Business vs. Business : The Next Climate Battle Ground

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This is where it gets really interesting. Since I first engaged in the climate debate in the late 1980’s it’s all been fairly slow and predictable. Environmentalists argued for action, big business resisted and government acted as the referee, deciding the policy winners.

As I look around today however, I see a shift underway from ‘environment vs business’ to ‘business vs business’. The global impact on both policy and investment decisions could be revolutionary.

While there has always been some big business advocacy for climate action it has, with a few exceptions, been largely driven by companies’ sense of social responsibility rather than their immediate economic interest.  Businesses have called for action and CEO’s have signed on to joint statements, all with genuine intent. But it has always lacked the urgency and resources indicating a core business issue.

This hasn’t cut it in the debate because those businesses opposing action see it as a fight for survival and therefore approach their opposition in a far more aggressive, strategic and well resourced way. In a fight between corporate responsibility and companies fighting for economic existence, the latter will always triumph. And in this lies the key to why the current shift is so important.

An increasing number of companies and business leaders are beginning to recognize that climate change threatens their economic success, in some cases their survival. As a concept this is not new. The negative economic impacts of climate change have long been clear, both broadly and on specific sectors. The difference now is two fold – timing and tangibility.

After two decades working inside large corporates on sustainability I’ve developed a good sense of what drives real change. No matter how logical and convincing arguments are about economic impacts, unless they are both tangible – understandable and “felt” in the day-to-day business – and sufficiently close in timing to count, business just doesn’t act at scale. Timing doesn’t have to be this quarter’s earnings, that’s a myth, but it does need to impact major business decisions within 5 – 10 years rather than some vague concept of “future decades”.

It also needs to be tangible. People who run companies are busy and their focus is scattered over many issues. Getting serious attention, let alone action, is challenging for theoretical risks and opportunities no matter how correct the analysis. So issues being tangible – something they can relate to in their current business structure – is key. They need to see impacts on supply chains, new demands from customers, shifts in the value of key assets or changes in how financiers or investors rate risk.

In recent years the economic impacts of both physical climate change, and the market shift to lower carbon energy, have started to satisfy both these criteria.

The former of these is the least surprising, with climate variability and extreme weather disrupting food supply and supply chains.  The direct causality from climate change is not the point, the issue is timing and tangibility. Business leaders see the 2011 flooding in Thailand, which sent supply chain impacts rippling through the global economy, or food price spikes triggering unrest and increasing costs and a light goes on – “so this is what they’re talking about – but it will get much worse”.

Of perhaps even greater significance are the economic implications of the transition, now firmly underway, to a low carbon economy. Until recently, this was theoretical, with the focus on a multi decade transition to new energy sources failing both the timing and tangibility test for most.

While there have been steadily growing investments in renewables these posed no significant threat to the market incumbents and had little impact on the core investment strategy for fund managers. This has now shifted in material and tangible ways.

In my next column I will address this in more detail but the core message is clear. In the shift to renewables, particularly solar, and the growing potential for energy storage and electric cars, we see disruptive change that could profoundly transform global markets. The finance sector is responding with major shifts in the market capitalization of companies – responding to issues like the potential death spiral of the traditional utilities and coal’s decline now looking terminal.

Some are even arguing that, comparable to the way digital and information technology drove whole sectors out of business, renewable energy, electric cars and storage technologies will make the coal and oil industry obsolete by 2030.

While all this has profound implications for the energy and transport sectors, there is something even bigger at play for us all. As significant sections of the elite realise their future prosperity and power is threatened by climate change, or enhanced by the resulting market shifts, the balance of power in the whole global system will shift.

From the David vs. Goliath of the ‘economy vs environment’ debate, it will become ‘my economy vs. your economy’, with multi-trillion dollar impacts for the winners and losers.  And with a battle between Goliath and Goliath, business leaders will increasingly have to choose sides.

Now that will be interesting.

 

34 thoughts on “Business vs. Business : The Next Climate Battle Ground

  1. Great article Paul….

    Not only do we have the battle between the “victims” and “perpetrator” businesses but we are also seeing in-fighting amongst the various fossil fuel interest: Ethanol farmers lobby against petroleum producers, LNG exporters lobby against fracking, and coal is bitterly fighting gas in central Europe (on cost and security grounds).

    If media reports are to be believed Abu Dhabi part-funded the movie Promised Land because it would help create a groundswell against fracking.

    The shame of it though is that our politics are so dominated by money and special interests that we receive news of businesses’ “advocacy” as a positive development. Many of these advocates for change have themselves questions to answer in terms of their business practices.

    Ideally (perhaps naively) this would not be the case and we would not end up in the situation where we say “my enemy’s enemy is my friend” and can turn down funds from Abu Dhabi or wherever….

    Keep up the good work.

