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Since the Industrial Revolution, fossil fuel technologies have been driving economic growth, so reducing emissions may appear to threaten developing countries’ progress, but to meet the Paris target, this is exactly what needs to happen. Is there a way for developing countries to prosper without increasing their emissions? 

How Do Developing Countries Contribute to Climate Change?

A study from the World Resources Institute in 2017 reveals that the world’s top three emitters of greenhouse gases, namely China, the European Union and the US, contribute more than half of the total global emissions while six of the top 10 emitters are developing countries. 

The World Economic Forum recognises that carbon emissions and developing countries being lifted out of extreme poverty are linked. An increase in carbon emissions observed over 30 years shows that poverty has been reduced within East Asia and Pacific and South Asia, while sub-Saharan Africa has, during the same time period, reduced their emissions and almost doubled the number of people living in poverty.

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Moreover, The Paris Agreement acknowledges that the efforts toward reducing carbon emissions will be common but not equal among developed and developing countries. The fairness of these contributions will be determined by national circumstances so that there will be equity in the responses and responsibilities to address climate change. This means that developing countries will be allowed to emit more carbon until they have developed enough that they no longer need to rely on carbon-intensive industries. 

However, data compiled by the World Resources Institute shows that since 2000, 21 developing countries have reduced annual emissions while simultaneously growing their economies, indicating that the decoupling of economic growth with emissions is possible.

Similarly, The Low Carbon Index found that several G20 countries have reduced their economies’ carbon intensity while maintaining GDP growth, including countries classified as ‘developing’, such as China, India, South Africa and Mexico. 

While global carbon emissions have nevertheless been rising exponentially over the past decade, the International Energy Agency reported three years of flat emissions globally, from 2014 to 2016, as the global economy grew. A study conducted in 2017 investigated whether renewable energy has anything to do with this decoupling. The findings indicated that the nations that generated more electricity from renewable resources had lower carbon emissions overall, illustrating that renewable energy is able to support economic growth while reducing emissions. 

Clean Economic Growth for Sustainable Development

According to the Renewable Energy Policy Network for the 21st Century’s (REN21) yearly overview of the global state of renewable energy, it made up 24.5% of global electricity generation in 2016. This went up to 26.5% in 2017, but by the end of 2018, it had gone down to 26.2%. While the adoption of renewable energy is steadily increasing, it is not enough to have a significant impact in the long term and needs to be adopted on a much larger scale. 

According to an International Energy Agency report, Africa has the richest solar resources but has installed only 5 GW of solar photovoltaics (PV), less than 1% of global capacity. Aiming to provide electricity for everyone on the continent would require a significant increase in electricity generation, with only 43% of Africans currently having a reliable power supply. According to the report, electricity demand on the continent will more than double by 2040.

The report indicates that with the right policies, Africa can meet the demand by relying on renewable energy, with solar energy having the potential to be its top renewable energy source, exceeding hydropower. That renewable energy is now the cheapest source of energy generation makes this all the more possible. “A focus on energy efficiency can support economic growth while curbing the increase in energy demand,” the report says. 

Africa’s endeavour to meet its energy needs in a renewable way while providing its inhabitants with a good quality of life should serve as inspiration for other developing nations.

There is evidently a huge opportunity for developing countries to generate energy sustainably. Renewable energy sources deliver economic benefits without the risks of fossil fuels; such benefits include creating more job opportunities in the energy sector and achieving energy independence.

Developing Countries Cannot Afford Renewable Energy

However, there are significant barriers that prevent developing countries from adopting renewable energy plans. Decarbonisation is often not a priority for less developed countries compared to economic growth and poverty alleviation. Many of these countries struggle with gaps in technical and financial expertise, a lack of resources and poor governance. 

Creating lowest-emission or renewable energy strategies shaped to each country’s unique circumstances is vital to maintaining and encouraging growth while reducing emissions. 

Developing countries need to implement policies that shift the economy away from carbon-intensive industries. These should be coordinated at a global level to ensure a worldwide shift towards an equitable and environmentally responsible future. 

November 21 to 29, 2020 is European Week for Waste Reduction! In celebration, we are republishing a previous Earth.Org piece detailing how the EU is working to reduce waste. In early March, the EU released its Circular Economy Action Plan which requires manufacturers to make products that last longer and are easier to repair, use and recycle. Taking effect in 2021, the plan is a part of the EU’s targets to become a climate-neutral economy by 2050 as outlined in its New Green Deal. How will the average consumer be affected by this plan?

