Moving forward on climate: Looking beyond narrow interests

Anthony Cox, Director, OECD Environment Directorate

A brighter future for climate? The sun rises over Toronto’s skyline. ©Mark Blinch/Reuters

“National governments must take the lead and do so with a recognition that they are part of a global effort.” Speaking last week at the Munk School of Global Affairs in Toronto, OECD Secretary-General Angel Gurría urged countries not to retreat behind their national borders in dealing with climate change. A purely inward-looking approach to climate change is clearly inadequate as we see signs that short-term national self-interest is increasingly seeping into the global debate on climate action. This is especially a risk as a number of countries continue to try and escape from low growth traps. Effective climate action needs ambition and action at both national and global levels.

We are now in the middle of the UN COP23 climate conference in Bonn which aims for “Further, Faster Ambition Together”. Two years after the historic Paris Climate Agreement at COP21, there are encouraging signs of progress, but there is a huge amount left to do. We have known for some time that the commitments to Nationally Determined Contributions (NDCs) beyond 2020 made under the Paris Agreement would be insufficient in limiting temperature increase to below 2 degrees Celsius, and that more ambition and action would be needed. The Paris Agreement gives us an international legal instrument that measures up to the scale and urgency of the climate challenge, with mechanisms that can increase the ambition of action over time. The negotiators in Bonn are looking to refine and clarify the “rulebook” on how to achieve this.

Each country must do its part by implementing their existing climate change plans using the range of policy levers available to address climate change. But the politics of activating them are daunting right now as they compete with the pull of some countries to retreat behind national borders. And yet, strong climate action should not be seen as a threat to growth. Rather it is the foundation for our future economic well-being and prosperity. This point is backed by a growing body of evidence, as the OECD’s 2017 report, Investing in Climate, Investing in Growth clearly shows. Thinking of climate policy as an integral part of the policy landscape, alongside fiscal policy and structural reforms, is the only way forward.

A number of countries are leading the way and showing it can be done. Take Canada as a prime example. It is a major OECD country with its fair share of challenges in overcoming carbon entanglement and remedying the problems of limited progress during the last decade of climate policy. But Prime Minister Trudeau’s election in October 2015 and his progressive climate agenda has led to a political sea-change that underpinned the success of COP21. In a recent interview with the Financial Times, Environment Minister Catherine McKenna demonstrated not only Canada’s strong commitment to tackling climate change, but also a keen awareness of the transitional challenges that Canada faces.

The OECD will be launching its Environmental Performance Review of Canada in a few weeks’ time. The Review highlights the progress that Canada has made on its climate agenda. At the top is the carbon pricing mechanisms that four provinces have already implemented, as well as the new Pan-Canadian Framework on Clean Growth and Climate Change, which includes a proposal for country-wide carbon pricing by 2018.

There is no cause for complacency. Climate action needs to accelerate around the world. Without the vision, ambition and resolve demonstrated by countries such as Canada, more countries may pull up their national drawbridges, which would do nothing for climate change and, on the contrary, jeopardise human, fiscal, financial and environmental security. We have no choice but to work together towards the far more positive future of a sustainable, prosperous and inclusive world that still lies within our grasp.

References and links

To read the OECD Secretary-General’s lecture on Climate Action, see: http://www.oecd.org/environment/munk-school-climate-action-time-for-implementation-canada-2017.htm.

For more information on the report Investing in Climate, Investing in Growth, see: http://www.oecd.org/environment/cc/g20-climate.

For more information on OECD climate change work see: http://www.oecd.org/environment/action-on-climate-change.

Climate disclosure: knowledge powers change

OECD COP21

Angel Gurría, OECD Secretary-General

Everybody is interested in the impacts of what companies are doing – shareholders, clients, the media, governments… And as recent experiences as well as the current discussions at and around COP21 show us, the environmental practices and impacts of doing business are coming under increasing scrutiny.

Workers want to know whether pension funds for example are investing their savings for the transition to a green economy – or whether they are supporting the carbon lock-in that we are trying to move away from. According to Bloomberg, at least 14 energy companies are facing shareholder resolutions on environmental and social policies, and more than 190 resolutions were proposed in 2014, an 88% increase compared to 2011. Investors are starting to base decisions on environmental criteria too. A recent report to the Storting, the Norwegian parliament, reveals that the world’s largest sovereign wealth fund, Norway’s Government Pension Fund Global, has divested from 114 companies on climate grounds “whose business models [are] considered unsustainable in the long run”.

Where the big players lead, the others will follow, and firms would be well-advised to incorporate good environmental practices into their modes of operation. It is not the OECD’s role to say how they should do this of course, but we can help by reaffirming the importance of what is being done through credible reporting to the global community. Concretely, firms can use the standards the Norwegian pension fund cites as the basis for its decisions: “The mandates require that the work shall be based on internationally recognised standards like the UN Global Compact, the OECD Principles of Corporate Governance and the OECD Guidelines for Multinational Enterprises. These international standards define corporate governance norms, and express best corporate practice expectations on the handling of environmental and social issues”.

