MEETING THE SCALE OF OUR GLOBAL CHALLENGES
The Norwegian pension fund GPFG, the largest investment fund in the world, worth750 billion euros, also recently stated that they will drop dozens of coal companies from their investment portfolio.
The year 2016 marks the beginning of acceleration. As we prepare for Cop 22 in Marrakech in November, we increasingly recognize the significant events in 2015 that have marked the threshold of a new era. The United Nations presented 17 Sustainable Development Goals (SDGs) and theCOP21 Paris agreement, agreed by 195nations, to combat climate change set a new direction and scale for global goals. They have turned a page in history. Both were, to a large extent,a message from and for the business world: to create a positive impact on all the assets of the world, and contribute to developing an economy that is here for the world and leave behind the exploitation of a world serving the economy.
This is especially pertinent considering that over 50 of the world’s top 100 economies are in fact corporations, and the costs resulting from the damage to our planet are tremendous. In the last decade alone,the world economy suffered a loss of2.7 trillion dollars because of natural disasters. Business has contributed to the mass destruction, but it also holds the key to the solution.
The redirection of capital is crucial to accelerate the transition to this new,value driven economy. What we invest in,will grow. What we divest from, will phaseout – and it should. In a recent WEF survey, 750 economists said that they see a climate-induced catastrophe as the greatest threat to the world economy in2016. With this urgency in mind, Achim Steiner, director of the United Nations Environmental Program has proclaimed2016 the ‘Year of Green Finance’,knowing that it is crucial to focus on capital investments. And thankfully,we are already seeing an increase in the growth of sustainable capital and a strong divestment from fossil fuels as well as an increase in the growth of sustainable capital and sustainably responsible investing, as there are increasing indications that previously considered risky investments in sectors such as clean tech, are now leading to above average returns. Over 42 billion dollars in green bonds have beenissued and the amount of sustainable investments has increased over thepast two years by 60%. Market value is increasing rapidly with the low carbon market worth more than 5.5 trillion dollars today, showing growth of more than 3% per year. Last year alone 270billion dollars was invested in low-carbon clean energy solutions, in addition to at least 130 billion in energy efficiency.Additionally, thirty stock exchanges worldwide have joined the Sustainable Stock Exchanges initiative, committing themselves to promoting sustainable investments. Divestment from polluting fossil fuel companies is starting to become more prevalent. Examples include the largest pension fund in Washington D.C. which recently announced their divestment of 6.4 billion dollars from 200 of the world’s most polluting fossil fuel companies, and the Norwegian pension fund GPFG, the largest investment fund in the world,worth 750 billion euros, also recently stated that they will drop dozens of coal companies from their investment portfolio.These moves mark a significant step toward addressing climate change and it is becoming evident that a movement is underway and capital is shifting.
The key to unlocking the tremendous opportunities for business for good
My focus is on business as I believe that business can be a driving force.And the market potential for business in this new, sustainable economy is literally a trillion-dollar business case.And we have only just begun. The report, “The Breakthrough Forecast” by John Elkingt on et.al., defined the most promising developments called the 21 breakthrough sweet spots’ – from 3D printing to sustainable air conditioning and drinking water management to genomics. The new economy shows the potential to produce 1.8 trillion dollars’ worth of revenue and create two million jobs in the EU alone. According to the McKinsey report, “The Power of Parity”,the annual global GDP would increase by an estimated $28 trillion in 2025 if we were to create a more equitable workforce in which woman participate in the economy identically to men. In the context of a broader business case this includes social value and at the same time generates good financial results.Between Paris and Marrakech The COP21 Paris agreement made it clear that businesses, nations and whole industry sectors must step up and drive the sustainability movement.As a result, leaders are setting their ambitions higher than ever before for2020 and beyond. Rachel Kyte, CEO and Special Representative of the UN Secretary-General, Sustainable Energy for All, explained it well during the annual Business and Climate Summit in London in June: “As leaders we need to keep a close eye on not just the short term but on the distant point on the horizon to which we agreed we would arrive, as we lead people, business and partnerships; we have to be able to express this as a future to have hope in, not a future to be afraid of.” CEO sand political leaders such as Jean-Dominique Senard, CEO of Michelin and Ségolène Royal, French Minister of Environment, Energy & Marine Affair sand President of COP21 recognize, as they demonstrated at the same summit,that crucial focus points include “strong sectorial avenues and road maps”, theprice on carbon, as well as disclosure and transparency. The minister pointed out how climate change is not just a risk but an “opportunity to be among the first to drive innovation and transformation toward a low carbon economy.” The SDGs are already providing direction in this regard and scaling up innovative ideas and companies in this sense is a must. Aron Cramer, CEO of BSR,also emphasized during the Business& Climate Summit in London, “climate change is not tomorrow’s issue anymore,it is today’s reality.” He referred to a recently launched report “What The Paris Agreement Means for Business” from WeMean Business which says businesses could help meet over 60%of the emissions cuts pledged by nations in Paris if they focus on five key climate action initiatives including ‘Science Based Targets’, zero deforestation,and ‘EP100’ which is run by The Climate Group and the Low Carbon Technology Partnership Initiative.