The climate crisis has no borders; it affects everyone at all levels. Most Europeans agree with this. A recent Eurobarometer survey carried out in 2019 showed that 95% agree that environmental protection is important, while 91% believe that climate change is a serious problem and protective legislation is required. Policies aimed at reducing plastic waste were also widely supported. In response to this support for environmental protection, the EU Commission signalled The European Green Deal in the same month as the Eurobarometer survey. 

The EU says that global consumption of materials such as biomass, fossil fuels, metals and minerals is expected to double in the next 40 years. 

This deal aims to reset the EU’s commitments on climate change, whilst also serving as their new economic growth strategy. One of the main targets outlined in the Deal is for the EU’s economy to become climate-neutral by 2050, and the Commission hopes to achieve this through legally binding laws, social improvements, and a shift in economic growth thinking. 

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Soon after, the Commission released its proposal for the first European Climate Law which aims to write into law the goal set out in the European Green Deal- to achieve climate neutrality by 2050. With this law, all member states are required to set measures to meet this target, monitor their progress, and make the changes permanent. Hence the EU Circular Economy Action Plan was born.

What is the circular economy?

A circular economy is based on the principles of doing away with waste and pollution, keeping products and materials in use and regenerating natural systems. Under the ‘Circular Electronics Initiative’, the plan will require manufacturers of products like smartphones, tablets, laptops and other electronics to use designs and materials that allow for easy repairs, such as the use of screws instead of glue, and to include parts that are more recyclable, repairable and durable. These standards already exist for some items manufactured within the EU, like dishwashers, televisions and washing machines. 

The plan also attempts to tackle ‘throwaway culture’, by preventing planned obsolescence of products; companies like Apple have admitted intentionally making goods with a shorter lifespan to force consumers to buy a new model. Other initiatives include creating a universal charger that fits all brands of phones and an EU-wide trade-in scheme for electronics. These policies will reduce consumption of raw materials and prolong the lifetime of products. 

Consumers can also expect to receive information at the point of sale regarding a product’s lifespan, where to receive repair services, and repair manuals. This aims to address the ‘right to repair’ movement, a campaign advocating for consumers to fix their electronic items themselves and breaking the monopoly that manufacturers have over repair parts where fixing a broken part is extremely expensive or only available at the brand’s authorised outlets.

Consumers will also start to see restrictions on products that include microplastics, for example, personal care products, paints, detergents, and more. Labels will be placed on products that unintentionally release microplastics, such as tyres and woven polyester textiles, to empower consumers to make more environmentally conscious purchasing decisions. Additionally, plastic products will be required to be composed of a set amount of recycled content. 

In 2017, Europeans on average generated 172kg of packaging waste each, with 116kg being recycled. The plan will require all packaging to be reusable and reduce the complexity of materials so that it is easier to recycle by 2030. Often products are encased in packaging that has multiple layers of plastic, making it extremely difficult to recycle and ending up in landfills or incinerators. While there are options to recycle multi-layered packaged products, most of these are limited in scope or use too much energy. Sorting of these plastics becomes too complex for existing systems and the only viable solution is to reduce the material complexity at the source. 

A study says that manufacturing firms in the EU spend on average about 40% on materials; this ‘closed loop’ model can increase their profitability. 

The plan also bans the destruction of unsold durable goods, likely targeting designer brands and luxury goods, such as Burberry, which has burned £90 million of merchandise over the past five years to prevent them being stolen or sold cheaply. This change follows in the footsteps of France’s recent and similar law

Understanding the difficulty a lot of businesses and countries will likely face in adhering to this plan, the EU has pledged to provide financial and non-financial support to those who need it. 

A study estimates that applying circular economy principles across the EU may increase EU GDP by an additional 0.5% by 2030 creating around 700 000 new jobs, showing that the advantages of adopting a circular economy are not just environmental. 

The EU is making excellent strides in moving towards a circular economy, reducing intensity of resource use, promoting the use of recycled and secondary materials, and the empowerment of eco-conscious consumers. Aside from environmental benefits, consumers will enjoy more durable, reliable and protected products. The targets and legislative proposals in this action plan will need to be approved by the Members of the European Parliament before going into effect, but with increasing pressure from EU citizens, it will likely be approved. Parts of the legislation will come into effect this year and 2021.

