Comment: Global business responses to climate change

By Christopher Wright and Andy Hoffman, University of Michigan

Despite the widespread scientific consensus regarding anthropogenic climate change, ideological rhetoric dominates the global political discourse. This is preventing the development of clear policy frameworks that companies need for long-term investments. In spite of this, there are signs of progress at the international, national and corporate levels.

A growing number of countries, or states within them, are instituting measures to price carbon emissions. By the end of 2013 an estimated 850 million people will be covered by a carbon price, including China and US states such as California (the ninth largest economy in the world). Further, associated policies like automobile, appliance and building efficiency standards and Renewable Portfolio Standards are proliferating.

There has also been a recent increase in political attention to climate change. For example, in response to the unprecedented flooding of New York City by Hurricane Sandy last October, elected officials such as New York City Mayor Michael Bloomberg, publicly pronounced the need to get serious about climate change, a sentiment echoed more recently by President Obama in his inauguration and State of the Union addresses.

Yet, despite having endured the hottest summers on record, more bush and forest fires and record floods, climate change remains a “wedge issue” on both sides of the Pacific. In Australia, while the Gillard government succeeded in introducing a price on carbon through the recent Clean Energy legislation, there is considerable uncertainty as to the longevity of this reform, given Opposition leader Tony Abbott's “blood oath” to repeal the “carbon tax”.

This mixed political landscape in the US and Australia all adds up to continued regulatory uncertainty for businesses over the pricing of carbon emissions and energy policy more broadly. This is a critical issue for business, particularly those in the energy, resources and manufacturing sectors looking to make infrastructure investments that can last decades.

However, despite the regulatory uncertainty, research into business responses to climate change in the US and Australia suggests there is reason for hope. This will be explored during a symposium on 'Climate Change: Generating Business Responses' to be held at the University of Sydney on March 21, which shows that many of the world's major companies actively engage with this issue by seeking to mitigate emissions and adapt to the changing market and physical consequences of our changing climate.

Examples include global manufacturers which have profitably developed new 'green' products and services (e.g. hybrid and electric cars, high capacity batteries, wind turbines, solar cells and more efficient jet engines). Major financial institutions now include 'carbon risk' in their lending practices and mark down enterprises that fail to manage these risks. Virtually every company in the construction sector offers green construction materials and supplies. Energy companies are diversifying into renewable electricity generation such as wind, solar and geothermal. And perhaps most directly impacted, insurance companies now focus explicitly on the physical and financial risks of more frequent and intense storms, floods and fires.

Taken together, these responses represent a future for a more sustainable and prosperous global economy no longer tied to last century's out-dated fossil-fuel dependence. The fact is that markets are shifting, leading us through an energy renaissance where we are beginning to think about energy and our impact on the global climate in an entirely new way.

While important, such corporate innovation also requires a clear regulatory structure to thrive and prosper. Changing markets and corporate action on their own will be insufficient to generate the type of economic transformation needed to meet the challenges of climate change. The accelerating Arctic melt and projections of 4-6 degrees Celsius average temperature increases this century highlight that this is a crisis of an unparalleled kind. As has been the case historically, in times of crisis, governments and regulation, developed in cooperation with the market, are essential in creating the policy infrastructure for fundamental economic and social change.

Government must continue to set the conditions that will advance the energy renaissance already underway. Companies need sound energy policy to secure stable, long term energy supplies; they need sound and predictable technology policies to plan investment; they need clear and coherent industrial policies that recognise we operate in a globalised marketplace competing against countries that heavily subsidise their domestic industries; and they need a knowledgeable consuming public that can make informed purchasing decisions.

The current political scrabble fails to do justice to what we are truly capable of. Building a platform for policy clarity and greater business innovation is crucial if we are to meaningfully rise to this challenge.

Andy Hoffman is in Australia as a guest of the University of Sydney Business School and the United States Studies Centre.

The symposium 'Climate Change: Generating Business Responses' will be held at the University of Sydney on Thursday, 21 March.

Christopher Wright receives funding from the Australian Research Council to research business responses to climate change.

Andy Hoffman does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.