Green New Business Deal

The cost of climate change has the potential not just to decimate our natural environment and resources, but to impact our health, destroy communities, reduce productivity and threaten the global supply chains that buoy our collective wealth. As signatories to the United Nation’s Paris Agreement, the United Kingdom has pledged to do its part to ensure that the global temperature does not rise more than 2 degrees Celsius above pre-industrial levels.

If you think this is just about ditching plastic straws and carrying a KeepCup, it might be time to take a deeper look into the causes. The Climate Accountability Institute just released data demonstrating that since 1965, 20 companies alone have contributed to 35% of all fossil fuel released worldwide. Private industry can no longer ignore its contribution, but this also means it has the power to be the solution.

It’s not just Greta Thunberg sounding the alarm. The governor of the Bank of England, Mark Carney, has repeatedly warned British banks about the existential threat posed by climate change, urging the financial sector to lead efforts to tackle global warming. Carney argues that if the financial sector fails to adjust to the prescient threat of climate change, “they will fail to exist”. The environment is inextricably intertwined with economics – with climate change promising to bring more extreme weather, greater natural disasters, agricultural changes, less predictability and growing resource and water scarcity.

Whilst Mark Carney has been snubbed by some as a ‘doomsdayer’, I believe his warning is at the right level of hysteria to convey the enormity of the threat. Climate change cannot be tackled by the public sector alone; it is far too complex and unrelenting, and it needs the private sector to step up and push for a sustainable economy.

Why We Shouldn’t Wait for Government

As the biggest contributors to global warming, combating climate change should be industry led. Politics has always been slow to react. This is in part by deliberate democratic design: legislation is intended to be thoroughly vetted, debated and scrutinised before it is voted on, to ensure it will be beneficial to a nation. That way, society isn’t at the mercy of the whims of the political elite.

However, it has also made government’s ability to deal with prescient issues incredibly cumbersome. It’s why smoking wasn’t banned until the mid 2000s when we knew of its negative health impacts for decades. It’s why we still don’t have effective regulation of social media companies or AI. It’s why no Brexit bill has been able to pass through parliament despite repeated promises (although some might argue this is not such a bad thing).

In the US, the potential for a “Green New Deal” has been dominating environmental policy discussions. This includes a suite of economic policies aimed to face into the billowing climate change headwinds and meet humanity’s greatest existential threat. So much of this focus has been on lobbying the government to put in meaningful legislation and waiting for change to be forced upon us.

Really, why should we wait for governments to tell us how to act? Deals are an integral part of the financial services wheelhouse – so I propose we meet the threat of climate change with a Green New Business Deal.

Industry Driven Action

The major action financial institutions can take is simply to put their money where their mouth is: they need to mobilise capital to ensure that the world can finance green solutions “with the determination and focus that is so badly needed”.

For too long, pro-business has been synonymous with anti-environment. Creating a ‘green economy’ will not only help the planet in the long run, but it can pay short term dividends. A Cambridge University environmental risk analysis of financial institutions found that while some innovation is happening in the sector, it is not mainstream practice and occurring only at the margins. We need to stop seeing climate change as a green-hippie-fantasy movement, and start framing it as an economic issue. At this rate, a heatwave in 2019 would be a cool summer in 2080.

There are so many ways financial institutions can impact change, from the investment decisions that they make to the internal culture that they develop:

• identify and invest in areas that can contribute positive value to the natural world
• divest away from fossil fuel industries
• fund sustainable start-ups that are seeking to find innovative solutions to environmental degradation
• define more stringent criteria for when to use or fund finite resources
• change metrics used to measure success, away from only revenue gained and towards integrated valuation models
• advocate an internal culture and company values that puts environmental concerns front and centre

These are just starting points, but to be truly effective, the financial services industry should undertake a full review of their entire value chain, everything from the office space they take up to the loans they finance to the customers they take on. Finance needs a green revolution – environmental costs need to be a central calculus of business decisions.

Progress is being made in other sectors, particularly the energy industry– last year, UK greenhouse gas emissions were reduced by 43.5% from their 1990 levels,  largely from switching energy sources away from coal and to more renewable sources. Notably, in 2017 the UK went a whole day without coal power, and it has aimed to phase out coal power plants by 2025.

However, for any solutions to be sizeable enough to enable significant change, it will require the support of financial institutions to become economically viable.  

Much like that cough you seek to diagnose over the internet, a quick Google search of the impacts of climate change should scare us into acting quickly. I’ll leave that part up to you, and instead contend that the opportunity is ripe for the financial services to bankroll an innovative, environmentally sustainable economy.