Asia would benefit from policies such as the EU Circular Economy Plan. Rapid development and population growth has put immense pressure on the continent’s infrastructure. By 2050, the population is expected to rise to 5.3 billion people, however, as many Asian countries work to grow their economies and lift their people out of poverty, it is likely that this will not be the continent’s priority for many years to come. 

Featured image by: Klaas Brumann

The effects of the climate crisis are being felt today across ecological, social and financial dimensions, threatening the global economy, with some effects being observed decades ahead of previous estimates. Whilst the former two aspects cannot be directly quantified, financial losses in recent years have been significant, reaching US$340 billion in 2017, of which only USD$140 billion was insured. It is clear that the status quo is threatening long-term global stability. How can central banks take the lead in facilitating the transition towards more sustainable models?

How does the climate crisis hurt the global economy?

The increasing frequency and severity of natural disasters such as wildfires, storms and droughts not only impose hefty fiscal burdens on authorities and local communities to repair and upgrade damaged infrastructure (the recent bushfires that tore through Australia cost an estimated US$100 billion, while Hurricane Harvey in the US in 2017 cost US$125 billion), but it also presents disruptions in production and supply, with especially pronounced impacts in the agricultural and logistics sectors. An impact assessment for agriculture by Climate Impact Group projected that given current warming trajectories, the second half of this century would feature decreasing crop yields globally, even in temperate regions which are benefiting in the short-term. The assessment says that farm-level adaptation may be able to cope with up to 1–2°C warming, but considering that the UN has warned that the planet is on track for 3-5°C warming by 2100, this is cold comfort. 

Coupled with a soaring demand for food- particularly energy-intensive varieties like red meat– from booming global population and income, real prices per caloric unit of food will soar in the long-term, before accounting for increased likelihood of price spikes  from extreme weather events. This phenomenon is likely to become increasingly pronounced over time, presenting inflationary pressures which will hurt the poorest segments of society. Even food-exporting countries may experience net welfare losses, as any increases in export revenues risk being outweighed by rising infrastructure expenses from potential natural disasters.

Despite such poor outlooks for the planet and the global economy, there is insufficient action being taken to tackle the climate crisis. Perhaps the greatest impediment against extensive policy action stem from its accompanying transition risks, which will lead to immediate disruptions in our current business models. Hypothetically, imposing hard limits for energy consumption or greenhouse gas emissions even 5-10 years in the future would lead to massive present-day repricing for tradable equities, since conventional valuation techniques like the Discounted Cash Flow (DCF) model are based heavily upon short-term revenue and cost projections. For instance, if environmental protection policies result in a 5% decrease of shareholder dividends for traditional fossil fuel companies could reduce their valuation by up to 40%, causing global stock markets to plummet by 11%.

Since many financial institutions invest in heavily-polluting industries, this would erase a substantial amount of value from their balance sheets, risking the stability of entire financial systems. Consequently, several central banks and financial institutions, for example the Bank of England and investment firm Blackrock, have called for companies to disclose their greenhouse gas emissions, as increased availability of such information allows the relevant financial risks to be priced into the market at an earlier stage, reducing the magnitude of sudden disruption. For instance, implementing a carbon tax would prompt companies to adopt more environmentally-friendly practices, which facilitates the transition towards a greener business model.

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climate crisis global economy
Potential carbon emission trajectories alongside climate-related risks accompanying different pathways (Source: Bank Underground).

To tackle climate change as a key policy objective, central banks can start by targeting an ‘Earth budget’ every year to restrict its damaging effects. This can take place through implementing mandatory disclosures of greenhouse gas emissions and other polluting acts from all companies above a stipulated size, including indirect holdings in the financial sector. At present, some information on climate-exposure can be gathered from private-sector research firms like S&P, Moody’s and Fitch, which has begun to consider climate-related risks within their rating decisions. Central banks can aggregate this data to assess all listed companies, imposing penalties (such as lending above the standard policy rate) on financial institutions involved in dealings beyond a predetermined pollution threshold, alongside regular press releases of firms which exceed their environmental footprint to raise public awareness and exert external pressure for change. Where quantitative easing- whereby a central bank buys government bonds or other financial assets in order to inject money into the economy to expand economic activity- is used in monetary policy, asset purchases by the central bank can favour those that fulfil predetermined ‘green’ requirements, as a form of ‘Green QE’

While disruptive to the status-quo, it is vital that action be taken urgently, as longer delays translate to shorter transition periods for cutting greenhouse gas emissions, necessitating even more drastic measures which stretch the limits of the financial system.

