What is the role of the private sector at COP21?

By Naki B. Mendoza 25 November 2015

A factory in Rotterdam, Netherlands. A priority for the private sector at the upcoming climate summit in Paris will be to build a collective action agenda around the issue of carbon pricing to further assist governments in their policy planning. Photo by: Astrid Westvang / CC BY-NC-ND

Government and business leaders will converge on Paris next week for potentially historic climate negotiations and the private sector has been vocal in calling for bold action — from clear government policies and commitments, to clarity on carbon pricing.

Leaders with heavy hearts will wade through thick layers of security as they meet to map out plans for a more prosperous and sustainable world.

It’s a vision that calls for deeper collaboration between public and private entities.

Just as this summer’s Financing for Development Conference and the United Nations’ approval of the 2030 development agenda in September made clear, the objectives of the COP21 summit — binding commitments by national governments toward substantial reduction in greenhouse gases — cannot be met without the full buy-in of the private sector.

But while the year’s previous summits saw governments do much of the petitioning — for private capital and investment — at the COP21 summit, businesses will be pushing governments to take action.

In search of certainty

Businesses will be pleading for clarity and certainty — clarity on issues such as how carbon will be priced, how oceans are managed, how wildlife is treated or how supply chains are sourced, which, in turn, can translate into greater certainty for their investments. A clear policy framework would formalize many of the voluntary actions that businesses have already taken on environmental sustainability.

“We are very strongly looking for clear signals that only governments can give,” Mark Weick, The Dow Chemical Company’s director of sustainability, told Devex.

Dow’s petition is rooted in what they and a host of other businesses across industries view as the third part of a three-legged stool to achieve measurable action on climate change mitigation. Businesses can both provide the technology and influence consumer behavior to affect climate change, but it needs the certainty of public policy.

Nevertheless, there has indeed been a groundswell of action by businesses on climate change either because of the impact that rising temperatures have on their operations, or because they simply see it as the right thing to do.

Dow itself — heavily reliant on fossil fuel products for its core inputs — is investing $1 billion in research and development through 2025 in an effort to improve environmental sustainability and reduce its carbon footprint.

But examples cut across industries. In the fashion and textile industry, Timberland is on pace to meet its goal of slashing its carbon emissions by 50 percent between 2006 and 2015, all while expanding its international presence. It has more than 300 factories in developing countries, but aims to source from only those that can measure their progress on environmental indicators.

A common voice ...

Beyond the many individual examples, companies are also coalescing around agendas that form a common commercial voice.

In July, for example, more than 300 companies expressed support for U.S. President Barack Obama’s Clean Power Plan to limit carbon emissions from existing power plants.

“Our support is firmly grounded in economic reality,” their letter to U.S. state governments read. “Clean energy solutions are cost effective and innovative ways to drive investment and reduce greenhouse gas emissions. Increasingly, businesses rely on renewable energy and energy efficiency solutions to cut costs and improve corporate performance.”

Last month 81 companies representing more than $3 trillion in annual revenues signed on to the American Business Act on Climate Pledge at the White House. Among the commitments that companies from Coca-Cola to Facebook to General Motors agreed to pursue in the coming years are a 50 percent reduction in their carbon emissions, an up to 80 percent reduction in water-usage and zero net deforestation in their supply chains.

And just this week a group of 78 CEOs representing companies with operations in more than 150 countries and territories signed another letter, that while vague on specific private sector commitments, called on governments to take “bold action” in Paris and said they were ready to work together on “one of the biggest global challenges that will shape the way we do business now and in the coming decades.”

While significant in their own right, the actions of businesses are underwritten by the expectations that governments will adopt formal measures to address climate change.

“Business has a pivotal role to play in the climate change agenda, but it recognizes that the pace of progress depends heavily on commitment from government,” Lise Kingo, executive director of the United Nations Global Compact, told Devex.