  2. jonathan Rutherford

    Thanks Paul, but I can’t share your optimistic scenario. Even if you are correct and we will see a surge in investment in renewables as business swings behind renewables, I don’t think we can solve the problem with market capitalist growth economy. Two reasons a) the scale of the task is huge. In their scholarly work, Moriarty and Honnery argue that if we were too reduce carbon emission as steeply as the science requires (i.e 80% by 2050) we will need to REDUCE world energy output to around 300 TW, down from around 550TW today. World energy demand, of course, is predicted to head in the opposite direction (i.e 1100TW) They argue this because, quite simply, there is not enough time to scale up renewables to meet the present level of energy demand – the rate of investment is not feasible. Even the 300 TW scenario they outline, based on renewables, would require a forty fold increase in renewable energy on current levels. Secondly, and more definitively, Ted Trainer has made, in my view, an excellent case (contra Stern/Garnaut and all the rest) that a renewable energy system attempting to run our energy intensive consumer societies will way too expensive to be viable. No time to go into the details here and I am sure I won’t convince you anyways. Since capitalism is a growth economy, by definition, I can’t see any hope outside of some form of eco-socialism involving a planned and equitable contraction of the economy…

  3. Ronald van Zon

    Thanks Paul. I appreciate your view on the positive shift within business and financial systems. I wish politics and a more revolutionary way of thinking and behavior of us citizins will follow. Otherwise it will become a “survival of the fittest” in a few decades, coping with a world that will be completely different.

  4. Sam Moore

    Nice follow up to the recent links you have sent out on the solar and auto industry transformation. In all of our work on sustainability for the textile industry we see very clearly that the scenarios described in your book are unfolding much as you envisioned. As much as we all would like to see a clear embarkation from “old” tech to “new” tech in power/transportation/materials, I think we have to remember that this is a journey and the trip will be messy, our short and medium term vision sometimes blocked, and that society and markets behave irrationally. These are simply the facts. We are clearly seeing the business advantages from investments in pollution prevention and eco efficiency beginning to take hold in corporate strategy and the quality and rate of these investments increasing due to market forces. It will take the situation of collapse to allow what we now see as disruptive technologies to become normative as they fulfill the spaces vacated by failed incumbents. So it seems to me, as I follow your work and ideas along Dr. Stuart Hart’s, that you guys are still on track with your initial scenarios and that current events are reinforcing those models.
    For investors, timing is always key. I have invested heavily in power companies in the USA, as they own the grid and are just coming to realize that the grid may be more valuable than the power stations. It seems to me that the timing for elimination of the grid is still some years off in the Global North but it is surely not the path forward energy development in the Global South. It will be an interesting next 10 years to be sure. Thanks for your continued thought leadership in this area and I always look forward to your updates and ideas.

    Regards:

    Sam Moore, PhD

  5. Richard Sims

    I read recently that North American energy companies, banks and investment firms are throwing vast amounts of money at the shale oil and natural gas “fracking” industry. I believe these investments are driven not only by the enormous profits they envision, but also by big oil’s campaign to have us believe we have plenty of oil and natural gas right here. They are putting expensive TV infomercials out to ease our fears about any negative impacts of ” fracking”. Big oil and coal have tremendous hold over the US congress and will use their influence to remove regulatory hurdles to fracking and the Keystone Pipeline (that will run from Canada’s oil shale fields to the Gulf of Mexico). I view these big oil initiatives as an example of an “old guard” fight for the continued dominance of oil and gas over renewable sources of energy. I also believe these initiatives could buy big oil ten more years of energy source dominance in North America. However, North American oil, gas, and coal industries will implode in the manner you described in Chapter 11 of “The Great Disruption”.
    Is there a way you can track the amount of global and North American investment in oil and coal industry over time? Investment metrics will clearly show the trend toward cleaner energy sources that US citizens can use in their campaign to demand change from our fossilized Congress.

  6. Justin Glass

    Good article Paul

    I would add investing in green infrastructure at the same or greater level as other renewal energy technology. In cities like Melbourne today we are in a race to plant biodiverse urban forests in order to reduce energy and health costs as well as extend the age of grey infrastructure as the baby boomers age and we need to focus our investments into the aged care sector.

  7. Bob Lapsley

    I have often thought at some point the Capitalist will recognize their very existence depends on saving the planet. Finances will flood those who can save the world. They have the means and methods; where others don’t. Government must play a part, but the heavy lifting will be done through business. I am looking forward to reading more of your work covering this evolution.
    Thanks
    Bob in coconut grove fl. USA

  8. It seems to me that the insurance industry and their risk analysis activities ought to be showing up in price increases if they are becoming believers is what’s effects higher levels of GHG are likely to have on the earth’s ecosystem. Is anyone tracking what they are doing with regard to not providing insurance as they have in the past as well as raising prices on those assets that they continue to insure. If they are, and if they are big enough, their assessments may become an important force in the business-to-business battle Paul has suggested is underway.