Social media has been abuzz with images of clear skies around the world as a result of lowered emissions due to coronavirus shutdown measures. However, the World Meteorological Organization (WMO) has warned against treating recent COVID-19-related reductions in greenhouse gas emissions as a sign of improving air quality, calling instead for long-term climate commitments. Will environmental concerns be high on the agenda as countries reopen their economies?

As COVID-19 continues to spread around the world, countries have adopted isolation policies in an attempt to contain the rate of infection and to ‘flatten the curve’. In the midst of all this, an unexpected brightspot for the environment has emerged- a reduction of greenhouse gas emissions. According to observational data from NASA, there was a significant reduction in nitrogen dioxide (NO2) levels during the lockdown in China in early-January to mid-February. Meanwhile in Italy, the European Union’s Copernicus Atmospheric Monitoring Service (CAMS) also reported a gradual reduction trend of NO2 levels by about 10% per week between late-January to mid-March.

However, the WMO says that it is too early to judge whether the ‘localised improvements in air quality’ would contribute to any long-term climate change, stating that recorded carbon dioxide (CO2) levels at key observation stations have so far been higher compared to last year. 

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Reduced Emissions From COVID-19 Shutdowns Not a Substitute for Climate Action
A graph showing the concentration of atmospheric CO2 since 1960 (Source: Global Monitoring Laboratory).

As countries look to a post-COVID-19 world, the UN’s atmospheric monitoring body says the drop in emissions will ultimately have no impact unless there is sustained climate action. The WMO’s Secretary-General, Petteri Taalas, has called on governments to support long-term environmental and climate-friendly policies in their economic stimulus packages. “It would be irresponsible to downplay the enormous global health challenges and loss of life as a result of the COVID-19 pandemic,” says Taalas, 

“Past experience suggests that emission declines during economic crises are followed by a rapid upsurge. We need to change that trajectory.” 

The United Nations Environmental Programme (UNEP) executive director, Inger Andersen has echoed this sentiment. In an interview with the Guardian, Andersen says COVID-19 is a clear ‘warning shot’ against humanity. She explains the loss of biodiversity caused by the climate crisis has driven wild animals closer to human populations and with 75% of all emerging infectious diseases coming from wildlife, continued disregard for habitat and biodiversity loss will only increase our exposure to deadly diseases. 

“We are intimately interconnected with nature, whether we like it or not. If we don’t take care of nature, we can’t take care of ourselves. And as we hurtle towards a population of 10 billion people on this planet, we need to go into this future armed with nature as our strongest ally.” says Andersen. 

Looking at Past Crises

This is not the first time economic slowdown has brought about lowered emissions. According to a study in the scientific journal Nature Climate Change, during the 2008-09 global financial crisis that spurred a recession, CO2 emissions dropped by 1.4% in 2009. The following year, however, as countries began reopening their economies, emissions rose by 5.4%, completely offsetting any reductions seen during the recession. What was alarming about the rate of CO2 emissions was not just the increased volume, but also how quickly emission rates hit pre-recession trends. 

Reduced Emissions From COVID-19 Shutdowns Not a Substitute for Climate Action
Global CO2 emissions and carbon intensity with highlighted financial crisis trends (Source: Nature Climate Change).

Troublingly we are likely to see this same trend from countries such as China, ground-zero of the pandemic. In an analysis by Carbon Brief, a UK-based climate change non-profit that has been tracking the emissions change in China since the outbreak began, findings suggest that upcoming stimulus policies by Beijing are more than likely to far exceed any short-term reductions in energy and emissions- echoing trends seen following the 2008 global crisis and its domestic economic downturn in 2015. 

Solutions? 

Fatih Birol, the Executive Director of the International Energy Agency (IEA), sees the coming economic recovery process as a chance for governments to create jobs and improve infrastructures that allow for a transition to cleaner energy. Birol highlights five areas where governments can act, including placing clean energy jobs at the centre of stimulus packages, developing and scaling up the next generation of energy technologies to reach net-zero emission targets, and increasing private sector investment into participating in clean energy industries. 

According to the IEA, governments contribute directly and indirectly to around 70% of global energy investments. Birol argues their leadership is needed to spearhead the transition to clean energy. 

“We have two curves we need to quickly bend onto downward trajectories. The curve of coronavirus infections, and the curve of global emissions.” says Birol. “Neither will be easy. But through smart, timely action and cooperation, governments can ensure we achieve both.”