So what kinds of information do companies that respect these OECD guidelines have to report? Under the “Disclosure” chapter of the OECD Guidelines for Multinational Enterprises, companies are expected to provide both financial and non-financial material information, including “foreseeable risk factors”. Companies are well-aware that climate change and other environmental impacts may now pose foreseeable material risks to their supply chains, their installations and their clients. The G20/OECD Principles on Corporate Governance specifically include environmental risks among foreseeable risk factors and the 2011 update of the OECD Guidelines introduced a reference to reporting of greenhouse gas emissions produced by the company both directly (from its transport fleet for example) and indirectly (for instance by consuming energy generated by fossil fuels).

Corporate “climate information” seeks to give a balanced overview of how climate change could affect a business for better or worse. For example a firm that produces air conditioning equipment may expect demand for its products to grow if summers continue getting warmer, but if the regulations on energy consumption of electrical goods are tightened, it may find itself with a product line that no longer meets the new standards. Businesses also have to consider impacts beyond their immediate operations and look at the whole supply chain. A firm seeking to reduce its carbon footprint would favour a supplier using renewable energy rather than fossil fuels for example. Disclosure would mean that these companies would describe what they are doing to react to opportunities and risks through their strategies, governance, and policies to mitigate climate impacts and to adapt to and manage the effects of climate change.

By identifying climate-related risks and opportunities, this information will help to integrate climate into core decision-making processes by companies. Consumers, investors and governments will find this information useful, but collecting this information makes good business sense too by showing where a firm could streamline processes; reduce costs; and improve efficiency. And yet despite the long-term advantages of incorporating climate factors into company strategy, a 2014 climate disclosure study by CERES of US companies found that over 40% do not include any climate-related information in their filings and a 2015 study by Influence Map warns that investors are not getting a full picture of how regulation aimed at tackling climate change would affect the performance of the companies in which they invest. The situation is similar for asset owners. A survey by the Asset Owners’ Disclosure Project shows that nearly half of the top 500 global asset owners have done nothing to protect their investments from climate change. Only 7% calculate their portfolio’s emissions; a mere 1.4% have reduced their carbon intensity since 2014; and none have assessed their portfolio-wide exposure to fossil fuel reserves. Other recent studies reach similar conclusions.

Part of the reason for this poor performance is that climate disclosure is a relatively recent discipline and many companies are struggling to understand the importance of collecting and reporting climate information. On the other hand, there is also evidence that companies are increasingly providing climate information on a voluntary basis, such as under the CDP, which operates on behalf of over 800 investors.

They would be helped by improvements to government reporting schemes, and there would be a lot to gain from aligning the different schemes so as to make the disclosed information reliable and comparable across borders. A report by the OECD and the Climate Disclosure Standards Board shows that while 15 of the G20 countries have mandatory reporting schemes in place or in preparation, most schemes only require reporting of emissions within national boundaries, which results in emissions produced throughout most of the value chain being left out. The majority of schemes require emission data to be verified, but only a minority require third party-verification which means that the information may not be reliable. Only a few schemes ask companies to report on climate change-related risks they face or their strategies to address those risks.

The good news is that both governments and investors are ready to scale up climate disclosure and the use of climate information. France for example recently issued legislation requiring investors to report on their portfolio’s carbon footprint, and Sweden may soon follow. And the Financial Stability Board has just announced the creation of an industry-led disclosure task force on climate-related risk.

All these initiatives are encouraging. Knowing what we’re doing about climate change helps us to do it better.

Useful links

COP21: Getting the most out of corporate climate change disclosure: Event at COP21 on 10 December chaired by Mr Gurría. The discussion focused on four themes:

  • How could reporting frameworks be streamlined to ensure that disclosure is meaningful?
  • What kind of approach can best scale up corporate disclosure: mandatory law, voluntary standards, a combination of both?
  • What kind of corporate climate change disclosure is needed to foster change in corporate management?
  • What other incentives are needed to make disclosure work in support of the climate agenda?

Climate change disclosure in G20 countries: Stocktaking of corporate reporting schemes

OECD Forum 2015. Investing in the Future: People, Planet, Prosperity

OECD Forum home pageForum 2015, Investing in the Future: People, Planet, Prosperity will take place in Paris on 2-3 June. It will be organised around five themes: Investment; Inclusive growth; Innovation; the New Climate Economy; and Sustainable Development Goals

People

45 million people are unemployed in the OECD, which increases the risk of poverty, ill health, and the levels of inequality within our societies.
This legacy of the crisis is undermining the confidence and trust of citizens in everything from governments to markets, businesses and institutions at large.