  9. Jason Dow

    Hi All,

    Paul again great article and the insights as usual are within reasonable grounds. My concern is not with the rational corporate giants that will move to look after their interests but with what I see as a blind spot for the progressive moment. The potential disruption the religious right is going to and is playing in politics. I think it is an enormous oversight to underestimate the political religious movement growing in the US. This group has real power, they are well organized and well funded and control many media outlets and have formed networks across the nation to fight the ideas expressed by progressive groups. When it gets really hairy and I believe it will this group will be a sizable influence on the discussion and the progressive moment can not just dismiss them as wing nuts. Writers like Chris Hedges have looked at this group in detail and his work should be a warning to us all…
    I look forward to the next article

    Kind Regards,
    Jason Dow

  10. Graeme Mcleay

    Dear Paul,
    Tomorrow we will have a new government which has vowed to scrap the ETS and is turning its back on the science with a nod and a wink to the fossil fuel industries to let rip. I love your work but don’t share your optimism.

    Graeme Mcleay

  11. Lonnie Griesbaum

    Thanks Paul. Another fine article which I believe is correct in concept, and as always, written in a language accessible to the non-scientist. However, as a few others have commented, I have some questions and a statement or two. If we were to start building solar panels at a pace necessary to replace enough fossil fuel in the allowed time frame, how much fossil fuel would have to be used to manufacture, install and maintain them? The mining, manufacture of materials, transport, etc. all require fossil fuel (I haven’t seen many bulldozers running on photovoltaic). If we forget for a moment the dollar cost of a solar panel and just look it strictly in terms of energy unit costs to implement I think we are looking at a huge amount. And for a few years there is no net positive to the energy we get back from the sun. So the question is, How much more fossil fuel are we going to have to burn in the short run in order to achieve the long term results? I have the same question regarding electric cars. The rare earth minerals used in today’s battery technology are called ‘rare’ for a reason. They are energy intensive to mine and to refine. And that’s not to mention that the majority of the known reserves of these minerals are in China. As a ‘greenie’ myself and a huge proponent of alternative energy I think we need to be honest with ourselves about the inputs required to make this huge transition. Paul, I’m wondering if you’ve ever read any of the work of Professor Charles A.S. Hall? He is retired now, but still an active speaker. He spent his career in the field of biophysical economics and invented the concept of EROEI (Energy Return on Energy Invested) which decouples money from energy and looks at energy simply as a biophysical system.

    Thanks again Paul, and by the way, I am currently working on a book review of “The Great Disruption” which will be published on the website of a candidate for United States Senate here in Kentucky.

  12. Guest

    A couple of observations from my point of view:

    Rare earth elements may be less of a socio-political concern in the near future – I read something about development in the mobile phone industry of carbon-based alternatives for transistors which currently use rare-earth elements. I suppose that scarcity, combined with nanotech, has driven innovation.

    The fossil fuel industry here in Canada is growing, not shrinking. Coal is being diverted from hostile US ports to Canadian ports for shipping to Asia, and terminals here are being expanded. The Chinese government has a multi-billion dollar stake in the Alberta tar sands, and the Canadian government is investing heavily to facilitate shipping to Asia despite pipeline opposition and lack of regulatory approval.

    I agree with the comments from Mr Rutherford. A capitalist system equals continued growth and the destruction that entails. I find no alternative for the survival of life on Earth but de-growth and depopulation, and I don’t think that will happen unfortunately without war and revolution.

  13. Jonathan Evelegh

    Firstly, interesting as the concept of business vs. business is, it’s hardly an argument for business as usual. Leaving solutions to climate disruption to business seems a sure recipe for disaster.

    Secondly, as alluded to in several other comments, the path from here to there, which involves an ecological recovery at the grandest of scales, is a far from easy venture and the time scale is key. I think it unlikely that a lot of competing solutions, allocating capital efficiently as the propaganda has it, will produce a clear and efficient ecological path.

    The simplest of truths is that we are way over the ecological carrying capacity of this planet. How a system with the fundamental property of always seeking growth can address this without severe cognitive dissonance is still a mystery.

  14. Hi Paul,
    As always a great and thought-provoking article.
    I agree that there are some positive tendencies to be seen, but I also see a huge number of companies introducing certification-schemes like GRI, disclosing how “unsustainable” they are and then benchmarking this with their competitors – if they are slightly less unsustainable than the competitors they seem to think it is good enough…not drivning further action.
    This way of starting where you currently are and then “bragging” to customers, competitors and public that you have “become” so much more “Sustainable” this year compared to last year is a deceitful action – to become sustainable you first have to pass the bottom-line and become “positive”, anything else is just a Green-Wash and a “delay”
    More on this in a couple of my blog-posts:

    http://sorenandersson.com/less-unsustainable-is-not-equal-to-more-sustainable/

    http://sorenandersson.com/stop-the-distraction-move-into-action/

    http://sorenandersson.com/what-if-there-is-no-box/

    The biggest problem though is Consumerism – I don’t see any action from any company or government 
    addressing the fiercly growing consumerism, not in the developing countries and definitely not in 
    the already developed. This in combination with a growing “middle-class” and a growing population 
    is a truly frightening scenario… We are Simply to close to the planetary boundaries to afford the current 
    growth-rate. 

