This changes everything

As Naomi Klein put it regarding the climate crisis, this changes everything.¹ The 26^th United Nations Climate Change Conference in November 2021 – more commonly referred to as COP26 – reaffirmed the Paris Agreement goal of limiting the increase in the global average temperature to well below 2 degrees Celsius above pre-industrial levels, and pursuing efforts to limit it to 1.5 degree Celsius. But the statement from COP26 agreed by the 120 government leaders ‘Expresses alarm and utmost concern that human activities have caused around 1.1 degrees Celsius of warming to date, that impacts are already being felt in every region, and that carbon budgets consistent with achieving the Paris Agreement temperature goal are now small and being rapidly depleted’.²

The February 2022 Report from the Intergovernmental Panel on Climate Change (IPCC) was their most alarming yet, arguing that human-induced climate change is already causing dangerous and widespread disruption in nature.³

So, there is a growing awareness that action is required. To achieve the agreed targets for reducing the emissions that are creating the climate crisis, to get these to ‘net zero’ will need business to change their products, services and processes. There are a range of mechanisms envisaged to bring these changes about – legislation, regulation, tax and price incentives, and a culture change that will lead to managers taking the appropriate decisions, and consumers encouraging such decisions through their purchasing behaviour.

One of the major problems is that firms may be reluctant to accept the costs of change, in case their competitors do not, and thereby gain a competitive advantage. In part this is a problem of time horizons. With a switch in investments and behaviours to a new, less environmentally damaging trajectory, the costs involved in that new trajectory will come down, and the business case for making the switch will become increasingly attractive. But what about the ‘first movers’? If they encumber increased costs, will they lose out to their competitors?

This question is analysed for the hotel industry by Atm Sayfuddin in ‘When green practices affect business performance: an investigation into California’s hotel industry’. Sayfuddin finds that it is not possible to generalise, as the picture is mixed. Briefly, some hotels will be able to pass on the increased costs of being more environmentally sustainable without suffering from a fall in demand. Other hotels find they are not in this situation, so they either have to absorb the costs, or pass them on and suffer the fall in demand. Which situation a hotel finds itself depends on factors such as the location of a hotel, the amount of local competition it faces, and the nature of its customers. So, some hotels are able to use ‘being green’ as a differentiator, in which case there is actually a business case for doing ‘the right thing’.

There remains, though, the question of how to get the others to change their ways, when there is no such business case. There will be a number of ways. Sayfuddin speculates that one problem may be companies not being willing to pay for their employees to stay in the more expensive hotels on business trips. If that were the case, then pressure might be brought to bear to tackle that problem – to try to prevent companies from in effect forcing their employees to stay in hotels that were refusing to do the right thing, just to save money.

Taking the argument to the next level, how does one put pressure on companies to make such changes – i.e. to make the ‘climate premium’ that green hotels charge, an allowable expense? One action at COP26 was to create GFANZ, the Glasgow Financial Alliance for Net Zero, headed by former Governor of the Bank of England (and before that the Bank of Canada), Mark Carney. This aims to get the global providers of finance – banks and other financial institutions – to make the provision of finance dependent on companies moving to net zero. The obvious cases are the big energy companies, to move from fossil fuel extraction to renewable energy production. But it could be extended to examples such as this. So, for a hotel chain to receive finance would be dependent on them being ‘green hotels’. And for other companies to receive finance, they would have to adopt a series of practices, which would include accepting the ‘green premium’ that such hotels charge as an allowable business expense, for their employees on business trips.

Action is thus needed – urgently – across a range of fronts simultaneously, and continually. One of the important areas is industrial policy – an industrial policy to promote sustainable technology and development, which in turn can be supported and promoted by the financial alliance that is committed to act in this direction. Industrial policy, particularly in the context of economic development and urban studies is reviewed by Franklin Obeng-Odoom in ‘Industrial policy, economic theory, and ecological planning’.

With the majority of the world’s population now living in urban areas, creating sustainable cities is an increasingly important priority, and also an opportunity, given the resources and political will that many major cities enjoy. A related focus on cities has been provoked by the Covid-19 pandemic, with most cases and deaths being in urban areas. At the time of writing a Commission on Creating Healthy Cities is being led by Lord Best, the results of which will no doubt have important implications and suggestions for social and environmental sustainability.⁴

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. Klein (2014) This Changes Everything was also the title of an associated film in 2015.

2. Glasgow Climate Pact – see https://www.un.org/en/climatechange/cop26

3. See IPCC (2022).

4. On which, see https://www.healthycitiescommission.org