Climate Change as a Business Problem

G. Truett Tate is Group Executive Director of Lloyds Banking Group. LONDON – Some political problems can be solved overnight; others take years to tackle. But, in the distant future, when the financial crisis and the euro’s troubles are long forgotten, we will still be facing the consequences of climate change. A challenge of this scale and depth demands an unprecedented level of cooperation – between countries, between political parties, and between government, business, and citizens. It is for this reason that some of Britain’s biggest businesses, including Lloyds Banking Group, came together in the Prince of Wales’s Corporate Leaders Group on Climate Change (CLG). In other words, we have committed ourselves to working together to confront this challenge, and our work so far has been extremely promising: we supported the Climate Change Act; we helped set strong, scientifically robust targets for carbon reduction; and we have supported each successive Carbon Budget up to the latest, fourth installment. When the United Kingdom’s coalition government was formed last year, we were encouraged by Prime Minister David Cameron’s pledge to make this the “greenest government ever.” Unless we have precisely that, Britain risks not only missing its carbon-reduction targets, but also falling behind in the effort to create a stronger, more stable, and sustainable economy. One of the important first steps, which the CLG encouraged, was making the UK the first country to establish legally-binding targets for carbon reduction well into the 2020’s. But making a promise legally binding is only the first step towards fulfilling it, and in this respect there is still much work to be done. In our new report on the government’s environmental strategy, Seize The Day: A Call to Action for UK Climate Leadership, the CLG has identified a series of gaps between such pledges and actual policy. We have yet to see the strategy that will turn aspirations into reality, and we need a simple and clear policy framework that will turn Britain into a pioneering green economy. If businesses are to make the necessary investments, they will require a consistent and predictable set of policies. Unfortunately, we have instead seen numerous examples of complexity and inconsistency – for example, the Carbon Reduction Commitment Energy Efficiency Scheme. We recognize that the UK government must use all means at its disposal – including tax levers – to discourage pollution, but we believe that such measures must be linked to a long-term strategy for change. Nonetheless, there have been many achievements. The government’s “Green Deal” could serve as a flagship example of how to create incentives for homeowners to improve their energy efficiency. And the newly established Green Investment Bank should help encourage investment in the sector. But both schemes will need adequate resources and firmness of purpose if they are to make a genuine impact. Climate change is undoubtedly a complex area of scientific study, and the associated issues can be equally complex, with major questions yet to be answered. How, for example, does one account for and mitigate the carbon emissions embedded in goods? And, when goods cross borders, does the consumer or the producer pay the mitigation cost? The problem is one not merely of complexity, but also of ambition. The scale and scope of these challenges necessitate an extraordinary degree of cooperation between government and business. Climate change represents a market failure; in such circumstances, companies must cooperate with their regulators in attempting, for instance, to create mechanisms to generate a representative carbon price. Governments must continue pushing for a multilateral emissions-reduction deal. But in its absence, we can nonetheless aim to promote Britain as a champion of green technology and a hub for green enterprise. After all, while climate change is a market failure, it is also a disruption that provides many opportunities: new ways of doing business, new technologies for maintaining our lifestyles, and new attitudes toward consumption and production. Now is the time for Britain to cement itself as a leader in this field. To be sure, the UK is still recovering from a deep recession; living standards have been dented by the financial crisis; and the eurozone’s troubles remind us that there is still turbulence out there. Even so, we have an opportunity to make a real difference. The UK’s coalition government speaks with one voice about the risks of climate change. The British public recognizes that inaction is no longer acceptable. And the country’s business community is determined to play its part in addressing the problem. Climate change threatens our way of life, and we will have to face some uncomfortable adjustments over the coming years and decades. The road ahead will be long, hard, and, most likely, expensive. But it is essential that we all invest in the future. We in the business world have pledged that we will keep investing and creating opportunities for Britain to green itself. But, if we are to succeed, we need to see the same commitment from government. Businesses in other countries will also need to see the same level of government commitment and consistency. Now is the time for all of us to show the leadership required to turn bold pledges on climate change into reality. G. Truett Tate is Group Executive Director of Lloyds Banking Group. Copyright: Project Syndicate, 2011.www.project-syndicate.org