​Profiting from ‘green’: Why businesses need a low-carbon agreement

The rules of the game are changing and business-as-usual is no longer an option.

By Matt Finch

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We mere mortals of the general public sometimes forget why businesses exist.

Companies, and big business are long term profit maximisers. Money matters trump all others. Return on investment - ROI - is a magic acronym that holds special powers overs investors. If something is the right thing to do, but costs too much, it won’t be done.

This is engrained in the culture of business. It is so established as to be hegemonic. Companies exist to provide returns to their owners and this is THE fundamental rule.

All people reading this who work in business take this as such a given, they may be surprised to actually be reading it. All non-businessey types may be equally surprised at what I’ve just said, but for exactly the opposite reason - they will be scratching their heads asking the question “surely there has to be some social responsibility in businesses?”

Money matters trump all. Image: Got Credit, Creative Commons licence
Money matters trump all. Image: Got Credit, Creative Commons licence

How do I know this? I’m lucky enough to have worked in both worlds. I set up a business, and, like all classic business stories - started it in my bedroom. When I sold up it had a turnover of £7m, 45 staff and a killer Christmas party every year.

It was in the investment banking world, and I assure you, everyone who worked for me, everyone who worked for my clients and everyone who worked for my competitors had one ultimate focus - money.

This focus can have some strange effects. Businesses follow the money, and they can and will change direction if that’s where the money is.

Mobile Phone Giant Nokia started off life manufacturing paper. Teflon cooking pan company Dupont was originally an explosives company. Avon sold books (cosmetics were originally simply a ploy to entice women to buy more books).

Now, why am I explaining this? Simple. Businesses do not, and never will under the current paradigm, put environmental concerns above financial concerns.

But if the rules of the game change, businesses will adapt.

Image: Pictures of Money, Creative Commons licence
Image: Pictures of Money, Creative Commons licence

And clever businesses know that the rules of the game are changing at a blistering speed. The shift in the energy system and the moves towards the electrification of the personal transport system mean the future will look very different from the past.

Potential disruptive companies are everywhere. Globalisation changed the world. Now technology is doing the same again. Think Google and cars, airbnb and hotels, uber and taxis. Potential stranded assets - three words that strike dread into an investor - are also everywhere.

In business terms a stranded asset could be anything - investment by a factory owner in new machinery that becomes surplus to requirements, land that a hotel chain has bought and now doesn’t have the funds to build a shiny new hotel on, or ownership of the rights to exploit a known coal seam / oil field which will become illegal or uneconomical to exploit (highlighted in ample detail here by Carbon Tracker).

Business-as-usual is no longer an option, and clever companies know this.

Not all big business is clever though. The very essence of business is competition and the survival of the fittest. The best companies are those that can adapt quickly and efficiently to a constantly changing world. This is generally considered good, as competition encourages innovation, improves customer service and encourages best practice.

Kodak failed to see the change coming. Image: Bethan, Creative Commons licence
Kodak failed to see the change coming. Image: Bethan, Creative Commons licence

This produces winners and losers, and there have always been losers. Famously, Kodak invented digital photography, but decided it wouldn’t catch on. They went bankrupt. Hovercrafts no longer cross the channel because we built a tunnel underneath it. Blockbuster missed the move to digital, and the last of its physical stores closed a few years ago (and they were obviously just one casualty of the internet age).

History will show that coal-focussed companies will fall into this category. Energy and Climate Secretary Amber Rudd spelled the imminent end of UK coal just a couple of weeks ago.

Peabody Energy, the world’s largest private sector coal company, was formed in 1883. As recently as 2008 it was named by Fortune magazine as one of America’s most admired companies. And since then? Its share price has slumped more than 85% in the last 2 years.

What does the future look like for these companies? Unless they change their business models pretty quickly, it’s bleak. Extinction beckons. Should we pity them? Competition and business theory would suggest the answer should be a resounding “no”.

Just a few years ago, IKEA sold halogen and incandescent lightbulbs. Now it has flipped to only selling LEDs. It is a great example of a clever company that has positioned itself to be best placed to comply with future government policies influenced by the Intended Nationally Determined Contributions, the climate pledges that almost every country made before the UN summit now taking place in Paris (and don’t forget that in about a week, the word ‘intended’ will be an anachronism).

The cleverest companies are actively trying to influence those national policies to reflect the developed world decarbonisation trend. They are positioning themselves to be in prime position, to ensure first mover advantage is theirs.

This is exactly what We Mean Business - a coalition whose advisory board includes representatives from Kingfisher, Nike, Starbucks, Unilever and HP - has done by releasing detailed policy wording on proposals that they would like to see in the final Paris agreement.

These proposals, or ‘Asks’, as they call them, include amongst others:

  • wanting net zero greenhouse gas emissions well before the end of the century
  • enacting meaningful carbon pricing
  • and having a clear ratchet mechanism that increases ambition every five years.

In other words, We Mean Business wants to see further decarbonisation faster, and clear, credible long-term policies from governments on how this will happen.

We Mean Business has been clever. Its asks aren’t just a general calls to arms. Instead they contain specific wording around eight specific text proposals. The wording mirrors the forms of words found in UN documents, and the asks have been reflected in texts discussed during the UN climate negotiations. This is an innovative approach from the business world that sends out a clear signal - business wants a low carbon future.

Smart big business knows that we are firmly on the path to decarbonise our economies, and that it’s no longer a question of if we get to net zero, and even zero emissions, but when. Financial concerns are aligning with environmental concerns. And if that benefits us mere mortals, then that’s surely a win-win all round.

Photo courtesy of CheapFullCoverageAutoInsurance.com via the Creative Commons license.

When environmental and financial concerns are aligned, everybody wins. Image: Frits Ahlefeldt, Creative Commons licence
When environmental and financial concerns are aligned, everybody wins. Image: Frits Ahlefeldt, Creative Commons licence