Opinion & Analysis
Good companies make their future. They spot opportunities, lead change and thrive. In the same way, smart economies and strategic countries prosper too.
OPINION: This would be New Zealand's wealthy and resilient future if we applied our considerable advantages in renewable energy, biological sciences and market economics to playing our role in meeting the world's greatest challenge - climate change.
The UN's latest study on climate change leaves no doubt about the monumental risks human kind is running. Even a temperature change of less than 1°C so far is already causing fundamental shifts in the planet's climate.
If we are to stand just a 50 per cent chance of keeping temperature rises to 2°C, the global economy can emit a total of no more than 820 billion to 1445b tonnes of carbon dioxide and other greenhouse gases over the next 100 years.
At current rates of fossil fuel use, that is only 15 to 25 years of business as usual. But emissions keep growing, so we're blowing the carbon budget faster. Time has almost run out.
"It is this brutal arithmetic that should persuade companies, communities, cities and nations to seize the opportunities for sustained and sustainable growth offered by hastening their transition to a low-carbon economy," Lord Stern, the distinguished British economist, wrote recently in the Financial Times of London.
"Everywhere evidence is emerging of opportunities afforded by new energy sources that are more efficient and less polluting. No investor should fail to be impressed by how rapidly the costs of solar photovoltaics and other technologies are falling. Trillions of dollars of investment will be needed, but this will unleash decades of growth at a time when there is slack in many economies and interest rates are low."
The vast majority of major global companies also understand the dangers of inaction. In their reports to the Carbon Disclosure Project, 83 per cent of them say their businesses are at risk from the changing climate. Factors include the increasing frequency and severity of business disruption caused by extreme weather, and the loss of asset value caused by changing technologies, markets and regulation.
Unwisely, global stock markets value oil, gas and coal companies on the assumption they can sell all their reserves. But those reserves are at least twice as large as all the fossil fuels that could be burnt under the world's carbon budget, according to Investor Watch of the UK, which runs the Carbon Tracker study of the world's 200 largest stock market listed oil, gas and coal companies.
"Unburnable carbon 2013 - Wasted capital and stranded assets" is its latest report, available at www.carbontracker.org/wastedcapital. Its partner was the Grantham Research Institute, an offshoot of the London School of Economics headed by Lord Stern.
HSBC, the global bank, estimates that the equity valuations of fossil fuel companies would fall by between 40 per cent and 60 per cent once investors see low emissions scenarios taking hold in the face of market forces and government regulation. Similarly, Standard & Poor's says the bonds of fossil fuel companies are also vulnerable to ratings downgrades as their profits and cash flow begin to diminish.
Fossil fuel shares underperformed global stock markets by 1.2 per cent from January 2008 until March 2103, according to analysis by MSCI, the world's leading provider of stock market indices.
To help drive better understanding of the opportunities from responding to climate change, and the costs of not, a group of governments has established the Global Commission on the Economy and Climate.
The key countries are the UK, Norway, Sweden, Indonesia, South Korea, Colombia and Ethiopia. Commissioners include Paul Polman chief executive of Unilever, the global consumer industries company, and Helen Clark, head of the UN's Development Programme.
The "New Climate Economy" is the Commission's first project. Lord Stern and Felipe Calderón, a former president of Mexico, will lead the work, due for completion next September.
"We need urgently to identify how we can achieve economic growth and job creation while also reducing emissions and tackling climate change," Calderón said at the project's launch last month in New York.
A highly encouraging view on how the world achieves all this over coming decades is offered by Sir Jonathon Porritt, the British sustainability leader, in his latest book "The World We Made: Alex McKay's story from 2050."
Extrapolating from existing new and better technologies, and economic and social trends already apparent, Sir Jonathon describes how human kind solved many, but not all, of the increasingly intense climate and other sustainability challenges affecting us now and deepening fast.
Business is already playing a leading role, and will become even more important, he argues. "Progressive businesses are getting better and better at this," was one of his messages to audiences in Wellington and Auckland last week.
"But businesses should be really cross about bad regulation and bad markets," he added. The full benefit of shifts to new energy sources, clean technology, new sustainable use of water and land, more productive agriculture and other transformations will be achieved only if governments play their critical role in enthusiastic, strategic and long-term ways, he added.
Sir Jonathon also warned "countries with abundant natural resources get lazy."
Sounds like us. In the past, we always had plenty of cheap land, labour, fertiliser, water, electricity, coal, gas and imported oil to earn a living from low value commodities. But these days, price, supply and environmental signals from all of those factors of production are telling us our economic model is hitting its limits.
We could become a world leader in the science and production of sustainable food and biofuels , two critical components of a low carbon economy and a responsible approach to climate change.
But our government and most businesses believe the future will look much like the past. Their policy settings and corporate strategies seek to defend our past rather than build our future.
Disclosure: Rod Oram is chair of the Hikurangi Foundation, which brought Sir Jonathon to New Zealand last week with the help of the Sustainable Business Network, the Sustainable Business Council and Oxfam.
- Sunday Star Times