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Business Has Much to Do If It Wants to Be a Climate Leader

Image Credit: Apple/Alba Energy

If there’s one group that’s basking in the long shadow cast by Donald Trump’s ill-fated decision to withdraw the United States from the Paris climate accord, it’s business. In story after story, reporters and pundits are hailing businesses – large and small – as the would-be saviours of much-needed progress in the efforts to curb the risks associated with climate change.

Shortly after Trump announced his decision to withdraw from the Paris Agreement, a host of multinational companies – AppleDisneyGeneral ElectricTesla and Mars, among others – moved to cement their positions on the reality of climate change by committing to the Paris accord with or without support from the White House.

It’s true that many corporations have been walking the talk on climate change for a while now. For instance, many companies now find themselves in a position to power their manufacturing facilities and shops with renewable energy sources such as wind and solar; others are creatively combining on-site renewables with purchased offsets to meet their 100-percent renewable energy targets. Even utilities around the world – including DTE in Michigan, Appalachian Power in West Virginia coal country, and DONG Energy in Europe – are either reducing their reliance on coal as an energy source, or are phasing it out altogether.

But here’s the thing: It’s relatively easy and painless for businesses to pledge their allegiance to the Paris climate accord. For one thing, the agreement is non-binding, and has no enforcement mechanism, so talk can be sold on the cheap. We also live in a time when it makes decreasing economic sense for companies, especially utilities, to rely on greenhouse gas-intense fuel sources such as coal when more climate-friendly options – such as natural gas and renewables – are cheaper.

As we assess the business response to Trump’s decision, it’s also important to recognize that pro-Paris pledges have more to do with following through on their long-gestating corporate strategies – and drawing benefits from sunk cost – than they do with new strategic shifts in the direction of acting more aggressively to address climate-change risks. Success in any business is built upon companies taking the long view when it comes to their investments. As it became increasingly apparent more than a decade ago that both customer expectations and the regulatory landscape were tilting in the direction of climate action, businesses around the world responded by planning and investing accordingly. Thus, the position of many businesses when it comes to the Paris Agreement today reflects past investments more than it does future commitments.

More telling about the stand taken by many businesses on the Paris accord in light of the “we are still in” rhetoric is what they were doing in the weeks and months before Trump’s decision.

Take, for example, the recent lobbying efforts by many of the United States’ wealthiest and most influential corporations, which are aimed at rolling back pledges they made to address their contributions to greenhouse gas emissions. You may recall that it was barely two weeks into Trump’s tenure in the White House before chief executives from the United States’ automobile manufacturers lamented to him personally that the requirement to comply with today’s fuel-efficiency regulations – which were developed with companies’ co-operation as part of the deal to save them from bankruptcy barely a decade ago – was cutting too deeply into their already mighty profits. Similarly, oil and gas companies have placed on hold plans to install new equipment and retrofit existing infrastructure, which would be aimed at preventing emissions of the most potent greenhouse gases.

At the end of the day, I am an optimist. I couldn’t, in good conscience, do my job if I weren’t. From this perspective, I do believe it is still possible – indeed, necessary– to leverage the influence of business to address the world’s most pressing sustainability challenges; the indisputable reality of human-caused climate change is one of them.

But in my role, I’m also required to be an honest broker. From this perspective, the private sector still has much work to do if it is to lead on the climate change file. Investors will need to be more assertive in terms of how they allocate capital toward climate progressives, and away from climate Luddites. The same is true of consumers who must exert their own influence by voting with their wallets. Companies themselves will need to work more aggressively to divest their operations from fossil fuels. Most importantly, business will need to be more proactive in the voluntary search for more innovative climate solutions.

In the absence of regulation, real leadership from business on climate will require new strategies and investments that push them to be truly sustainable, and not merely less unsustainable.

This post first appeared on The Globe and Mail on July 3, 2017.


Joe Arvai is Director of the Erb Institute for Global Sustainable Enterprise, and a Max McGraw Professor of Sustainable Enterprise at the University of Michigan.

[Read more about Joe Arvai]


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