    Keep up the good work Paul and keep the articles coming.
    Best regards / Sören

  15. Thank you Paul for these thoughts that are easy for me to follow.The ideal group size I was once told is between 35 -50 human beings. It seems that when groups of this size bump into or up against each other stuff happens.

    I think that is way I can get my head around the Business vs Business.

    Wining market share/growth grabs hold and rather than business becoming incubators/peers of, business expansion, social enterprise it all turns into competition.

  16. Joan Halgren

    Paul, your article is getting closer to revealing the true nature of what’s happening on Earth with regards to climate change and companies versus companies. Ultimately, though, I do see a return to a more tribal-style world since we may come close to destroying ourselves before doing anything rational.
    Take Syria, for example, where the U.S. has fabricated an excuse to access that country. It is my understanding that a memorandum of agreement has happened among the nations of Iran, Iraq and Syria for a new gas pipeline. So, of course, U.S oil/banking cartels are ‘madly’ seeking production/distribution opportunities there. These delusional endeavors will create a lot of pain for human beings for years to come. Ultimately, one can only HOPE these mad men have a plan to corner the renewable energy markets or we are finished as a species. We cannot fight over resources without eventually destroying all of our cultures/infrastructures. So maybe a few will survive and return to sharing, caring with love on what’s left of our Earth. Paul, please do a piece on the implications of resource wars–there real and now!

  17. Great to hear from you. Two things that my wife and I have noticed just this weekend that confirm your observations here in our local area. One, the reporting of improved hybrid automobiles by Honda and Toyota coming soon and second, we noticed that an electric supply company that is building a new place of business has both wind and solar generators on display on the grounds for purchase by small users.

    These could well be little ripples showing in a coming tsunami of change… it is an exciting time and your insights give us some hope.

  18. Michel Jungo

    I wish I could share your enthusiasm that Coal and Oil will be obsolete by 2030. What I can see in the Coal Supply Chain Industry is a continuous growth and China in particular is building more coal fired power station to satisfy their huge demand on electricity. I can’ t wait to see the turn around so we can get rid of these fossil fuels. I guess we just have to keep pushing for more sustainability.

  19. It occurs to me that when it comes to Climate Change, Coalition MP’s can be categorised into 3 ‘factions':

    1. The Uncontrollables

    This group probably accounts for around 5-10% of coalition MP’s – e.g. Cory Bernardi, Eric Abetz, Barnaby Joyce etc – who just can’t help themselves from freelancing their sceptic views.

    2. The Hypocritical Majority
    I expect that this group accounts for 80-90% of Coalition MP’s who have to say that they accept the science of climate change (when most of them don’t ) and that that are committed to action on climate change (when they’re not)
    As Paul Gilding points out in his article, everyone knows that the Coalition is resisting action on climate change, but unlike America (where climate denial is a badge of honour for conservatives) in Australia they need to take a more subtle line.

    This group sticks to the party line, pretending that the Coalition’s (Fig Leaf) Direct Action Policy is a serious policy response, when they know that it isn’t.

    3. The Hypocritical Minority
    I expect that there is a very small group of coalition MP’s (e.g. Malcolm Turnbull) who have actually considered and accept the science and who know that the Direct Action Policy is a farce.This group also sticks to the party line, but the main difference between them and the 2nd group is that it will be playing on their conscience.

    Hopefully the opposition and the media will put a lot more effort into exposing these factions in their scrutiny of the Direct Action Plan.

  20. John Goss

    Your articles on ‘Victory at hand for the climate movement?’ and ‘Business vs business’ are quite profound and I think you are on the money. But of course the interesting thing is that these articles are somewhat at odds with your message in ‘The great disruption’. Because the changes we will likely see in the next 20 years will not (unfortunately) be accompanied by a radical change in the way our economic systems are structured. There will be changes, but it will be a similar system to what we have now. Despite its many downsides, the strange capitalistic/mixed market system we have across the West and China is actually quite flexible and innovative and we will muddle through, for many reasons, but a major one is because it is in the interests of the rich to have controllable climate change. A pity that we won’t end up with a substantially fairer, intrinsically sustainable economic system in the next 20 years, but it will take many many decades to substantially diminish the power of the ‘golden rule’. (He who has the gold rules). Hopefully by 2050.

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