Last year, the International Renewable Energy Agency (IRENA) published a report stating that renewable energies have become the lowest-cost source of power generation in most parts of the world– with solar and wind technologies leading the way. Francesco La Camera, Director-General of IRENA, says the clean energy sector, which in 2018 employed 11 million people worldwide, can be pivotal in helping rebuild economies. “Governments can turn to a renewables-based energy transition to bring a range of solutions at this difficult moment. Many renewable technologies can be ramped up relatively quickly, helping to revive industries and create new jobs.” he says. 

COVID-19 presents an opportunity for humanity to make a tangible difference in the fight against the climate crisis and lower emissions significantly. Ultimately, as the impacts of the climate crisis become more pertinent, future crises will become more likely. As renewable energy infrastructure becomes ever cheaper to build, the time to transition to clean energy alternatives and commit to combating climate change in the long-term is now. All that’s left is for governments to show the political will to implement such ideas.  

The International Renewable Energy Agency (IRENA) released its Global Renewables Outlook report, which shows that renewable energy could power economic growth post-COVID-19 by spurring global GDP gains of almost US$100 trillion between now and 2050.

Impact of Renewable Energy on Economic Growth

The report says that advancing the renewable-based energy transformation is an opportunity to meet international climate goals while boosting economic growth, creating millions of jobs and improving human welfare.

While the report acknowledges that the path to deeper decarbonisation will require total energy investments of up to USD$130 trillion, the socio-economic gains of such an investment would be ‘massive’. Investing in renewable energy would boost global GDP gains above business-as-usual by USD$98 trillion between now and 2050 by returning between USD$3 and USD$8 on every dollar invested. It would also quadruple renewable energy jobs to 42 million, expand employment in energy efficiency to 21 million and add 15 million in system flexibility. 

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Further, low-carbon investments would yield savings eight times more than costs when accounting for reduced health and environmental externalities, the report says. 

The agency’s director-general, Francesco La Camera, said the global crisis brought on by the COVID-19 pandemic exposed the ‘deep vulnerabilities of the current system’ and urged governments to invest in renewable energy to encourage economic growth and help meet climate targets.

Camera says, “Governments are facing a difficult task of bringing the health emergency under control while introducing major stimulus and recovery measures. 

By accelerating renewables and making the energy transition an integral part of the wider recovery, governments can achieve multiple economic and social objectives in the pursuit of a resilient future that leaves nobody behind.”

The report also looked at energy and socio-economic transition paths in 10 regions globally, which are all expected to see higher shares of renewable energy use, despite embarking on different paths. Southeast Asia, Latin America, the EU and Sub-Saharan Africa are poised to reach 70-80% shares in their total energy mixes by 2050.

The report also found that renewable energy would help to reduce the energy industry’s carbon dioxide emissions by 70% by 2050 by replacing fossil fuels. Renewables could play a greater role in cutting carbon emissions from heavy industry and ‘hard-to-decarbonise’ sectors, particularly through investments in green hydrogen.

The agency urges stronger coordination on international, regional and domestic levels, with financial support being directed where needed, ‘including to the most vulnerable countries and communities’. 

Andrew Steer, chief executive of the World Resources Institute, says, “As the world looks to recover from the current health and economic crises, we face a choice: we can pursue a modern, clean, healthy energy system, or we can go back to the old, polluting ways of doing business. We must choose the former.” 

Featured image by: Aaron Crowe

If the world is to meet the UN Sustainable Development Goals (SDG13), which demands urgent action to tackle the climate crisis, companies in every sector must act. So-called ‘green business’ refers to a model in which companies have no negative impact on the environment, economy or community. However, is ‘green growth’ little more than a myth? 

Consumer perception is shifting with a green goal in mind. Products, foods and lifestyles with a high carbon footprint are seeing a decline in popularity as consumer awareness of environmental issues increases. A study from PwC found that over 60% of consumers believe that climate-related issues are the most important issues facing the world, with 75% saying that they have changed their consumption patterns towards a more environmentally-friendly lifestyle. 

With consumer demands changing, sustainability has become a buzz word for businesses. This is illustrated in a statement from the Governor of the Bank of England in early 2019, which says that companies that do not adjust to a net-zero world by 2050 ‘will fail to exist’. 

