Climate change is an overwhelming problem
Today’s climate challenge is so far beyond our collective experience that it demands a radically different kind of engagement from senior leadership teams in the private sector. The threats that climate change poses to business, markets, and, indeed, capitalism are peculiarly hard for most top teams to spot, let alone act on.
Our brains evolved to respond reflexively to immediate threats but ignore or downplay systemic crises that creep up on us. Such market dynamics behave like vortices — a whirlwind in the air, or a whirlpool in water. When a vortex is just beginning to form, it is virtually invisible unless you have extremely good peripheral vision and happen to know what you are looking for. In this stage, things move at a deceptively slow pace. Even the best-designed vessels — or ventures — find themselves drawn inexorably into the danger zone. Then, suddenly, there’s a point of no return, hbr.org wrote.
Such slow — but ultimately exponential — dynamics characterize what I call the carbon vortex. Picture the three major hurricanes photographed from space in the autumn of 2017 in a single, unparalleled NASA image. Think, too, of the forecast that carbon dioxide emissions, instead of declining, will probably have spiked by two percent in 2017, in part because much economic growth in China is still fueled by coal.
But as the carbon vortex gains momentum, there is also evidence of an equal and opposite vortex pulling us toward breakthrough innovation and a more sustainable future. Remember the Norwegian Sovereign Wealth Fund’s landmark commitment to run down its coal industry holdings. Or Siemens explaining that the major job cuts planned for its gas turbine business have been partly triggered by the renewable energy boom. GE, which decided to double down on coal, despite its much-vaunted ‘Ecomagination’ platform, is now caught in the same market riptide, eliminating thousands of jobs from its power division.
It is clear that much of the world is at a market inflection point, where issues that were once seen as peripheral surge into the mainstream. As Generation Investment Management put it in ‘The Transformation of Growth’, their 2017 white paper, “The Sustainability Revolution appears to have the scale of the Industrial Revolution and the Agricultural Revolution — and the speed of the Information Revolution. Compared to these three previous revolutions, the Sustainability Revolution is likely to be the most significant event in economic history.”
Change of this scale can be hard to fathom, so I’d like to offer four early steps to help your top team get a grip, spot the potential silver linings in the gathering storm clouds, and, over time, learn how to ‘speak carbon’ with growing fluency.
“Even a vortex is a vortex in something,” noted George Bernard Shaw. “You can’t
1. Plunge into the data.
have a whirlpool without water; and you can’t have a vortex without gas.” So in what medium is the carbon vortex forming? Look around, and it is clear that the vortex is forming in multiple arenas, among them the worlds of science, technology, business models, and, crucially, money. Imbibe the data.
The capital markets may have been slow to engage, but the Norwegian example above suggests acceleration. A growing number of indices now show the trajectory. Consider the work of Carbon Tracker on the growing risks of stranded assets and the death spiral impacting coal. See, too, Pwc’s Low Carbon Economy Index 2017, tracking the rate of the low carbon transition in each G20 economy. The top performers in 2016 were China and the UK, which reduced their carbon intensities by 6.5 percent and 7.7 percent, respectively. They are still exceptions, but their trajectories signal where the carbon vortex is likely to take us.
2. Embark on a learning journey.
Growing numbers of senior teams are going on ‘learning journeys’, visiting regions and organizations that are at the cutting edge of change, typically guided by organizations like Leaders Quest. If we were putting together such a learning journey for 2018, we might include the Organization for Economic Cooperation and Development (OECD) in Paris for its work on the links between carbon dioxide emissions and GDP, and the UK government in London for its national carbon budgeting — and its recently announced commitment to improve the country’s emissions intensity ratio.
Elsewhere, we would want to visit Tesla and the X Prize Foundation in California, the latter for its Carbon X Prize — with a growing emphasis on the role of financial markets. We would want to visit Noah Deich’s Center for Carbon Removal, with its work on the new carbon economy, and Bernard David because of his work with the Global CO2 Initiative, spotlighting the most carbon-intensive sectors — cement and concrete and iron and steel, particularly in China. These are people who are pushing for gigatonlevel improvements in our carbon emission and drawdown strategies. We will also be keeping a close eye on HBR’S Future Economy Project.
3. Swallow hard — and raise the price of carbon.
If we are to meet climate pledges made under the Paris climate agreement, the cost of emitting carbon dioxide must rise to $50–$100 per ton by 2030, dramatically higher than the current EU price of less than $6. This was the conclusion of the Commission on Carbon Prices, a group of leading economists supported by the World Bank. Supporting the call for a worldwide carbon pricing scheme is a group of more than 200 businesses and governments, including oil majors Shell and BP.
Meanwhile, to help drive down the cost of sustainable energy, over 100 companies, including Google, Unilever, and Tata Motors, have joined the Climate Group’s RE100 platform. This shares the business case for switching to 100 percent renewable electricity, while working to address barriers. Consider joining.
It is easy to be spooked by downward spirals, and an easy reflex action is to demonize carbon and talk of radical decarburization. But that risks blinding us to the semi-magical aspects of this element, which is the basis of life on Earth. We need to rethink our relationship with carbon, but it’s no accident that people like Noah Deich speak in terms of the new carbon economy. Carbon will not disappear; indeed, it will be integral to the circular economy.
4. Invert the vortex. * John Elkington is chairman and chief pollinator at Volans.