When negotiators from 195 countries met in Paris to hammer out an agreement to fight climate change, the two-week meeting in December was notable for many reasons. In an historic accord, the nations set a goal of limiting the warming of the planet to below 2 degrees C—even as low as 1.5 degrees C. The vast majority of individual countries agreed to reduce their own emissions and to revise those targets every five years. And the richer nations agreed to help poor countries slash their emissions and adapt to the increasing impacts of climate change. “The game is on now,” said Todd Stern, Special Envoy for Climate Change for the United States, in a briefing after the meeting. “For the first time ever, everyone, under this structure, will have to take action.”
But the Paris conference was also remarkable for something that got far less attention than the negotiations themselves—the huge presence and role of business. “We’ve never seen the kind of engagement from companies like we are seeing now,” said Lise Kingo, executive director of the United Nations Global Compact, a group of hundreds of companies that have committed to reducing emissions.
In contrast to previous major United Nations climate meetings in Copenhagen and Cancun, the sprawling conference center at Le Bourget outside of central Paris was crawling with CEOs and other top executives, investors, and other members of the business community. The World Business Council for Sustainable Development (WBCSD) and the International Emissions Trading Association (IETA) hosted a ‘business hub’ with a full daily schedule of side-events over 12 days with leaders from companies, investor groups, trade associations, government officials, and others. The United Nations Global Compact organized a two-day “Caring for Climate Business Forum.”
Google execs plugged the company’s rooftop solar initiative and $2.5 billion worth of investments in renewable energy. Pharmaceutical giant Novartis talked about the internal shadow carbon price it uses for its own decisions, along with a project to offset emissions by growing trees in Argentina. Peter Agnefjäll, chairman of IKEA, explained why he changed all of the furniture and accessories maker’s lighting products to efficient LEDs over the last year, and plans to run the company entirely on renewable power. Investors like Mats Andersson, CEO of the Fourth Swedish National Pension Fund (AP4), and Jay Ralph, Chairman at Allianz Asset Management, described how they are “decarbonizing” their portfolios by scaling back investments in coal and other high carbon sectors. When it comes to taking action, the private sector “has really stepped up to the plate,” said WBCSD President and CEO Peter Bakker.
To many, the high business turnout in Paris meeting starkly showed how much more seriously companies and investors are taking the threats of both climate change and government policies penalizing emissions than just a few years ago. “It’s not just simulations in scientific models any more,” said Bakker. “The climate is changing.”
That means new risks for companies. One risk is that droughts, heat waves, more severe storms, rising seas, and other climate change impacts will harm operations or supply chains. The Kellogg Company, for instance, is working with farmers on new practices to boost yields and resiliency. “We’ve taking responsibility for the whole supply chain from farm to breakfast table,” said Kellogg CEO John Bryant. It’s part of what he called “a major shift going on in the food industry.”
Another major risk is being left behind, like buggy whip makers at the dawn of the automobile era. “We know there is no alternative to the transition to low carbon economy,” said AP4’s Andersson. Businesses that don’t move quickly enough may find themselves with billions of dollars worth of stranded assets, like coal-fired power plants or gasoline refineries. “No business CEOs can survive if they say climate change is not real,” said Michael Bloomberg, CEO and President of Bloomberg.
But if the risks are great, so are the potential rewards, business leaders said. “It is as big a moment as the building of the railroads, or the dot.com era,” said Stuart Thomson Gulliver, Group Chief Executive of HSBC Holdings. “It is a massive challenge and opportunity.” What’s more, the prices of renewable energy like solar and wind have plunged in the last few years, and a wave of innovation has created viable new technologies for everything from energy storage to a smart electricity grid. “One of the dramatic differences now is that the business community and investors have brought technologies—solar, wind, batteries, energy storage—to the point where they are competitive with legacy energy,” said former U.S. Vice President Al Gore.
Seizing those opportunities requires not just business acumen, but also the right government policies and investment climate—a message that the hundreds of business leaders in Paris were determined to get across to the negotiators. “The corporate voice here in Paris is really crucial,” said Kate Brandt, leader of sustainability at Google.
What are those right policies? Companies and investors crave certainty—in this case consistent incentives over both the short and long term for the development and deployment of low carbon technologies and services. Subsidies to buy electric cars and incentives such as allowing owners to drive solo in HOV lanes have boosted sales in California, Norway, Vermont, and other places, for instance. “Money on the hood makes a difference,” said Deborah Markowitz, Secretary of the Vermont Agency of Natural Resources. But failing to maintain those incentives hurts companies and slows the clean energy transition away. Sales of BMW’s i3 electric car were good in Georgia when the state was offering a tax credit of up to $5000 per vehicle, said Glenn Schmidt, vice president for government affairs at BMW. But the state stopped the incentive program this past summer. “When the state pulled the incentives, our sales went from more than 100 per month to 18,” Schmidt said.
So what the business world wanted most from the Paris accord was a clear, long-term market signal, such as a consistent price on carbon. At one session, representatives of business associations from France, Australia, Germany, Denmark, Finland, and the European Union read statements backing a carbon price. “All the business people I’ve seen are asking, even screaming, for a price on carbon,” said WBCSD head Bakker. “I see no resistance any more to the concept—save for the US Chamber of Commerce, which is not here.”
The climate meeting in Paris marks the first time that the business and investor communities have been willing to push so hard for a carbon price, added Mindy Lubber , president of Ceres, a Boston-based network of investors, companies, and public interest groups pushing for sustainable business practices. “The message and the messengers have changed.”
While the Paris agreement doesn’t explicitly create a worldwide carbon price, the commitments of more than 185 nations to cut their greenhouse gas emissions, plus the agreement’s strong mechanism for both verifying progress toward those targets and revising them every five years, provides much of the certainty that companies and investors need. “The agreement not only unites all nations in the battle against climate change, it also sends a clear signal to markets about the direction of government policy, which will help spur greater private sector investment in low-carbon technology,” said Bloomberg after the meeting.
Business can take at least some of the credit. “Businesses in general were incredibly important actors in buttressing the commitments countries made,” said David Waskow, director of the International Climate Initiative in the World Resources Institute’s Global Climate Program. “The other role that business played was to support strong elements in the agreement, including the long-term goal and provisions to bring countries back to the table every five years.”
The larger hope is that the Paris accord marks a turning point—a fundamental shift in the perception of governments, companies, and the public that the world is now dead serious about tackling climate change and that “the transition to a low carbon economy is now inevitable,” as WBSD’s Bakker put it. If he’s right, and countries do up the ante every five years, then the current flow of billions of dollars of clean energy investments will turn into a flood of trillions, creating everything from massive solar power plants in India and Africa to rapid growth in the number of electric cars. And humanity just might manage to prevent our planet from warming too much for safety.