The Importance of Sustainability in Business

Sustainable business must go beyond the typical corporate social responsibility agenda and step up as leaders of a green revolution instead of waiting for the government to deliver solutions. As pointed out by Olivia Sibony, CEO at SeedTribe, “businesses are uniquely positioned to find innovative solutions to address SDG13 in a way that is financially attractive.” Businesses must therefore prioritise the planet in their bottom lines, following a ‘triple bottom line’ model where people, planet and profit are given equal weighting. 

Among the leaders of the rapidly-growing green growth push include The Global Investors for Sustainable Development (GISD), comprising of CEOs from 30 of the world’s biggest companies. The GISD includes global firms such as UBS, Santander and Aviva, who have promised to improve their investments in achieving the UN’s SDGs. They aim to do this through revisiting existing and new business models to align with the SDGs, creating portfolios for sustainable investments and addressing any obstacles to long-term investment in sustainable development. This is followed by the recent news that activist hedge fund TCI, which manages assets worth £22 billion, has pledged to target directors of large companies to disclose their carbon emissions. Sir Christopher Hohn, founder of TCI, says, “investing in a company that doesn’t disclose its pollution is like investing in a company that doesn’t disclose its balance sheet.” 

The IMF’s October 2019 report states that environmental, social and governance (ESG) funds are small in quantity but fast growing, representing $850 billion in assets (less than 2% of the total global investment fund assets under management). The IMF also points out that a lack of consistent definitions over what constitutes ESG investments means that global asset size estimates range from $3 trillion (J.P. Morgan, 2019) to $31 trillion (Global Sustainable Investment Alliance 2019). However, climate-concerned investors are on the rise: with over 1,715 signatories representing $81.7 trillion in assets under management, the UN-backed Principles for Responsible Investment (PRI) is an obvious example. This initiative helps to accelerate the integration of ESG into decision-making through guidance and investment analysis. The PRI recently forecasted that tighter government climate regulations by 2025 could wipe up to $2.3 trillion in company valuations in industries ranging from fossil fuel producers to car producers. The pressure on companies to increase their transparency and accountability in the face of a climate emergency is a sure sign that the dominant model of business-as-usual is becoming irrelevant. 

Green Growth or Greenwash? 

This ‘green gold rush’ poses a fundamental question of whether companies are advocating for sustainability because they have a genuine intrinsic care for the environment or if they’re exploiting the discourse surrounding sustainability in order to grow their bottom line. 

Debates and questions of such ‘greenwashing’ are increasingly rife. Greenwashing is the process of painting a false picture about the sustainability of a company’s products with an aim of capitalising on consumer trends. Common examples include oil companies featuring the importance of biodiversity on their websites whilst continuing to be the force behind its destruction. Futerra’s 2015 Selling Sustainability Report offers 10 basic rules for avoiding greenwashing, including being wary of ‘green’ products from a ‘dirty’ company, irrelevant claims, and ‘fluffy language’. 

The Sustainable Business Model

Helping consumers to distinguish between ‘green’ and ‘greenwash’ is the growth of ‘B Corporations’. So-called B Corps must go through rigorous externally-led analysis that measures their environmental and social impact, from supply-chain to community engagement, to gain a B Corp certification. Accountability must be legally built into the sustainable business model, balancing people, planet and profits as part of the global movement calling for business to be a force for good’. The B Corp Directory helps consumers navigate over 3000 B Corps in 150 industries. 

The corporate world is faced with increasing pressure to adapt to a more sustainable business landscape from both investors and consumers. With climate-consciousness and calls for corporate transparency on the rise, it won’t be long before businesses who have no regard for the environment will be left behind. Global Head of Sustainability at Capgemini, James Robey says, “We firmly believe that those organisations failing to grasp the sustainability agenda will cease to operate in the hard realities of the environment beyond 2030.” 

The increasing divestment of large hedge funds and financiers away from companies that do not disclose their carbon emissions or adapt their business model makes this proposition even more of a reality. 

Climate change presents an opportunity for transformational change in the business world; green growth can be a reality if greenwashing is left behind and transparency and real change are prioritised. Businesses must look to overcome the fundamental challenges of this transition and focus on balancing planet, people and profit.

The choice between economic development and sustainability is often considered to be irreconcilable. However, viewing the elements of ecosystems as resources that provide services puts a price on nature, helping to shape the future of investments made by companies. ‘ESG investments’ are becoming increasingly important to investors who want to ensure that their money is aiding the sustainability of the planet rather than harming it. 

Increasing public discourse over the past three decades has led to the advent of the ‘green economy’ and sustainable investing, an investment approach that considers environmental, social and governance (ESG) factors in portfolio selection and management.

