FH Chronicles #1: The case for the business community at COP17

When trying to balance the conversation between government and business in terms of climate change mitigation, it is often helpful to look beyond how the markets function (or should function), and instead examine the policies that define these markets.

While consistency, a level playing field and government support through enabling policy frameworks are undoubtedly needed to ensure a properly functioning green economy, can big business just get on with it and – from a profitability angle – make it work, going solo?

Public-Private Partnerships (PPPs) are undeniably the green key to long-term sustainable success, but customers are often not willing to wait for a long and torturous PPP process before demanding new technology, smart infrastructure and other tools that will enable them to increase operational efficiency, save on energy costs, and undertake other activities designed to make them more competitive as well as greener.  Policy-makers who harbour a ‘hurry up and wait’ mentality will no doubt be left in the dust as businesses move forward and innovate themselves.

Yes, the race is on. A political framework and better agreements would certainly accelerate the change we so desperately need to bring about in this world. But business can achieve a great deal even without this framework. For example, the World Business Council for Sustainable Development (WBCSD will host a two-day Climate Change Conference at COP17. During that conference, it hopes to harness the strengths of its 200+ corporate members (with combined revenue of over $7 trillion) to thrash out solutions in advance of any big global agreement.

While it is true that there are other big players in society that need to change their ways, theposition of the political/business relationship is nevertheless central to the debate. Politicians, like business leaders, have broad agendas, and certainly other issues are clamouring for priority – with public finances topping most lists. Perhaps these issues have a lot more in common than first meets the eye.

Broadly, society is at threat following recent market failures and the subsequent recession in which most of us now find ourselves. Obviously this is the subject of considerable regulatory discussion, and the public will hold government and business accountable, should they fail to act. But at the same time, we can’t afford to take their eye off climate change as the major long-term threat to our societies.

If we look at the gains since the Earth Conference in Rio 20 years ago and the World Summit on Sustainable Development in Johannesburg a decade ago, there has actually been significant positive trend in the environment and social space – and more importantly, a growth in mind set and commitment to addressing the problem. We have firmly established that consumers, governments and businesses need to change their various ways. There is still much more to do, of course, but progress is being made.

But what role does the investor community play in aiding sustainable growth? With the financial system still strongly biased towards delivering short-term gains,  is there room for it to play a role in ensuring  a sustainable future (not futures) market?

Listed businesses are easily trapped in a cycle of quarterly reporting and short-term forecasts by an investment community not supportive of costly adaptation programmes. In fact, the average shareholding in any company on the New York Stock Exchange is currently four months – that doesn’t smack of committed investors, does it?  
Have a look at http://bit.ly/sRVpK8 for more of this revealing data.

Does short-term capitalism need controls instilled?  

Without investor support, listed businesses would perhaps need to adapt under the sword of rebellion, which is not viable. But private equity firms are starting to outperform public companies. Their vision is not blurred by the flurry of daily stock market movements, and instead focuses on building value within their portfolios. This could well be a blueprint for enlightened investors – not least because, in 2010, the top 100 companies in the Newsweek “Green Ranking” outperformed S&P’s 500 Index by 6.8 percent!

It would perhaps be fortuitous for businesses driving adaptation agendas to engage with responsible pension funds bearing long-range liabilities and shouldered by hefty assets under management. These funds, by their very nature, share a longer-term perspective on creating a better world.

In the growing debate about who gets to decide about the future of the corporation, enlightened investors would be wise to place their bets on companies with a long-term sustainable vision!!!