience and concerted action.

Simon Zadek is Co-Director of the UNEP Inquiry into the Design of a Sustainable Financial System, a visiting scholar at Tsinghua School of Economics and Management, and a senior fellow of the Global Green Growth Institute and the International Institute for Sustainable Development. This post was originally published on the World Economic Forum blog.

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