Driving Transformative Change: The Role of the Private Sector in Advancing Short-term and Long-term Signals in the Paris Climate Agreement
The upcoming decisions at COP21 present an opportunity to put our global community on the right path, providing appropriate short-term signals for investors and innovators as well as a strong long-term signal that guides the phase out of greenhouse gas pollution. The private sector can play a large role in shaping this outcome, and should be interested in doing so, given the significant potential benefits.
The risks and opportunities involved in addressing climate change are becoming better understood in cabinet and board meetings around the world. This is leading to an increase in both the number and ambition of countries’ climate action plans and a shift from high- to low-carbon investments in corporate supply chains. The private sector is also taking more aggressive climate actions than before, such as the adoption of emissions reduction targets, programs to improve energy efficiency, and fuel switching to renewable energy sources. However, the pace and scale of these changes are not yet enough to avoid serious disruption in the decades to come. Indeed, there is a risk that the current incremental approach of our transition to a low-carbon economy is camouflaging the scale of emissions reductions that is necessary, and lulling society into the belief that we are taking sufficient action. Rapid and transformational solutions will either be embraced or forced upon us.
In this context, private sector actors will need to consider whether they want to be disrupted and left behind, or be the disruptors who take proactive actions to grow into the change and benefit from new opportunities. Investors will increasingly seek out those companies that are taking the latter approach. Literature shows that companies’ engagement and action on climate change is becoming a defining factor in their business performance, affecting the flow of investment.
For the international community as a whole, the question is whether it will make the changes required to transform our approach to the challenge now, proactively, or whether it will take the more painful route of doing too little now and facing the prospect of abrupt, costly, and risky change later.
The clarity and predictability of future changes will be fundamental in avoiding the disruptive pathway. Currently there is no “north star” or clear policy signal coming collectively from governments to the private sector or to citizens about the change that can be expected in the coming decades. Experience shows that short-term and long-term policy signals are critical to catalyzing action and shifting investment patterns, whether toward a different form of energy or a different type of food product. Empirical examples also indicate that it is in the private sector’s best interest to support the development of clear and predictable policy signals.
The upcoming negotiations in Paris provide an opportunity to secure such policy signals. In the case of short-term signals, the Paris agreement can include a mechanism for regular strengthening of country commitments, for example every five years. These commitments can also be guided by a long-term policy signal, or an agreed upon goal, that provides direction for the scale and rate of emissions reductions.
While the outcomes of the Paris negotiations are relevant to all countries, cities, and citizens, this paper focuses on those elements of the Paris Agreement that are of specific relevance to the private sector and its potential role in incorporating rational and clear signals in the agreement. The paper is organized as follows. Section I provides a brief summary of the current scientific literature on the consequences of delaying climate action. Section II describes the role of the Paris Agreement in providing adequate short- and long-term signals that can drive the transformation to a low-carbon economy. Section III describes why short- and long-term signals are in the private sector’s best interest. Section IV concludes with a description of what role the private sector can play, including (1) shaping policy outcomes in the Paris Agreement to secure strong short- and long-term policy signals, and (2) taking steps internally that are consistent with the changes that governments should be making—adopting short- and long-term internal targets consistent with a phase-out of emissions. The Annex includes a short literature review of the feasibility of an accelerated pace of change.