OPINION: Collaboration is key to addressing $90bn gap
Susannah Fitzherbert-Brockholes, Project Manager with CDKN, and Pippa Heylings, Lead for Policy and Practice, reflect on how businesses can be the driving force for climate compatible development.
We know we have a huge challenge on our hands– and this requires a new way of doing business. Later this year in Paris, nations will come together to negotiate a legally binding deal to limit the increase in global temperatures to 2oC. We don’t yet know whether a deal will be reached or what that deal will look like, but we do know that governments won’t be able to solve the climate challenge on their own. Achieving a Paris agreement will depend, in large part, on building trust by meeting existing financial commitments: it means having a clear pathway to achieving the $100bn a year of public and private finance needed to support developing countries in the transition to a low-carbon future. Only around $10bn of public funds have been pledged so far.
The world’s development finance institutions are exploring ways to increase their contribution to climate finance. The World Bank´s latest analysis shows that about $30 billion can be traced as flowing from developed to developing countries in 2013. Depending on how you are counting, that still leaves a massive $70-$90 bn gap. Governments are looking to the private sector to plug that gap.
And why shouldn’t they? Business is the engine of growth and can form the foundation of sustainable development by creating jobs, providing goods and services, stimulating innovation and generating tax revenue. Business has the potential to deliver the combined outcomes of economic growth, benefits for the environment and resilience against a changing climate. When businesses become more climate compatible it reduces risk as well as opening up new markets and opportunities.
In order to do this though, a change is needed in the way of doing business. Increased trade and growth alone is unlikely to fully address climate and development challenges. Certainly not in the timescale that is needed. Common barriers exist, such as access to finance, weak corporate regulation, lack of knowledge and skills, cost of technological innovation, high risk to capital, and poor information about markets. Particularly relevant to climate compatible development – and the role of international development agencies in finding ways to incentivise private sector involvement – is overcoming the barriers around knowledge, skills and networks.
New business models are emerging that aim to tackle this challenge head on. At CDKN we have been piloting a business partnerships programme as a way of facilitating this transfer of skills, and in doing so open up new markets, bring competitive advantage and deliver benefits to society and the environment. Business to business partnerships allow companies to share the costs, risks and resources involved in doing business, but also share in the rewards of delivering their common and individual objectives.
In Uganda, one of these business partnerships is looking at replacing the diesel generators that power telecoms masts in remote areas with solar panels, and extending the power supply to local villages that currently have no electricity. The benefits are multiple: the telecoms businesses save money by switching away from expensive and polluting diesel; new local micro-enterprises are enabled by the supply of electricity and increased communications; the community benefits from power to schools and health centres; and homes become cleaner and safer by doing away with kerosene lamps. Given the fact that about 90% of rural areas currently lack access to the main electricity grid, the opportunity for scaling up impact is huge. If successful, the initiative will generate a viable business model to provide remote off-grid community power in Uganda without subsidies – a systemic change that would overcome barriers to investment, and would provide significant co-benefits for climate compatible development. However, despite a clear economic, environmental and social case, to scale up an initiative such as this, investors need to see a proven model of how it works.
Our funding is supporting a group of businesses, led by Africa Power, to come together to test the cost-model for providing these distributed village power systems, to prove its viability and accelerate the scaling up of this model for delivering climate compatible development.
Another emerging cooperative business model that interests CDKN is that of the B Corps. B Corporations are a new kind of legal status for companies that use the power of business and markets to solve social and environmental problems – and they are emerging players in the area of climate compatible development. At their heart, B Corps are building a new sector of the economy that ends the binary divide of “public” and “private” and instead looks to combine profit with purpose, where purpose goes beyond maximising shareholder value to include social and environmental values.
One such B Corporation is Guayaki, an international natural energy drink company. The company mission is “to steward and restore 200,000 acres of Atlantic rainforest and create over 1,000 living wage jobs by the year 2020 through our market driven restoration business”. The source of the energy drink is yerba mate, a plant grown in the Atlantic rainforest which has suffered 95% deforestation. Using the power of markets and branding, Guayaki is addressing critical and interlinked issues of poverty, resource degradation and carbon emissions. Guayaki is part of the rapidly growing B Corp movement in South America (http://www.sistemab.org/ingles/home), where such business are key actors in shaping the pathway to climate compatible development.
B Corps don’t just say they are addressing the triple bottom line in business; they have to commit to three core components: the expansion of the fiduciary liability so that the company’s directors consider the interests of all stakeholders when making decision, such as employees, communities and the environment, not just shareholders; the performance measurement and improvement, where the rigorous and independent B Impact Assessment regularly measures the social and environmental performance of a business, including supply chains, procurement, governance and impact; and, finally, the declaration of interdependence, acknowledging that we are all dependent on each other and responsible for future generations.
For CDKN, this interdependence is something that really sets these B Corps apart from other initiatives. By publicly recognising co-responsibility and belonging to a community, businesses come together to take shared approaches to tackling societal challenges, such as working conditions, the environment and climate change. There is individual and collective growth, and as the number of B Corps themselves grow, they are creating a new economic sector that is challenging business as usual.
Business talks a different language from those who are hoping to reach a deal in Paris. Instead of co-benefits, they talk of share values. If share values become shared values and provide social and environmental solutions at scale then private sector investment has a much larger role to play than just plugging the $90 billion gap.
For more information, take a look at CDKN’s event on harnessing private enterprise for climate compatible development.