Amidst soaring temperatures and Trumpian rhetoric, it was a challenging year for businesses trying to act on climate change. But growing collaboration and rapid ratification of the Paris Agreement offer hope
Climate change bookended 2016 in the headlines, for two very different reasons. The year dawned in the warm afterglow of the Paris Agreement, but ended amid the looming storm clouds of a climate-sceptical Trump presidency.
In the months between, evidence of climate impact mounted, leading to some gloomy prognoses as to our ability, Paris notwithstanding, to rise to the challenge. These were offset by the rapid progress in low-carbon technologies, and by promising signs that the much-vaunted decoupling of economic growth from carbon emissions was becoming a reality.
Together, these four factors are shaping business’ response to the climate challenge. Let’s look at them each in turn.
First up: the scary stuff – otherwise known as the science. This was the year when the concentration of carbon in the atmosphere reached 400 parts per million, and stayed there. It’s unlikely to come down any time soon. The last time CO² was at this level over a sustained period was at least 15 million years ago, when temperatures were between 3 and 6 degrees higher than today, and sea levels up to 40 metres higher. The rate of increase is speeding up, too. Over the last year alone, concentrations surged by over 3ppm – the biggest annual leap ever recorded.
Temperatures in India reached 51°C this year (Credit: Lan images)
The effects are clear. 2016 is set to be the hottest year on record, setting a new high for the third year running. Global average temperatures are now 1.2°C above pre-industrial levels – bumping up against the 1.5°C rise targeted by the Paris Agreement. During the year, the mercury burst off the scale in locations as varied as South Africa (peaking at 43°C), India (51°C) and Kuwait (54°C). The most dramatic increases were in the Arctic. In late November, temperatures peaked at an unheard-of 20°C higher than normal. Unsurprisingly, the extent of Arctic sea ice is at a record low. The higher temperatures were also blamed for the devastating wildfire in Fort McMurray in northern Alberta, the costliest disaster in Canadian history.
In part, these extremes reflect the warming influence of the weather cycle, El Nino. But human activity remains the dominant cause, and even though El Nino is now fading, the temperature is unlikely to fall far, or for long. The impacts – in terms of droughts, coral die-off and other extreme events – are apparent.
We’ll always have Paris
But there is good news: remember Paris. Not only did the world agree to a meaningful temperature target; its governments also ratified that agreement with surprising speed, so that it entered into force less than a year after signature. (That’s a Usain Bolt-like dash for the tape rather than the more customary diplomatic amble.)
The deal is far from perfect. The agreed mechanism to reach the target, the intended nationally-determined contributions (INDCs), which allow each state to set their own goals, leaves a lot to be desired. Initial commitments fall short of what’s needed to keep temperatures within safe levels. But governments are required to report back on progress, and as the mercury rises, so laggards will face increasing criticism, and in the long run, possible sanctions, too.
An international agreement on its own might give little cause for cheer, were it not for some impressive progress on the low-carbon technology front, particularly in energy. Recent years have seen energy economy graphs go into see-saw mode; as coal slumped (partly due to cheap shale gas), wind and solar have soared. Subsidies helped, but they’re fast losing relevance as costs continue to tumble. Wind is rapidly becoming cheaper than coal, and in some places cheaper than gas, too. Solar is in freefall; the lowest bid prices for new plants fell by 50% in the year to May, and in India, the government now sees solar as cheaper than coal, the country’s dominant power source.
India, along with China, is investing in renewables at record rates, and China is moving decisively away from coal. Other key clean tech sectors, such as battery storage, are also smashing viability barriers. The cost of batteries for electric cars has fallen by 80% in less than a decade. The market in low-carbon tech is now estimated to be worth $5.5trn – that’s more than pharma.
Meanwhile, carbon emissions (as opposed to atmospheric concentrations) are flat-lining. This is thanks to that shift away from coal, combined with energy-efficiency improvements. 2016 saw them stay more or less level for the third year running, while the global economy grew by 3%. So it would seem that decoupling has finally been grasped. That doesn’t equal problem solved, of course; carbon will continue to build up in the atmosphere for many decades to come. But it does neatly demolish the old lie that you have to choose between planet and prosperity.