A KPMG report on responsible investing defines ESG factors thus- the environmental criterion looks at how an investee company performs as a steward of the natural environment and whether it has any negative impact on ecosystems and human health. The social criterion examines how a company manages relationships with its employees, suppliers, customers and the communities in which it operates. The governance criterion is concerned with a company’s leadership, executive pay, internal controls, external audits and shareholder rights. For most ESG funds and sustainable investments, these criteria are some of the factors taken into consideration when evaluating investment opportunities.

ESG Investing Companies

ESG companies include Microsoft, Home Depot, Procter & Gamble, Alphabet (Google’s parent company) and Adobe. 

The total value of global sustainable investments in 2018 stood at US$ 30.7 trillion- growth of 34% over two years- which is a little under the combined GDP for the US and China at the time. As per a report by the Global Sustainable Investment Alliance (GSIA), Europe has the highest value of sustainable investing assets, with nearly half of the total global assets from the region, closely followed by the US. Additionally, green funds are now bearing improved returns from a decade ago, when a 2012 study concluded that they ‘underperformed on a risk-adjusted basis’ compared to traditional funds.

Half of these investments are in the form of public equities and over 33% as fixed income assets, also known as bonds. ‘Green bonds’ are debt instruments designed to raise funds for projects and businesses that have a positive environmental or social impact.

It is not so much affirmative action (undertaking sustainable initiatives, proactively auditing sustainability practices and reporting on them, etc.) by corporations and the public, as much as it is the existing and anticipated regulations that drive the volume of ESG investments, particularly those around green investing. Not surprisingly, among developing economies, the amount of investments applying ESG approaches remains low. The value placed on economic development continues to outbid the need for mitigating the climate crisis, at least presently.

A factor that reconciles the gap between economic returns and environmental benefits is the state regulatory structure. In Europe, regulations are designed to ensure that the cost (taxes, tariffs, caps, etc.) of ignoring the element of sustainability is higher than that of the returns accrued otherwise. As a result, when the push is from top-down in the form of policies and regulations, the pull from bottom-up is a natural consequence. 

As per research conducted by Moody’s Investor Service, issuance of green bonds is slated to increase by 20% in 2019 to reach a total value of US $200 billion. It also observes that the demand for green bonds far outpaces the supply. Governments are increasing their commitment towards climate causes and encouraging green bonds, and repeat bond issuers are increasing, both of which bode well for their sustained market growth.

ESG Investing Trends

As the economy around sustainability expands, there are concomitant issues. For instance, while  developed countries account for a large majority of green investments, questions arise as to whether they are simply trying to ‘look good’ while covering up for their rampant past development at the cost of the environment. Further, the relevance of ESG criteria when evaluating investments in developing countries should be considered and examined. The question of whether the burden of balancing economic development and impact on the environment and society at large now seems to sit with developing countries. 

With the world becoming ‘flatter,’ cross-pollination of ideas across the globe has never been easier. Developing countries may benefit from adopting the advances being made in the field of sustainability elsewhere. Similarly, grass-root innovations emerging from developing countries can be replicated in other contexts. In the same flat world, media and information play a great role in managing perceptions; states and businesses are likely to be cautious of their public image, adhering to ESG practices as a result.

Performance of FTSE World versus that of FTSE4GOOD (Source: DataStream, courtesy of KPMG report titled, Responsible Investing – A fad or the future? Published in Feb 2018).

The other aspect of sustainable investments is that of economic returns, which is naturally of importance to investors. Institutions investing other people’s money should not only ‘do good’ but also ‘do well.’ The KPMG report quotes a study concluding that introducing ESG factors can in fact improve risk-adjusted returns. 

Another area of focus to increase the confidence in ESG is consistent methodologies. Owing to a lack of this, the process for ESG ratings may not always be objective. Since regulations and disclosures vary by country, there is no one criteria that may be used across countries. Similarly, the criteria may vary by industry. As France’s financial regulator puts it, lack of standards may lead to widespread ‘greenwashing’ (the process of conveying a false impression or providing misleading information about how a company’s products are more environmentally sound) in the EU region and may risk ruining the credibility of the market. 

When all is said and done, the numbers tell the real story – ESG investing is increasingly becoming mainstream. While some may argue that it is ‘too little, too late’ to place emphasis on such measures, humanity needs to focus on slowing the effects of the climate crisis in any way it can. Mobilising the business world to help in this endeavour is one such way to make a real difference. 

