FUELING THE RACE TO THE TOPNigel Topping
Two critical themes emerged from the World Bank’s Spring Meetings in Washington DC, this week – where finance ministers and CEOs discussed the importance of carbon pricing.
Firstly, carbon pricing is crucial in driving the transition to the low-carbon economy, but alone, it is not enough. We need ambitious reduction targets to make the transaction truly effective. Strong carbon pricing signals will drive innovation and investment much more efficienty if they are set in the context of clear, short and long-term policy commitments to reduce GHG emissions.
This will give businesses and investors the confidence to invest for the long term, to commit to R&D and it will reduce the cost of capital.
Secondly, it is clear that the old notion that ‘business will only move if government does’ has been retired. Business and government are engaged in a reflexive dance, each building on signals of growing commitment from the other. Bold action by business is emboldening policymakers who in turn are encouraging more leadership from an increasingly wider group of businesses and investors.
And this dance between the private and public sectors around carbon pricing and ambitious targets is fueling a race to the top.
Businesses recognize that while climate change is one of the greatest risks we face, tackling it is also one of our biggest economic opportunities. Leading businesses are already acting. Companies like Honda, Kering, Marks & Spencer, AXA and Unilever have committed to science-based targets, representing their commitment to reduce their GHG emissions in line with the trajectory needed to limit global warming below 2 °C.
Crucially, these targets recognize both the scientific and economic realities of the transition – based on the work of the IPCC and IEA respectively. They offer a pragmatic, sector-specific path to the reductions needed. This opens the door to engagement with heavy emitting sectors and having them engaged is vital in order for us to find a collective pathway.
Similarly, through RE100, global businesses like IKEA, Swiss Re, BT, Mars, Elion and Philips are committing to procure 100% renewable power by 2050. Many of these companies will achieve the goal much earlier. By decarbonizing their power supply and reducing their greenhouse gas emissions, these businesses are securing strong returns on investment, improving their value chains, attracting and retaining talented staff, building brand value and managing risk by staying ahead of the policy curve.
We know that the next decade will be decisive for the world’s climate system.
Around US$90 trillion globally will be invested in cities, land use and energy infrastructure between now and 2030. The investment choices we make will shape future growth and will lock-in either a low or a high carbon pathway. The scale of investment over the next 15 years means we now have a huge opportunity to create better growth and reduce the risk of dangerous climate change.
As stewards of the real economy, business and investors see the chance to innovate and scale investments in low-carbon infrastructure for cities, land-use and energy, benefits of which will last for many decades to come. To seize this historic opportunity – and help more companies to adopt low-carbon strategies – business is calling for smart policy.
What we need is for governments to provide policy certainty and a regulatory environment, which incentivizes business to harness and scale these opportunities. Expect to hear much more of this conversation in the next few months during the Business Climate Summit and the business/government dialogues which will kick-off then and run through COP21 and beyond.
Today and tomorrow, Energy and Climate Ministers from the major economies meet in Washington DC at the Major Economies Forum. This follows the World Bank Spring Meetings of Finance Ministers, which will also featured discussions on climate change.
Energy, Climate and Finance Ministers alike understand the golden opportunity that the Paris Climate Conference this December represents: to bed down the irreversible transition to the low carbon economy.
While ambitious first commitments under the Paris agreement for 2025 or 2030 are a good start, business needs greater clarity from governments over the long-term. The private sector also needs to see these commitments embedded in working policy. To this end, businesses and investors want the Paris agreement to include:
- An operationalization of the existing UNFCCC goal to limit warming below 2 °C – turning this into clear emission reduction pathways which provide the trajectories for business to steer by. This is why We Mean Business calls for global net zero emissions well before the end of the century.
- National long-term decarbonization plans from the major economies, which are our biggest markets and have the most influence on our operations. This will give us confidence to invest in low carbon capital assets, and establish a level playing field for global businesses.
Business and investors are leading the way towards a low-carbon economy. Paris is a key turn on our path and we want climate negotiators and policymakers to help charter smart policies that enable bold, scalable climate action. By working together, business and government will create a stronger, safer and more prosperous economy.