The private sector can be the engine of the low-carbon revolution
When Al Gore made An Inconvenient Truth in 2006, he pointed to the fact that the Chinese characters for “crisis” signify both “danger” and “opportunity”.
In the years since, the conversations around tackling climate change have often been framed by what industries and governments stand to lose in the immediate future by acting.
Advocates have been passionate in pushing the advantages of energy efficiency and green technologies, while calling on governments to shift to an economy less dependent on fossil fuels. But the long-term risk of doing nothing has sometimes been overshadowed in these debates by the immediate cost of taking action.
However, something interesting has happened over the last year: the bears have gained dominance over the bulls. The biggest drivers of stock markets remain the twin emotions of greed and fear, and fear is beginning to gain the upper hand. Slowly but surely, the fossil fuels divestment campaign has snowballed to the point that climate is now top of the agenda.
As asset managers analyse the long-term forecast for oil and gas companies, those worried about being the last person standing in these asset classes are now selling out. While we will continue to depend on fossil fuels for the foreseeable future, asset managers are looking ahead, valuing tomorrow’s demand in today’s prices.
This new concern, not to be left with stranded assets, is driving up the cost of capital for traditional energy companies and carbon-intensive industries. This has made it more difficult to raise money and has depressed share prices.
The other side of the coin is that the interest from asset managers in climate and environmental, social and governance (ESG) factors has increased too. This is encouraging for those who advocate a rapid transition to a low-carbon economy.
It’s going to take a lot more than just wiping off the value from a few energy stocks to shift the world economy, but it’s a start. The ability of business to innovate when entrepreneurs put their minds to it is immense.
We can already see how markets have been transformed over the last few years by the work of companies such as Tesla and Bank of America, which in 2019 committed $300bn by 2030 to sustainable business. I’m confident that we will see many more low-carbon leaders emerging in the 2020s.
Governments too should draw confidence from the escalating shift in market sentiment towards the low-carbon economy. Now, they must set more ambitious long-term targets for business and industry.
Back in 2008, when the UK passed the world’s first Climate Change Act and set legal targets to reduce emissions by 80 per cent by 2050, very few people held real confidence in how this would be achieved. But many, like me, knew that we had to get there.
Since then, we in the UK have made remarkable progress — carbon emissions have now been reduced by over 46 per cent and the decarbonisation of our energy system has led the world. Now we must go much further and take the decarbonisation agenda to the rest of the economy.
Nevertheless, the vital first step is to be transparent about the scale of the problem. Too many industries are still too coy about revealing the true nature of their carbon footprint, perhaps worried that either consumers or investors will shy away if the truth is revealed. The private sector needs to set ambitious, long-term targets, and be honest about the scale of the challenge.
Every government, every business and every individual must do more to achieve this transition, rather than patting ourselves on the back for what’s been accomplished so far. Ambition, collaboration, innovation and partnership must drive the climate agenda.
But the recent shift it attitudes in banks and boardrooms across the world shows that the private sector can be the engine — not the enemy — of the low-carbon economy.
Main image credit: Getty