MONEY TALKS
UNTIL OUR POLITICAL SYSTEM TAKES ACTION ON CLIMATE CHANGE, BIG BUSINESS IS STEPPING UP, SAYS ECONOMICS AND SUSTAINABILITY EXPERT, PROFESSOR KAREN HUSSEY
Big business is stepping up and making sustainability a top priority.
While we already know it makes moral and ethical sense to take action on climate change for the sake of our futures, it also makes economic sense. The cost of addressing climate change is high, but the cost of not addressing it is far higher, both fiscally and emotionally. For example, it’s not just about the number of houses that were lost in the recent bushfires or the number of companies that have gone out of business in those areas – it’s also about the loss of productivity as people take time out of the workplace to recover from the after-effects of such massive trauma.
Still, we need the economics to stack up before we can truly move on climate change, and now they do. The cost of installing and maintaining solar and wind energy generators — which was previously an obstacle in widespread adoption — has plummeted in the past decade or so, making renewables the cheapest source of energy generation and signalling a shift in the industry that appears to be in favour of taking action.
Big business is also jumping on board. To its corporate governance guidelines for risk management, the Australian Securities Exchange (ASX) has added climate change as an emerging risk, alongside cyber-security and sustainability. Company directors are encouraged to disclose whether the transition to a lower-carbon economy will put their businesses at risk (examples include changes in water availability, supply chains, sourcing, quality and food security), even if they are not directly involved in mining or fossil fuels. In disclosing risks, investors will be better armed to make viable decisions. Watch where the money goes.
Private sector players and financial institutions are starting to move away from fossil fuel investments. After years of pressure from climate campaigners, the world’s largest asset management company, New York’s Blackrock (which has nearly $10 trillion in investments), announced in January that it would begin to back off from investments that “present a high sustainabilityrelated risk”. It’s a move that could reshape the finance industry, as CEO Laurence D Fink wrote, “The evidence on climate risk is compelling investors to reassess core assumptions about modern finance.” Meanwhile, in Australia, many banks are committing to not directly investing in or providing loans to companies within the fossil fuel industry.
If large investment companies and banks are starting to account for climate risk, the government must take notice. Our politicians have been reluctant to link natural disasters, such as the recent bushfires, directly to climate change, despite the science predicting the disaster 20 years ago. There’s a tendency to say, “Well, we’ve got to manage bushfires better, we’ve got to manage cyclones better, we’ve got to manage floods better,” and that’s true: we need to adapt. But to only focus on how we manage those things is like treating yourself for lung cancer but not giving up smoking. When we think about future responses to such events, we have to think about it within the context of climate change. The fact that the private sector is making moves is terrific.
A 2015 Cambridge University study showed that if we took a holistic approach to mining and considered all the societal and environmental costs, there wouldn’t be a single viable coalmine. So while we’re starting to see a shift, it’s difficult to make real progress quickly in a resource-intensive country like Australia, where our economics don’t take into account the negative externalities of our activities.
It’s clear that reducing greenhouse gas emissions is the only sensible solution. Despite the absence of progressive and comprehensive climate policy in Australia, we’re still in a global economy; what other countries do matters to us. I’m hopeful that we’ll start to see governments worldwide commit with renewed vigour to the Paris Agreement — the 2016 UN initiative to which several countries signed on, pledging to work to keep this century’s global average temperature rise below 2 degrees above pre-industrial levels. The agreement has many encouraging features. The first is that it’s about common but differentiated responsibility (a country’s responsibilities depends on its circumstances), and commitments are reviewed every five years, which allows countries to adapt over time. It also utilises marketbased instruments such as carbon offsets and carbon credit trading. That means if for whatever reason you can’t reduce your emissions, you can pay for someone else to reduce the equivalent. That’s an efficient economic instrument.
Germany has committed to phasing out coal-fired power stations by 2038, and I’d like to see more ambitious emissions reductions targets like that in Australia. The CSIRO has produced a National Hydrogen Roadmap that shows how Australia could develop a hydrogen industry, which could be a much cleaner, more efficient energy source, and could repurpose some of our gas infrastructures.
While the Paris Agreement is important and positive, it relies on governments having the will of the people behind them to be able to increase their ambitions over time. I’d like to see mature, sensible and informed conversations about how we can meaningfully reduce our greenhouse gas emissions and seize on the opportunity for a zero-emissions economy. It will be a structural adjustment and a transition, and there will be winners and losers – we need to be sensitive to the communities that may be impacted by us repositioning ourselves around resource activities.
There has been a lot of misinformation confusing public understanding and public debate. I think there’s a genuine sense of fear about any kind of change, and politicians react to it. They have a responsibility to their constituents and if those people are saying, “I don’t really think this climate change is a thing – we’ve always had extreme events in Australia, there’s nothing different” or, “Even if it is a thing, I’d rather adapt than lose the mine that employs me, my dad, my dad’s dad, my brother”, politicians hear that. What we’re seeing is a classic resistance to change.
We need a stable policy environment that accounts for a long-term transition. The longer the plan, the more careful and considered and sensitive it can be. We need to understand this as a form of long-term structural adjustment, and those people who are vulnerable to it and fearful of it have to be shown what a new future will look like.
At the same time, we need to be aware that the sooner we act, the less it will cost — though it’s not as if we need to do it by next Tuesday. Yes, it’s urgent, but a multi-decadal plan will allow us to do this in a way that is cost-effective, sensitive to marginalised and vulnerable communities, and actually reduces emissions. This is a sensible and calm policy response to a phenomenon that is real.
Ultimately, politicians reflect what their constituents say they want. Every single one of us has the power to communicate with our local MP about our climate change worries. We have the power to change policy.
“If investment companies and banks are accounting for climate risk, the government must take notice”