Why do we continue to dance around climate risk?

Climate change poses huge economic risks to governments and companies alike. So why do they continue to ignore them?

With Scottish independence in the news once again* the usual economic debates are being fought out across the blogosphere. Is Scotland a net provider to, or a drain on, the UK coffers? Who’ll take on the liabilities of the Scottish (or are they British?) banks? And who gets all that oil and gas?

Ah, yes. The oil and gas. An asset for somebody – we just need to work out for whom.

Or is it?

The question about whether or not – or at least for how much longer – North Sea oil and gas will remain an asset is something that neither side is really engaging with.

Yet, as the excellent Carbon Tracker website points out, to give us a half decent chance of avoiding 2°C of warming (and thus meeting the internationally agreed goal) only 20% of the world’s total reserves can be burned – leaving up to 80% of these ‘assets’ unburnable.

This surely has the potential to put a dent in the future economics of North Sea oil and gas? But, nope, it doesn’t appear worthy of discussion today.

And this lack of debate prevails despite Scotland being a “world leader” in renewable energy. 

How can such a disconnect exist?

Quite easily to be honest – as avoiding room-based elephants is something that prevails all too often in discussions around climate change.

Just as Scotland is happy to ignore the ‘indirect’ emissions arising from the oil and gas it produces, all but a few leading companies continue to ‘tackle’ climate change by getting their own house in order, rather than thinking through the broader strategic implications of climate change (and the societal response to it).

Now, don’t get me wrong, efforts to tackle direct emissions across the corporate community are essential, and the companies that have led in this space deserve the plaudits they get.

Yet it is in the murky world of indirect emissions and impacts that most companies face climate risk.

Take the British supermarkets for example. They are collectively at the leading edge of corporate climate action, yet even if they get their operational carbon footprint to zero, and work with their supply chains and consumers to further reduce emissions, they will still be massively exposed to climate risk if global emissions continue to rise.

Climate change will primarily impact supermarkets by changing the dynamics – and economics – of our global agricultural system, and it amazes me that they aren’t yet yelling from the rooftops for broader societal action to reduce emissions and build resilience.

The questions companies should be asking with regard to climate change are along the lines of the following:

• Will we be able to get the commodities we rely on from the regions/communities we currently source from, and at prices that work for our current business model?
• Are our products and services fit-for-purpose and/or best-in-class in a world that has to respond to climate change?

The issues brought up by these questions are (in most cases) much more pertinent to future business success than any efforts to tackle direct operational emissions…

Yet these questions typically go unasked, never mind answered.

Why is this? Well, as with everything in the climate space, there is no easy answer. But I can’t help feeling that the way the environmental movement has framed the climate debate is part of the problem.

Our opening gambit has, too often, been something along the lines of the following: climate change is of concern to us (the environmentalists) and is caused/worsened by you (the company). And we therefore want you to do this [insert campaign ask here].

This approach does lead to action. But that action typically involves ‘doing enough to make the problem go away’ rather than initiating a strategic analysis of the potential risks and opportunities associated with climate change.  And, as a result, across the corporate landscape, we now have a cadre of mid-level managers tasked with ‘taking care’ of climate change while their colleagues carry on as normal.

These people do good work, but they are usually swimming against the flow of corporate strategy, rather than guiding it.

Whether we (the environmental community) like it or not, the response from the corporate community to any issue will always be piecemeal unless they see the associated strategic risks and opportunities. And this means we need to start framing our issues in terms of the potential impact on the companies we seek to change.

And as for Scotland.  Well, it needs to engage with a potential climate-change inspired devaluation of oil and gas assets precisely because these ‘assets’ are so fundamental to its economic future.

Consider this my small contribution to reframing that debate.

* I know – I’m not the most timely blogger… If you’re looking for a more topical hook, then how about this (the International Energy Agency have just announced that, “No more than one-third of proven reserves of fossil fuels can be consumed prior to 2050 if the world is to achieve the 2 °C goal.”)