Push-Me, Pull-You: Is the Private Sector Climate’s Dr. Do Little?

Rex Harrison– <em>Doctor Dolittle</em>About two thirds of chief executives – 67 percent – believe that business is not doing enough to address global sustainability challenges, yet there has been a precipitous drop in the proportion of business leaders who described sustainability as very important, according to a just released survey of 1,000 CEOs by the United Nations Global Compact and Accenture.

It is clearer than ever that the private sector, in particular multinationals dominating the energy, materials and utilities industries, hold the key to addressing climate through action on sustainability. Another new report, issued by CDP and written by PwC, found that 50 of the 500 biggest listed companies in the world account for emissions of 3.6 billion metric tonnes, or 73% of total greenhouse gases (GHG). These emitters primarily operate in natural resources and energy.

In the CDP Global 500 Climate Change Report 2013, Malcolm Preston, global lead, sustainability and climate change at PwC, said the findings raise “questions for some organizations about whether they are focused on sustaining growth in the long term, or just doing enough to recover growth until the next issue arises… Corporate emissions are still rising. Either business action increases, or the risk is regulation overtakes them.”

Meanwhile, the UN Global Compact-Accenture CEO Study on Sustainability 2013: Architects of a Better World found that 78 percent of surveyed CEOs see sustainability as a route to growth and innovation, and 79 percent believe that it will lead to competitive advantage in their industry. Paradoxically, however, CEOs see the economic climate and a range of competing priorities creating obstacles to embedding sustainability at scale within their companies, and the proportion describing sustainability as very important has fallen from 54 percent to 45 percent, including only 34 percent of CEOs in economically hard-hit Europe.

So we have a situation where businesses aren’t doing enough, yet the leaders of those businesses say they want to do more.

Put another way: The road to hell is paved with good intentions.

What needs to change to narrow the gap between intent and action? This is one of the fundamental questions of our time.

The answer to that question, according to the surveyed CEOs, is that we need better policies. Forty two percent of respondents listed governments among their top three stakeholders in sustainability, a rise from 32 percent in 2007. Eighty three percent thought more efforts by governments to provide the enabling environment will be integral to the private sector’s ability to advance sustainability. Specifically, 85 percent demanded clearer policy and market signals to support green growth.

Put another way: Pay no attention to that man behind the curtain. Because business lobbying dollars control politicians, CEOs are really just blaming policy makers for a problem that the CEOs – along with their investors and consumers – are creating and prolonging.

When asked which policy tools should be prioritized, 55 percent pointed to regulation and standards and 43 percent called for governments to adjust subsidies and incentives. A further 31 percent sought intervention through taxation. Softer measures, such as information and voluntary approaches, were supported by only 21 percent of CEOs.

Polite attempts were made in the authors of the UN report to pull back the curtain and place responsibility back on business.

“Business leaders should recognize that even in today’s imperfect markets, high performing companies do manage to combine commercial and sustainable success. These companies are harnessing sustainability as an opportunity for growth, innovation and differentiation, and demonstrate that sustainable business is good business,” said Sander van‘t Noordende, Group CEO, Accenture Management Consulting.

Added Peter Lacy, the study lead from 2007 to 2013, and managing director, Accenture Sustainability and Strategy Services, Asia Pacific. “To move from incremental to large scale transformation, businesses must accept that instead of  persuading consumers about sustainability they must give them sustainable products and services they want at prices they can afford. And instead of showing investors the savings made from sustainability, the will have to demonstrate the positive business value it can generate.”

At the end of the day, with policy-makers in the clutches of business, the only meaningful change will come when CEOs, their boards, and their investors all realize that action today on climate and sustainability means long-term business success and mitigation against risk from resource constraints. And then upon that realization, use their power over policy-makers to make the changes they are asking for (not the other way around). The UN report found that although 52 percent of respondents see investor interest as an incentive for them to advance sustainability practices, only 12 percent of respondents see investor pressure as a leading motivator. Nevertheless, only a small minority of CEOs (15 percent) blame the short-termism of financial markets as a barrier, and 69 percent believe that investor interest will be increasingly important in guiding their approach.

The crucial role of business is one of the under-lying themes at next week’s fifth ClimateWeek NYC. I look forward to hearing from CEOs who are turning intent into action.

 

GHG: regulation vs. legislation?

I asked my friend Graham Noyes, attorney at renewable energy law firm Stoel Rives focused on bioenergy projects, federal energy incentives and carbon monetization, for his thoughts on the Kerry Lieberman bill.

Q: What was your main takeaway from the bill?
A: Some context first. There’s a massive potential hammer out there on GHG emitters in terms of the risk of regulation under the Clean Air Act (CAA) by the EPA, which has already issued an endangerment finding that found GHGs to be a danger to public health and welfare, thereby making the EPA obligated to regulate GHG’s under the CAA. So the wheels are turning forward at the EPA to regulate GHG. That’s what the EPA will do if nothing else happens. So it’s really surprising that Kerry Lieberman imposes what I think to be much stricter limitations on the EPA than the status quo.

In that sense the bill is very favorable to those industries that have the most to lose from GHG regulation, because it essentially weakens the regulatory landscape for GHG intensive industry when compared to what the EPA is likely to do. That’s why we have the strong industry support lined up for the bill. What’s odd is that we have universal Republication opposition (from a party known for its pro-business stance), and near universal Democratic support (from a party known to support more environmental protections). That is a fundamental disconnect.

The 800 lb gorilla in the room is the EPA’s ability to utilize the CAA if the Kerry-Lieberman bill stalls. That’s a really interesting regulatory and political landscape for this thing to play out.

Q: Can you be more specific on how Kerry Lieberman is easier on emitters?
A: We don’t know what the EPA will do precisely in order to get its targets in the endangerment finding. Emissions levels, cost implications for regulated industries – we don’t know. But it’s easy to imagine a scenario in which the EPA ratchets down harder and harder on these emissions to get the problem under control, specifically the PPM concentration of CO2 in the atmosphere. By contrast, Kerry Lieberman has a slow front-end phase-in (with only some industries included in the first years), price collars and very substantial offset programs to lower the economic impact, none of which the EPA would necessarily do. Most people expect the EPA would be more onerous than Kerry Lieberman.

Q: Is legislation or regulation better at the end of the day?
A: The Clean Air Act was not designed for GHGs, but for what we usually think of as pollutants – emissions that are directly unhealthy. CO2 is not something people worry about breathing, it’s the indirect risk of global warming caused by the escalating CO2 levels that triggered the finding. CO2 is also more ubiquitous than other pollutants hence the tailoring rule actually reduces scope of CAA enforcement.

The EPA would regulate by mandate, not by consensus. If we can’t get legislation passed and the EPA begins enforcement, there will be a lot of criticism about over-reaching and strangling industry. EPA would take a lot of heat for this.

Q: Some argue that EPA will take much longer to regulate than legislation.
A: I don’t necessarily think so. This legislation requires extensive rule-making that will take a long time to happen, consider the RFS2 delay. And the EPA won’t build in phase-in limits like Kerry Lieberman. If EPA moves ahead on its present course, I think it would have a faster impact on emissions than the bill. Ultimately, I think this landscape will spur a deal with a surprising alliance.

Q: What are the top three ramifications on business from this bill?
A: The bill would establish a long-term value to CO2e reductions. This will benefit all renewable energy projects andsupport US offset projects in methane capture, agriculture and forestry that make good GHG sense.