What Glasgow means for business

The most gripping television on Saturday night was not on Netflix. Neither was it on Disney+. Instead, we were glued to the BBC, streaming what turned out to be the final sessions of the COP26 climate negotiations in Glasgow. The theatre was irresistible. Like a scene out of Star Wars, where the Rebel Alliance gathers to defend itself against the Empire and manages to put together a strike force, there were competing interests and sniping, but the threat was large enough and the politics held together. The end result was not pretty, so we must hope that the Millennium Falcon is tough enough to outgun the enemy.

The analogy may not be perfect, but one could not help but feel the drama, as the actors made their lines. When India’s environment and climate minister, Bhupender Yadav, made his intervention claiming that developing countries had their right to a “fair share of the global carbon budget”, it brought a large number of impassioned responses from island nations. The imagination recoiled in horror as the Marshall Islands negotiator, Tina Stege, described her brother phoning her the day before to speak of the king tide coming up from beneath his floor. As island states and Latin American countries piled on the pressure against India, John Kerry came across as a statesman, reminding everyone in the room that few people in public life get to make life and death decisions, as the plenary assembly was about to do. Despite the pressure, a compromise was reached and Alok Sharma, President of the COP, proposed wording that assuaged India. The world would be phasing down – not out – coal. Switzerland reacted angrily, and others complained about the process that allowed India to gazump a deal that most others felt had been agreed. Alok Sharma broke down, briefly – a human moment that felt fitting, as he apologised for the way that the process had played out. But by then the deal was agreed.

Today, much is being made of the change to that one word. But, from a practical perspective, its effect is nuanced. This is not to make the argument that it would not be better if the language on coal had been more definitive. But rather, it is to acknowledge reality that just like the Bible, one can read a wide variety of interpretations into the words. Those who were in the room (and on the phones) know what was meant in the moment. But, even as they return to their countries that memory will be fading. Other pressing demands will emerge, and soon they may be reassessing. Those that spoke duplicitously will do as they intended to. The sceptics will wait, wondering what will happen next. But for the true believers, there is only one path, and they will follow it. Mundus reckons that there are sufficient true believers that the path to climate action will be well trodden. The sceptics will follow it. And the world will change. If you are in doubt of whether the agreements in Glasgow will force genuine change, look at what Greenpeace is saying.

How quickly, we are not sure. Like the Glasgow negotiators who spoke of their fears for their children, we worry for the Marshall Islands and other South Pacific countries and their coral reefs. Some may not be saved in time. We truly hope that they are. But collectively humanity has probably dodged a bullet, and is going down a rational path of preserving ourselves. 

What would that mean for people in Stockholm, Seattle and Sydney? The reality is stark, for it implies change on a massive scale. Hopefully it will not all be bad change. But it will be disruptive. 

For businesses this represents both a huge threat and a great opportunity. The threats are numerous. Physically the climate may change, disrupting operations – like in Germany after last summer’s floods. National laws may change, undermining business models. Or companies may be overtaken by events, as one of multiple Kodak Moments. 

Standing still is risky. But for some, it may be very profitable, at least for a while. Governments may take years to legislate change into your market niche. And competitors may leave the market, increasing returns for those that remain. The oil majors are very obvious examples of this. 

Taking action also bears major risks. There is the risk of betting on the wrong technology. How many have tried carbon capture and storage, only to find the costs prohibitive? Or biofuels – for long seen as the natural inheritor of the oil industry, but forever unable to overcome economics and debates about food vs fuel and deforestation.

Diversification of options would appear to be a wise choice. Many companies are trying this. But even major multinationals struggle to do so effectively. There is only so much human resource to be shared around. If you disagree, have a look at how many car and truck manufacturers are simultaneously trying to develop both a leading electric vehicle solution and a leading hydrogen fuel cell alternative. 

Unfortunately, for many there are no easy decisions. Even if your short-term horizon looks good you are still probably worrying about the long-term. And if your short-term horizon looks bad (think component manufacturers for diesel cars), you really need to be considering all options on the table. 

It’s time to get religion

What does one do, when risks are multiplying on all sides?

When rationalism offers no clear guidance, we argue that it must come down to a question of belief. It’s better to die trying than to live in eternal fear. Curiously, we believe that this is a self-reinforcing part of the mechanism that is leading businesses to be (arguably) the greatest force for climate action in the economy. Consumers are apparently blasé, except for certain small market segments in the rich world. And governments seem to be perennially living in fear of the next election. But business prefers a stable environment to invest into. What do you do if your investment payback is measured in decades, but you are painfully aware that this government’s policies are only good for 3 to 5 years? 

Irrespective of any Minister’s assurances, science declares the clock to be ticking. Would you choose to invest in a fossil-fueled project today, knowing that by the time it starts producing, climate feedback loops may condemn it to be closed? Many businesspeople would not consider that a wise bet. And that is why business has gotten religious. It has inspected the science, believes in it and sees that it needs policy responses to overcome the twin challenges of unfair competition between firms with and without a carbon price and the legal requirement for executives to put the interests of shareholders first. 

Take as one example an article in the Financial Times from November 14, which quotes a number of business leaders demanding more. 

“John Denton, secretary-general of the International Chamber of Commerce, said a “concerted effort” would be needed in coming months to keep alive a target of limiting global warming to 1.5C.”

“Mindy Lubber, chief executive of Ceres, a US non-profit with an investor network representing $47tn in assets under management, said: “Investors and companies around the world showed that they support the goals of the Paris Agreement.” “But private sector action alone is not enough,” 

Nigel Wilson, chief of insurance and investment group Legal & General, said “the world is ever more convinced of the imperative on action and delivery”, while Siemens boss Carl Ennis said industries should “focus our efforts on delivering what we can do right here, right now”.  

Do these sound like people who are going to return to business as usual putting profits before the planet. Unlikely. As Ennis hints at, they will likely focus on doing what they can today on climate action. That includes taking small(ish) bets on developing new technologies and business models that are robust for the world of 2030, managing their existing business for profitability without overcommitting on unsustainable fossil investments and clamouring for much firmer policies.

Adversity makes strange bedfellows. Greta and her Friday for Future’s closest allies in the years ahead may well be capitalists.