What Summit? COP21 and its impact in the real economy

Image by Cranfield University

(Image by Cranfield.ac)

H+K recently hosted climate change experts E3G for a breakfast briefing on the COP21 summit that was attended by businesses from a range of sectors. Rightly, it’s not just the energy companies keeping a close eye on the negotiations. The consensus in the room was that the negotiations are significant but many were unsure about how and when exactly it would impact their businesses.

The immediate answer is it won’t. You will not see petrol stations rationing supplies if the world commits to a 1.5 degree rise or the exodus of businesses from low lying lands if a 2 degree target is missed. Like the problem of climate change, COP21’s impact will trickle into the real economy over time.

The agreement that will be reached will not be overly prescriptive in how reductions, however large or small, are made. It will not order supermarkets to switch to energy saving light bulbs or oil and gas companies to stop exploration. COP21 will set in place a (nearly) binding agreement that nation states must fulfil at the national level. Each will go away to their respective legislatures and craft the regulatory frameworks that will ensure their commitment is met within the agreed timeframe.

This is where the trickling picks up pace. Rather than being guided by the invisible hand, markets will be nudged and squeezed to comply with regulatory standards. Supermarkets and other large businesses could be made to ensure their carbon footprints are reduced. Landlords could be forced to ensure their properties comply with efficiency standards. Energy intensive industries may feel the squeeze further.

The possibilities are endless. A good example of this trickledown effect in action is the EU 2020 Renewables Targets. Having agreed to ensure 20% of energy, transport and electricity is from renewable sources, each member state has undertaken the task in their own way, implementing their own market signals and regulations to swing businesses in action.

Naturally some businesses, like energy intensive ones, will find this transition more difficult. But businesses focused on clean tech such as Tesla could flourish. There will also be a competitive advantage for players in a given sector, such as retail, to outperform their rivals and avoid regulatory and public backlash as sustainability further climbs the agenda. 

The final effect of COP21 on the real economy discussed here is without doubt the most significant. Arguments focused on investment decision makers have been hugely popular in 2015. The Guardian’s ‘Keep it in the Ground’ campaign and the increasing popularity of the stranded assets narrative are two examples. The outcome of COP21 will send a sure and clear signal to investors of what the future regulatory make up will look like and which businesses are therefore likely to thrive or suffer. And where the money goes, the world will follow. 

Metin Parlak

Hill & Knowlton Strategies Search