The Changing Business Climate in the Age of Climate Change

Photo by  Chris Barbalis  on  Unsplash

Here’s a fact we probably all know — the climate is changing, and it’s changing faster than we think. Report after report, protest upon protest, and one campaign to another in different parts of the world are all calling on government leaders and all segments of society to act now before it’s too late. The kids are skipping school; Londoners are causing havoc and shut down parts of the city; and extreme weather is being felt all across the globe. So where are businesses in all this?

Business — the private sector — are often seen as the enemy of the environment, the antagonist in the continuing struggle to save mother earth and our future. Business entities have been accused of putting profit above all else, of exploiting the environment and natural resources, and of violating and infringing human rights. They are often the target of campaigns, and are the frequent defenders in environmental litigation (next to governments of course). Their “bottom line” has often been criticized for causing environmental degradation and pushing for a consumerist and wasteful society.

However, times are changing and we are slowly seeing some positive developments where in business leaders, key investors, and industry giants are involved in efforts to address climate change. As this article will briefly look at, despite the absence (or say the continuing development) of a legal framework for businesses and climate change, or of a legal duty for the private sector to be concerned with the environment, rays of hope have emerged around the world.  

The Climate Change Convention and the Paris Agreement

The international legal regime for climate change finds its roots in the 1992 UN Framework Convention on Climate Change (or the UNFCCC). This was the first global agreement wherein States agreed to curb emissions and address the increasing impacts of climate change. Together with the Kyoto Protocol (which set biding obligations and emission reduction targets for the parties) and the more recent Paris Agreement of 2015, these form the core documents governing international law for climate change.

One important fact to note is that since it is a treaty by governments, then its provisions and obligations only bind states and note individuals and more importantly businesses and the private sector. But this does not mean that business will not be affected. Governments will enact, or revise, policies to meet its obligations under the treaties. These policies can include regulations relating to land  and water use, natural resources extraction and utilization, energy use (particularly pushing for renewables), emissions control, carbon taxes, and corporate guidelines, just to name a few. There will also be opportunities for the private sector to co-finance climate-related projects with the on-going push for increased partnerships for climate financing.

The Business Response

In the run up to the Paris Agreement, governments, civil society, and people from all walks of life looked at ways on how they can contribute to efforts to address climate change. It came as a pleasant surprise for many that even businesses pledged commitments to work with other players for the Agreement. They had also presented plans on how they can support this new global treaty.

Before, during, and up until now, many business and private sector players are committing to helping the global community reach its climate goals. Many have agreed that the rapid implementation of the Agreement is needed. The United Nations Global Compact, although a voluntary initiative, has seen increased support because of Paris. Then you have the Climate Action 100+ — an investor initiative to ensure the world’s largest corporate greenhouse gas emitters take necessary action on climate change. To date, more than 300 investors with more than USD $33 trillion in assets under management have signed on to the initiative — and that is a lot of money, more than the government budgets of a lot of developing states!

We all know how the United States under Mr. Trump has declared its intention to leave the Paris Agreement. Yet despite this, business leaders and state and local governments have all pledged to “stay” in the Agreement even without the federal government’s support. The We Are Still In Campaign is composed of over 3,700 leaders, representing 155 million people, with $9.46 trillion in GDP. Their simple message – they continue to stand by the Paris Agreement and are committed to meeting its goals.

Mechanisms for smart and responsible investing have also been put in place. One example is the Equator Principles (the EPs). The EPs provide a minimum standard for due diligence and monitoring to support responsible risk decision-making, particularly recognizing the importance of biodiversity, human rights, and climate change. These are now widely used by banks, investors, and financial institutions around the world. The aim — contribute to mitigation and adaptation efforts by making sure projects, where these institutions place their money, do not harm the environment or trample on rights, and at the very least have adequate safeguards in place.

The ones cited above are just a sampling of the many initiatives, commitments, and plans by businesses and investors that are out there. Although more needs to be done, these are indeed positive developments which can be scaled up and supported.

So What’s The New Bottom Line?

The climate of business and investment is changing whether you like it or not. As the global community continues to push forward the implementation of the Paris Agreement (i.e., adoption of the Paris Rulebook), things are slowly moving away from the “business-as-usual” attitude of many in the private sector. People over money, environment over the board, and sustainability over profitability are the new norms.

Legal frameworks for businesses and climate change will continue to evolve and develop. Responsibility for climate change, and also for the protection and respect for human rights (see the UN Guiding Principles on Business and Human Rights), will increase. Conflicts and disputes with the private sector are expected, especially over scarce resources. The natural response of some will be to push and fight back. But this shouldn’t be the case.

As we’ve seen through this article, businesses can have a positive impact on the global discussion on climate change. They can be catalysts for change, especially for changing consumer habits and cultural mindsets about the environment. There are now many ways by which businesses can shift to a more sustainable, carbon-neutral, and responsible operations. Smart and green investments are key — and it has been proven that this can also be profitable. Setting in place guidelines and safeguards, and the right corporate attitude at all levels can also have positive and lasting impacts. These also lead to lesser risks along the way — be it financial or litigation risks.

So the next time you think about your company’s bottom line, think again. In the age of climate change and the inevitable change that we are now feeling, in this new climate of business, the bottom line shouldn’t be one which drives you down the bottom, but one which encourages you to instead move to the top and become leaders and engines of change.

Grip Bueta