Responsible Profit: Climate Change and the Green Economy

Nov 13, 2007

Report by Christina L Madden

Responsible Profit: Climate Change and the Green Economy
, Global Policy Innovations' third Workshop for Ethics in Business, was held in New York City on November 2, 2007. This joint Carnegie Council–RSA meeting of business and civil society leaders was co-sponsored by Booz Allen Hamilton's strategy+business magazine.

Matthew Taylor, Chief Executive of RSA, opened the discussion by addressing what he called the "social aspiration gap." Society, he said, will not reach future objectives for reducing the impact of climate change without making significant shifts in the way we think and behave.

Taylor believes that the private sector is starting to step up to the plate. Businesses understand risks and therefore realize the threat climate change poses to sustainable endeavors. They also know that profit and sustainability can go hand-in-hand, and since they work globally they are already familiar with the shrinking world. Nonetheless, Taylor acknowledged several challenges that must be overcome. Richer countries will need to put national interest aside in favor of the greater global interest, and this will require coordinated action.

Take, for example, a business meeting where multiple companies are pitching for a contract. If two representatives fly in and the third connects virtually, the one who isn't in the room will be at a disadvantage. Only if regulations require business to be conducted remotely will there be an incentive to reduce travel emissions.

The key to progress, according to Taylor, depends upon the recognition of every individual's right to contribute. He believes that a healthy synergy needs to be found wherein appropriate government regulations encourage consumers to demand low-carbon products, which will then drive innovations in the marketplace.

Matt Prescott elaborated on the idea of shared responsibilities in describing RSA's CarbonLimited project. He noted that the environment is somewhat intangible to individuals until a major crisis develops. Yet individuals can play a vital role in reducing emissions, both directly and indirectly, by making lifestyle changes, demanding low-carbon products from the private sector, and encouraging government action.

CarbonLimited is modeled after cap-and-trade systems, and is a pro-social, pro-business device that sets out goals and shared responsibilities for business, government, and individuals. The nation together would decide on an acceptable level of total carbon emissions, and carbon credits would be issued to individuals and used when purchasing fuel and electricity. Those who use less than their allotted share would be able to sell carbon credits to other individuals or businesses. This scheme is win-win, according to Prescott, since it provides an incentive for individuals to reduce emissions, and gives businesses a sense of investment in the community.

Booz Allen Hamilton Vice President Christopher Kelly returned to the idea of the social aspiration gap and discussed ways in which megacommunities—businesses, citizens, and governments working together—can accomplish environmental goals.

He highlighted the work of the Great Barrier Reef Research Foundation as a prime example of a megacommunity in action. The Foundation was started by a group of business leaders concerned about the environmental degradation of Australia's Great Barrier Reef. They soon found that they needed to reach out to a broader array of stakeholders and thus formed a scientific advisory committee, which was able to rank the top environmental threats to the reef and put in place a plan of action to tackle the most significant problems.

The project garnered sustained funding and interest. Members of the megacommunity approached top CEOs and companies and offered a Chair position for a fee of $15,000. Chairs would be allowed to participate in the ongoing research about the reef and critique the business strategies being undertaken by the foundation.

This example showcases what Kelly deems the most crucial aspects of a successful megacommunity: mutual leadership, integrated capabilities and resources, and an overlapping vital interest that motivates people to take action.

Nikhil Chandavarkar of the United Nations Department of Economic and Social Affairs focused on the impacts of climate change in developing nations. He outlined key points, based on a recent UN summit, that he believes will be central to negotiations on a new protocol to address climate change.

Developing countries have a different perspective on mitigating climate change than industrialized countries. India and China focus on per capita emissions, which in developing nations tend to be lower than the world average, whereas industrial nations including the United States look instead at absolute levels. While the UN framework convention includes provisions for equity and for the right to emit, Chandavarkar pointed to increased Western leadership and personalized carbon emissions as key steps to reaching consensus in new mitigation discussions.

Adaptation, technology, and finance are particularly salient topics for developing nations. Chandavarkar emphasized the insufficient funding available to developing nations to undertake adaptation measures and noted that it was an area in which the private sector could play a role. Given that climate change leads to increased droughts and other natural disasters that are not accounted for with carbon-offset financing, Chandavarkar believes that businesses should begin seeking out new investments.

Chandavarkar highlighted six parameters that were laid out by the UN Secretary-General and President of the General Assembly to guide negotiations on a new protocol. They include: enhanced leadership of Western countries, both in curbing emissions and recognizing the need to equalize global per capita emissions; incentives for developing countries; a special role for populous, fast-developing countries with large foreign reserves and high total emissions, though a low per capita rate; increased support for adaptation in least-developed and low-income developing countries; stronger technological development and dissemination; and a better use of market approaches, which would mobilize the resources that are needed to provide incentives for poorer countries.

Mark Fulton represented the financial services sector and discussed a Deutsche Asset Management (DeAM) report he edited on the impact of climate change on investment. According to Fulton, private capital must come into play in order for climate change to move beyond a moral issue and become a business issue. This transition is already underway, as companies and investors are beginning to realize the long-term implications climate change may have on markets and are seeing opportunities for new innovations and investments.

At the end of September, DeAM had nearly $9 billion invested in climate-related equity out of about $800 billion under management. While this number may be small compared to the trillions at play in the global economy, Fulton says it is a good start, and the markets are expected to grow substantially within the next decade. Fulton hopes that someday carbon will become one of the five major price signals, along with the dollar and oil, as this will determine whether or not carbon is fundamentally affecting the economy.

Fulton outlined DeAM's four pillars of climate change investment: government regulation, carbon prices, competition and reputation, and new technologies. Pragmatic investors are seeing that as governments are creating markets they are establishing carbon prices, both in the form of an explicit trading price and with hidden taxes, subsidies, and standards. In the long run, these prices will be key to determining which technologies are viable in addressing climate change. Corporations will then be able to make competitive, profitable investment decisions that will also take into account corporate social responsibility.

DeAM currently invests in industries and companies involved in both mitigation and adaptation.

The following are links to audios of this event, along with a video showed at the event:

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