Making Climate Companies' Business

This piece originally appeared on the website of the World Resources Report.

This paper argues that private sector support of adaptation efforts will be contingent on the strength of the business case to commit time and resources for long-term climate resiliency. The “private sector” is highly fragmented with diverse specialties, interests, resources and capacities. Fully understanding the characteristics of businesses in any given jurisdiction may help policymakers to better target which private sector actors to engage and learn which types of policies may create a conducive environment for facilitating private sector support of governments’ adaptation needs. National governments must clearly identify those business sectors or companies that can best support their climate change adaptation objectives.

Introduction

Responding to the impacts of climate change may carry a price tag of $28-$67 billion for developing countries, which will require a significant investment from both the public and private sectors.^1,2 As governments seek to mobilize resources to increase national adaptive capacities, some will seek to engage the private sector as a critical partner. There is good reason for this. The private sector has expertise implementing infrastructure projects that can support adaptation efforts, like constructing sea walls or executing water conservation strategies. Companies have additional research expertise that can be harnessed to develop new technologies, respond to risks and opportunities, and drive capital flows to adaptation investments more quickly than the public sector.³ Companies also support the economic vitality of the communities where they operate through employment and the provision of needed goods and services. As such, they are critical stakeholders in securing the resiliency of local markets.

Private sector support of adaptation efforts, however, will be contingent on the strength of the business case to commit time and resources for long-term climate resiliency. To this end, governments may be able to develop a portfolio of policy options that create incentives for companies to develop strategies that support adaptation priorities, along with appropriate tools to discourage business activities that may not be well-aligned with the public good.

Designing an effective strategy to engage the private sector will require governments to carefully identify their needs and potential business partners. Delineating and aligning interests for mutual benefits will help national governments focus efforts and effectively engage private sector partners.

Identifying potential private sector partners

While the “private sector” is often referred to as a homogenous unit, it is in reality highly fragmented with diverse specialties, interests, resources and capacities. Fully understanding the characteristics of businesses in any given jurisdiction may help policymakers to better target which private sector actors to engage and learn which types of policies may create a conducive environment for facilitating private sector support of governments’ adaptation needs.

Small and medium enterprises can be critical partners in the provision of goods and services needed by local, poor communities.⁴ In China, 22 million town and village enterprises comprise 30 percent of GDP.⁵ Policies specifically targeted at growing these small and medium enterprises can be tailored to also meet government adaptation objectives.

Some companies – like those in extractive industries – may be highly dependent on local resources and thus may be motivated to become long-term community and government partners. In Mozambique, BHP Billiton’s aluminum operation was adversely affected by the high incidence of Malaria among employees. The company partnered in a government program – the Lubombo Spatial Development Initiative – to control the disease locally, thus improving the company’s productivity and supporting the health of the community.⁶

In climate vulnerable regions, governments may benefit from identifying domestic or foreign solution providers for a specific adaptation need. Providing supportive conditions to promote investment by those companies in the region could build a local cluster of expertise that provides regional competitive advantage. Singapore has become a center of excellence for the water purification industry due to its early recognition of water management issues and consequent investment in associated research and development, which creates an attractive environment for private sector experts in field.⁷

Aligning public and private sector interests

Strategically engaging the private sector may provide valuable allies for governments to meet their climate adaptation goals. A key step to this engagement is to understand where public and private sector interests may align. In the positive alignment case, adaptation activities both supply a public need and meet business objectives.

• In a changing climate, there is a growing market demand for solutions that deal with weather stresses in the agricultural sector. Chemical company BASF is supplying customers with stress-tolerant plants, which in turn helps improve local yields of food crops like corn, soy and wheat that are exposed to extreme weather conditions.⁸

• Fresh water supplies are critical to effective climate adaptation in many regions. Siemens, in recognition of this growing market need, is working with the Singapore government to supply fresh water to its citizens with sales of a cost-effective wastewater purification system that meets World Health Organization (WHO) standards. The plant in Kranji is expected to meet 20 percent of the city’s water needs by 2012.⁹ Water-scarce Singapore is dependent on imports of fresh water from neighboring Malaysia.¹⁰ Developing domestic capacity for supplying water to citizens, improves the country’s water security while also building a market attractive for private sector innovators.¹¹

• Meeting energy needs with clean distributed power resources is a critical component of climate-resilient development. Sunlabob, based in Lao People’s Democratic Republic, has established an enterprise to provide off-grid solar, hydro and biomass energy profitably to rural areas. In doing so, energy access is improved and local entrepreneurs receive training to install and service the technologies, helping to diversify local employment, another need in many communities that may lead to enhanced adaptive capacity.¹²

These win-win examples benefit both public and private interests. Creating incentives to encourage these types of actions and investments can form the basis of a government policy package that leverages private sector resources. Incentives may be in the form of tax breaks for those companies that provide needed services to vulnerable communities or fast-track permitting for beneficial land use or operations.¹³ Governments may also be able to support the growth of new markets by guaranteeing sales through government procurement contracts, or providing targeted workforce development programs.

However, not all private sector adaptation actions, even if well-intentioned, support the public good. In a negative alignment scenario, companies may invest in local infrastructure or irrigation projects but employ foreign instead of local workers, thereby denying local employment opportunities and weakening their capacity to adapt to a changing climate. In some countries, land rights are informal; thus, local people can easily be marginalized and lose their livelihoods when private companies take over the land.¹⁴ Local food production can be impaired by natural resource constraints, which also may be exacerbated by the changing environmental conditions brought by climate change. To improve domestic food security, some public and private sector actors have invested in land in other countries to grow food crops, a practice which can dislocate local people, or limit or eliminate their access to the land and its resources.¹⁵ It also may be necessary to prioritize or balance the objectives of any given intervention. For example, private investment in 900,000 hectares of land in Argentina has bolstered conservation efforts but also has resulted in the dislocation of local people and the loss of livelihoods.¹⁶ Finally, some private sector responses to climate change impacts could be directly counter to the public good. If a company is forced to relocate their facilities in the face of climate change impacts, for example, lost jobs and revenues could exacerbate community vulnerability. In other cases, corporate operations in a community may run counter to that community’s well-being. For example, in some areas, poor quality, and thus cheap, land that cannot sustain year-round production is being put into continuous commercial use by companies, further exacerbating declining subsistence uses for local people.¹⁷

A full understanding of the potential long-term climate and societal risks associated with investments and other private sector activities will help governments to discourage actions that are inconsistent with the public good (such as those described in Chart 1). Collaboration with civil society groups can enhance community representation and help improve transparency, knowledge-sharing and the inflow of expertise to public policy decision makers.¹⁸ At the same time, encouraging private sector participation in adaptation policy discussions can improve policymakers’ understanding of private sector needs and promote greater engagement by the private sector in implementing government adaptation objectives.¹⁹

Chart 1: Illustrative examples of how business action could affect the adaptation of vulnerable populations. Based on examples discussed in Making Climate Your Business, WRI 2009

Conclusion

To engage the private sector effectively in strengthening communities and ecosystems ability to adapt to climate change impacts, national governments must clearly identify those business sectors or companies that can best support their climate change adaptation objectives. Potential partners may include multinational companies with expertise in needed goods or services as well as domestic small and medium enterprises that may be well-positioned to serve local communities. Consulting with a range of civil society actors can improve community participation and buy-in for government efforts, as well as bolster government knowledge of constituents’ needs. Decision makers also must recognize and align to the extent possible diverse, and sometimes divergent, public and private sector interests. Ultimately, they will need to balance these interests so that creative solutions to climate change impacts can be encouraged and those that are counter to the public good can be discouraged.

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