The Next Economy
Will Paris Signal a Sunnier Climate for Low-Carbon Economics?

Next week marks the start of important climate negotiations in Paris – the aim of COP21 is to deliver a new international agreement that will put the world on track towards a low-carbon future. The feeling in the air is one of optimism – there are high hopes the agreement could go beyond its intended diplomacy and act as a historic catalyst to drive real leadership on the issue.

Significantly, investors are beginning to realize that action on climate makes good financial sense. A briefing paper released through the We Mean Business coalition points out that 277 companies with $6 trillion in revenue, and 144 investors with $20 trillion in assets under management, have collectively now made nearly 700 ambitious climate commitments.

The main thrust of the briefing paper is calling for a series of proposals to be included in the text of the Paris agreement to help unlock further flows of finance. These include a goal of net zero greenhouse gas emissions well before the end of the century, the strengthening of national emissions reduction commitments every five years from 2020, robust carbon pricing, and enabling policy levers to scale up private climate finance.

Yesterday at a breakfast meeting in London, UK, hosted by The Climate Group (one of the founding partners of We Mean Business), Sandrine Dixson, director of the Prince of Wales’s Corporate Leaders Group, said she felt confident that the forthcoming talks in Paris would reflect a new, motivational tone.

“What’s going to happen in Paris is a very different type of deal,” she said. “We have already nationally determined commitments from countries and we will have, we think, an ambitious commitment internationally to implement those nationally determined commitments.”

Dixson told delegates that global debate was shifting from the environmental aspects of climate change to making the case for hard economics. “Paris is not the end game, but only the beginning of implementing, of working together. The fact is that we need to make sure that we come down to 2 degrees, we need to make that real, and with business investment community … I think most of us very much believe that can happen.”

Echoing this, eminent climate economist Nicholas Stern said that business leaders were now seeing the growth story of the future. “They are doing well for themselves while doing good for the world,” he observed.

Stern added that he felt positive for prospects in Paris. “We can see now that we can have better growth, better climate, and that if we don’t have climate responsibility, we undermine growth. The old artificial horse race between climate responsibility on the one hand, and growth on the other, is now subsiding below the surface of public understanding.”

However, scaling up low carbon growth will require effective pull measures to help release more capital. “The world has lots of savings, what it doesn’t have enough of is investment demand. It has lots of investment opportunities, it needs more investment demand and that requires policy, and the financing of that investment demand will involve innovation,” Stern said.

Donald MacDonald, chair of the Institutional Investors Group on Climate Change, underlined the fact that any agreement reached in Paris must ultimately drive finance. “Institutional capital is critical in driving the low carbon transition,” he told delegates. “What we need from Paris is for the political leaders to agree a deal that will give long-term policy signals.”

Switched-on business leaders are already investing heavily to accelerate the transition to a low carbon economy. Earlier this year, IKEA Group announced it was committing more than $600 million to various renewable energy projects as part of a wider drive to become energy independent.

Speaking on the panel, IKEA’s chief sustainability officer Steve Howard said this type of business innovation, twinned with effective government policy, would save the day. He emphasized that international climate talks were now about “opportunity sharing” rather than “burden sharing” and said Paris had the potential to be a watershed event that could signal the end of a high carbon economy and the start of a cleaner energy future.

“It’s clear now that the future isn’t about sacrifice,” he said. “In three weeks’ times we’re all going to be getting on with building a new economy.”