Since COP21, a page in history has turned and companies, nations, and industries are embarking on a new journey. And more and more businesses are aiming towards a new destination.For instance, Nespresso has launched its 2020 sustainability ambition, The Positive Cup, and the Nespresso Sustainable Development Fund, based on an investment of CHF 500 million over the next six years. Unilever is striving to not merely become CO2neutral by 2030, but be CO2 positive.In addition to its venture fund of 200million, Unilever recently announced their commitment to increase its use of crowd sourcing, with the launch of its Unilever Foundry IDEAS which enables innovative startups that are ready to scale up to partner with Unilever andits 400 brands in over 190 countries.DSM Coating aims to see bio-based binders as the worldwide norm by 2030.The global player Interface has just formulated their post-2020 ambitions ina similarly spectacular way as they did adecade ago: one of positive impact. And the list goes on.
With the recognition that enormous challenges require enormous efforts,Unilever and the Global Commission on Business and Sustainable Development(GCBSD) have launched a commission that aims to highlight the significant rewards awaiting companies that take alead in poverty reduction and sustainable development. “We have an opportunity to unlock trillions of dollars through new markets, investments and innovation— but to do so, we must challenge ourcurrent practices and address poverty,inequality and environmental challenges,”said Polman in a statement. “Every business will benefit from operating ina more equitable, resilient world if weachieve the SDGs. I am optimistic to see that new forms of collaboration are being created and are growing.”
Apart from the crucial impact from multinationals, it is equally important tonote that the most radical solutions, often with disruptive impact at a fast pace are attributed to small innovative start-ups However, those value-creating start-up soften do not scale up as they should,whereas the world desperately needs their solutions. They need and deserve our support, and the support of large,multinational corporations, to rapidly scale up their innovative and highly effective disruptive solutions. Corporate Venture Capital from ambitious corporations means the world to these start-ups, not only because of the investment potential but also because of the tremendous value large corporations can offer them in terms of knowledge, global networks and other necessary means. In other words: access to crucial growth ingredients. In fact, wedo not need more start-ups. We need start-ups that scale.
Global scale for global challenges
Scale is necessary and in this regard,governments and politics must be involved as well. On the way to the necessary global system change, a good example has already been set by the French government when on May17, France’s environment and energy minister Ségolène Royal announced her intention to implement a domestic carbon price floor for the French power sector. It would ensure that French power producers pay a minimum carbon price of €30/tCO2 by charging a tax on fossil fuels used for power generation. The new policy would tax fuels at a level that will make up the difference between the price floor and the carbon price generated by the EU Emissions Trading System (ETS).The main impact of the new carbon price floor on the power sector will be to drive coal out of the mix. The levy will eliminate coal as an energy source by 2019 by increasing its short-term marginal costs to uncompetitive levels.It will also bring in more government revenues. The most important impact of the French carbon price floor maynot be on the short-term emissions,but on the EU and global climate policy discourse. It is evident that the real price on carbon cannot wait and more can and should be done to change the system on a global level. In fact, many corporations have been literally asking for it before, during and after Cop 21.We need a system change for business,and for tax levies as well. The SDGs provide a compass by which all areas of business, science and government should be guided. However, the financial system must adjust accordingly. Whatwe call ‘externalities’ – the price for resources, pollution and damage must become ‘internalities’ making profit and loss about the value creation and the devaluation of our assets. As stated in my recent book, New Economy Business,this comprehensive approach to value and cost is the essence of accounting in the new economy with the goal toprotect our social, environmental and-financial assets.
The world needs businesses to take action and lead the movement to a new economy at scale. We must be ambitious and take bold measures, scale up business solutions quickly and effectively, and collaborate to meet the challenges we face with strength and determination. In the near future, business and capital forgood will no longer be a front runners’ exception. It will become the norm. For those businesses that want to be here to stay, business for good is their future. Since that future starts now, let’s get to business and see the necessity as an opportunity:a trillion-dollar business case!