A priority for the private sector in Paris will be to build a collective action agenda around the issue of carbon pricing, to further assist governments in their policy planning.

One of the platforms that will be launched in Paris is the Carbon Pricing Leadership Coalition, convened at the behest of the World Bank, U.N. Global Compact, the International Monetary Fund and the Organization for Economic Cooperation and Development.

The coalition will bring together representatives of national, state and provincial governments and more than 90 of the world’s largest businesses, giving them a platform to swap ideas and share experiences about the best ways to implement a price on carbon.

Private sector companies from a range of sectors have taken leading roles in the coalition – Unilever, Novartis, Philips, Nestle, Ernst & Young — as well as several of the world’s largest oil and gas companies — BP, BHP Billiton, Eni, Royal Dutch Shell and Statoil.

… With inevitable discord

The support of those extractive companies is a positive sign of the types of firms willing to take a stance on the issue, but it also reveals a major split within one of the world’s industries that is most directly tied to causing climate change.

Europe’s major oil and gas companies have taken a progressive stance and chosen to engage with the issue by publicly advocating for carbon pricing policies and reviving their interest in renewable energy investments. But their North American counterparts have kept the issue of climate change at arm’s length, choosing instead to stress the economic and commercial realities of pricing carbon.

Indeed, unlike their cohort of European oil corporations, no North American oil company signed a May 29 letter to Christina Figueres, executive secretary of the U.N. Framework Convention on Climate Change, that endorses carbon pricing, or has elected to join a World Bank-U.N. initiative to end gas flaring.  

The split within the extractive industry reflects a broader debate heading into COP21 that carbon pricing, while an important solution to combat climate change, is not the only one.

“We need a variety of policy options if we are to reduce emissions in line with national pledges,” Andrew Wilson, the head of global communications at the International Chamber of Commerce told Devex. The risk in Paris, according to the ICC, is that it will produce a binary debate about whether to price or not to price, at the expense of a more comprehensive agenda.

“In some markets [carbon pricing] is not necessarily a viable option right now,” Wilson said. “Other mechanisms and incentives may actually offer better opportunities to reduce emissions more quickly and effectively.”

For instance, a less prominent debate underway is about financial regulations that affect climate investments.

In the wake of the global financial crisis, a host of regulatory policies were enacted, including the Basel III accords, which require banks to hold more capital against any risk-based investments in their portfolio.

An unintended consequence of the more stringent capital requirements, says the ICC, is that it has constrained the amount of financing that banks can provide to small and medium-sized enterprises and climate-related projects.

Energy investment is expected to be the largest single area of infrastructure investment in the coming decades at around one to two trillion dollars annually.

“If we’re serious about mobilizing climate finance, we have to make sure financing is fit-for-purpose and banks are incentivized to finance climate projects,” Wilson said.

Any agreement struck in Paris will be just a starting point. The real legwork won’t be in the heavily guarded conference halls of the French capital, but in national legislatures tasked with hammering out detailed policies toward reducing emissions or in meeting rooms where multilateral trade and investment agreements between countries will be determined.

Success in Paris will hinge on the summit’s ability to provide clarity on the long-term global trajectory of carbon emissions that can bring certainty to investment. That framework, say leading voices from the private sector, must also incentivize investments by respecting intellectual property rights for impactful technologies and creating opportunities to partner with governments.

Stay tuned for #PlanetWorth, an online conversation exploring leading solutions in the fight against climate change. From Dec. 1 #PlanetWorth will shine a light on issues including resilience and livelihoods, urbanization and smart cities, innovation and profile those engaged in building a more sustainable future.

About the author

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Naki B. Mendozamfbmendoza

Naki is a former reporter for Devex Impact based in Washington, D.C., where he covered the intersection of business and international development. Prior to Devex he was a Latin America reporter for Energy Intelligence covering corporate investments and political risks in the region’s energy sector. His previous assignments abroad have posted him throughout Europe, South America and Australia.


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