The American renewables industry gave more donations to Republicans than Democrats (credit: Joseph Sohm)
By the third quarter of 2016, you could be forgiven for feeling optimistic. And then came Trump. Cue a tsunami of gloom among environmentalists as details of his transition team – packed with climate sceptics and fossil fuel enthusiasts – started to emerge. But as Ethical Corporation pointed out, once safely ensconced in the Oval Office, Trump the pragmatic deal-maker may very well, er, trump, Trump the candidate. The latter’s “climate hoax” rants might in time be seen more as a sop to the home crowd than as a serious policy statement.
That would appear to be the view of the American renewables industry, which for the first time made more campaign donations to Republicans than Democrats. For all the Trumpian rhetoric some of the largest renewables installations are in Republican states such as Texas and Nevada. It’s not so surprising, then, that having stumbled in the wake of the election, US renewable energy stocks staged a strong recovery. Even the President-elect has moderated his tone, acknowledging “some connectivity” between human activities and the climate, and keeping “an open mind” on the Paris Agreement.
So what of the business response? With a few exceptions, mainstream business has bought into the climate consensus. Their investors are helping concentrate minds. In the run-up to the Paris talks 362 investors managing a cool $24trn in assets signed a statement that they are “acutely aware” of the risks climate change poses to their investments, and called on governments to develop an ambitious global agreement. The campaign to divest from fossil fuels is piling on the pressure. More than 430 institutions, including the world’s largest sovereign wealth fund, Norway’s government pension fund global (GPFG) and Allianz, one of the world’s largest asset managers, have now signed up.
High temperatures were also blamed for the devastating wildfire in Fort McMurray (credit: Premier of Alberta)
Opportunity for business
Many companies now see climate as an opportunity. And one in which tighter regulations on carbon will help business, by squeezing out polluting competition. That explains the growing influence of initiatives such as the We Mean Business coalition, which is pushing for robust implementation of the Paris agreement. It groups nearly 500 of the world’s largest companies with a combined worth of $8.1 trillion, along with 183 investors with over $20 trillion under management, giving it serious clout.
We Mean Business is fast-emerging as the prime mover of proactive business, but it’s not alone. The last few years have seen a plethora of climate initiatives emerge. Some are single-issue, which brings with it the virtue of simplicity. RE100 – under which corporates commit to sourcing 100% of their electricity from renewables – is one example. More than 80 companies, from BMW and BT to Facebook, Google, and even Goldman Sachs, have now signed up, although some observers are critical that there is no requirement to stipulate an early date for reaching 100%.
Other schemes are more broadly focused, such as the World Business Council for Sustainable Development-led Low Carbon Technology Partnerships Initiative (LCTPI). This helps companies take practical action to transform their businesses in areas as varied as energy, forestry, chemicals and freight. According to a study by PwC, the initiative could cut emissions by 25% by 2030.
There are growing collaborations within industries, too, such as the International Air Transport Association (effectively the trade association of the world’s airlines). Its members have committed to carbon-neutral growth from 2020, and to reduce net CO² emissions by 50% by 2050.
As to the future, three emerging signals stand out from.. First, there is a growing acceptance that companies should adopt science-based targets on carbon (rather than be constrained by what they imagine is achievable within their current business model). Second, there are more calls for governments to adopt carbon pricing to help incentivise business to do the right thing. And third, there is increasingly active collaboration between those businesses and governments that are strongly committed to tackling climate change. In the past, some of the most stubborn resistance to government action on carbon has come from business. In the future, we can increasingly expect leading corporates to be up there alongside governments, stiffening their sinews in climate negotiations.
It’s that enthusiasm for robust action that could be the best deterrent to any Trump-inspired softening of resolve. It doesn’t make the sky less dark, but it does boost the chances of navigating a way through the storm clouds.
This is issue 3 of our top 10 issues that shaped sustainability in 2016. To see the full list, click here.