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The current economic model is failing to adequately address the climate crisis. Can a radical alternative offer a better solution to a problem that requires immediate action?

Over the last 40 years, neo-liberalism has been the dominant economic system in the West. In that time, a global consensus over anthropogenic climate change has been reached, although progress has been slow in addressing it. Rising greenhouse gas emissions mean that global temperatures are expected to rise by 3°C to 6°C by the end of the century according to the Organisation for Economic Co-operation and Development, far exceeding the Paris Agreement goal of limiting warming to 2°C above pre-industrial levels.

While the failure to mitigate the effects of the climate crisis can be largely attributed to ineffective government policies, it is important to recognise the role of neo-liberal economics in hampering efforts to reduce greenhouse gas emissions.

At its core, neo-liberalism dictates that decision-making should be driven by market forces rather than state intervention; a flawed assertion when it is considered that 29 oil and gas companies account for a third of all global industrial greenhouse gas emissions. The question of how individuals can mitigate global warming becomes arguably meaningless when large corporations are polluting the planet on an unsustainably large scale.

The Role of Consumerism

The development of a culture of consumerism in the Global North (referring to developed societies in Europe and North America) and in other rapidly growing economies is problematic as people become dependent on certain products and services to sustain their way of life. An example of this can be found with ‘fast fashion’ in the clothing industry, where changing fashion patterns lead to people regularly purchasing whichever items are deemed trendy. The global liberalisation of trade has facilitated this, enabling the formation of global production networks that allow for the mass production of products with short life spans at a relatively low cost (Lewis 2017). As a result, these items remain affordable and in constant demand as people become dependent on them. 

This culminates in more greenhouse gas emissions from the carbon-intensive production and transportation of these goods and services. These items often end up buried in landfill sites when they reach the end of their product life cycles, and in the case of plastics, take hundreds of years to decompose. However, some plastics that are not disposed of properly end up in rivers and oceans, resulting in the contamination of freshwater and marine ecosystems (Dris et al. 2015).

The Role of Industry

Even if individuals collectively break free from these unsustainable levels of consumption, multinational corporations’ harmful practices will be protected by politicians wary of the jobs tied to these industries. One of President Trump’s key commitments during his 2016 US election campaign was to reignite the declining coal mining industries in ‘Rust Belt’ states. This policy appeared to be popular in these states with the majority voting for Trump. Consequently, jobs tied to fossil-fuel based industries are a source of political resistance to mitigating the climate crisis under the current economic system.

European Green New Deal

The current system’s failure to adequately address the climate crisis demonstrates the need for a radical alternative. The Green New Deal is one solution that has been proposed within the US and the UK and more recently, the EU, with the announcement of the European Green Deal. The deal outlines plans for immediate large-scale state investment in renewable energy sectors like solar and wind power, funded through borrowing and raising taxes. The private sector will be subject to more stringent regulation, reversing a trend of deregulation that has typified neo-liberalism in recent decades. This includes new laws that toughen standards for buildings to be classed as energy efficient. This is an indication that policy-makers are beginning to acknowledge that market forces cannot adequately address the problem of climate change on their own.

The European Green New Deal is ambitious but its supporters hope that the transition from jobs in fossil fuel-based industries to the renewable sector will generate wealth for the working class, helping to reduce social inequality by initiating a ‘Green Industrial Revolution’ of new manufacturing jobs (Clark III and Woodrow 2015). The biggest hurdle for the deal is the resistance it faces from EU member states with economies that still rely on coal power like Poland, which is refusing to accept the deal’s main pledge of achieving carbon neutrality by 2050.

Perhaps the most important aspect of the Green New Deal is that it forces politicians and economists to re-evaluate what constitutes a healthy economy. Some advocates argue that GDP should be dropped as an economic indicator because it fails to incorporate the environment and regards it instead as an externality. Replacing GDP with an indicator that includes measurements of social and environmental wellness, as has been done in New Zealand, allows climate change mitigation strategies to be assessed more comprehensively.

The European Green New Deal challenges the hegemony of neo-liberalism and offers an immediate solution to tackling the climate crisis. It gives nations the opportunity to correct historic market failures that have seen the natural environment abused by people and businesses. It is almost certain that any action to replace the current economic system will be vehemently opposed to by those who benefit from the status quo, but with scientists warning that we have until 2030 to prevent ‘the irreversible loss of the most fragile ecosystems’, humanity has no choice but to challenge the status quo.

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