The Forum will discuss how to promote access to more and better quality jobs, but also how governments, universities, business and civil society can address growing inequality by expanding access to education.

What skills will be needed to make people more resilient and entrepreneurial? And how to promote the exchange of knowledge between people, universities and business that leads both to innovation and more inclusive growth models.

The Forum will also reflect on actions aimed at reducing the gender gap and enhancing the role of women in economies and societies at large, in the context of the celebration of the 20th anniversary of the Beijing Declaration and the G20 commitment to reduce the gender gap in workforce participation by 25 % by 2025.

Read more on inclusive growth

Planet 

New technologies and business models are essential to help achieve a NEW CLIMATE ECONOMY, which combines strong economic growth while minimising impacts on the environment.

This will be an important issue in the run up to the COP 21 negotiations in Paris and discussion will be informed by the joint OECD, International Energy Agency (IEA), Nuclear Energy Agency (NEA) and International Transport Forum (ITF) work on aligning policies for the transition to a low carbon economy.

The Forum will be an opportunity to reflect on the importance of a coordinated approach to: mobilise infrastructure investment; rethink taxation and urban development; address resource scarcity and the food-water-energy nexus.

Cities will play a key role in this new economy. Cities already generate around 80% of global economic output, and use around 70% of global energy. 54 % of the world’s population lives in cities today, and this figure is expected to increase to 70% by 2050

Prosperity

The Forum will explore the importance of INVESTMENT in placing economies on sustainable growth paths; addressing inequalities; fostering innovation; helping the transition towards low-carbon economies; and financing the Sustainable Development Goals (SDGs).

Investment is still lagging compared to pre-crisis levels, dampening demand and constraining potential growth. Breaking this vicious cycle is a priority to restore dynamism to our economies and create jobs.
Read more on investment
Ongoing innovation in ICT, renewable energy, nanotech, telemedicine, biotechnology, Big Data and the “Internet of Everything” is offering promising solutions in areas such as health, ageing, climate change, food security and represents an increasingly significant source of future economic growth.

The update of the OECD Innovation Strategy will feed into Forum debates with particular emphasis on governments’ ability to meet social and environmental challenges by creating an enabling environment fostering innovation.

Read more on innovation

Better Life Index

‌‌‌‌The OECD will present the 2015 Better Life Index update, incorporating new data and communicating what has been learned from almost 90 000 user responses received since 2011. The Index will be available in seven languages: English, French, Spanish, German, Italian, Portuguese, and Russian.

A complimentary site, highlighting Italian well-being priorities will be launched in conjunction with Expo Milan 2015 in English and Italian.

China: Black turning green?

Photo courtesy of Jacques Bron

 

Coinciding with the China Development Forum in Beijing, the Insights blog is focusing on China this week 

Viewed from the hilltops of Hong Kong island, the city’s harbour can look as stunning as this. All too often, it looks more like this. Sandstorms in northern China are partly to blame for this week’s record-breaking smog. But smoke and fumes belched out by factories on the Chinese mainland haven’t helped. 

Indeed, across China, sooty skies are a daily and dangerous reminder of the price of economic progress. Four years ago, the World Bank estimated that 16 of the world’s 20 most polluted cities were in China. 

But a strange paradox: Just as China’s skies are turning blacker, its energy production is becoming greener. The country has set itself a target of producing 15% of its energy from renewable sources by 2020, and that goal has unleashed massive investment in green energy, turning China into the world’s biggest market for renewables. The result, as journalist Christina Larson notes, is that “China may soon be simultaneously the greenest and the blackest place on earth.” 

China’s great green push is showing up in several areas of the economy, including the development of a high-speed rail network and huge construction of wind farms – according to some estimates, the country’s wind capacity has doubled every year for the past four years. Investors outside China have taken note: U.S. billionaire Warren Buffet has bought 10% of battery and carmaker BYD, while Hong Kong tycoon Li Ka-shing is taking a stake in another battery maker, Jia Sheng. 

Away from such high-profile names, green power is taking root in other ways. China produces about 10 million electric bicycles and scooters every year. Bus rapid transport, or BRT, a cross between a bus and a metro system, is making inroads in dozens of Chinese cities. And, less officially, shanzhai (“homemade” or “knockoff”) electric cars are becoming a familiar site on the streets of China’s numerous smaller cities. Cheap and cheerful, the cars cost between $2000 and $3000 and can be charged from a regular household socket. 

Inevitably, China’s headlong rush into renewable means mistakes have been made. “When you go to being the No. 1 market in just five years, you can expect a few growing pains,” comments Dr Jiang Lin of the China Sustainable Energy Program in San Francisco. According to some estimates, around 30% of wind turbines are not properly connected to the grid. There have also been problems in choosing the right sites for wind farms, says Dr. Lin, and the entry of so many new operators means too little thought has been given to creating standards. 

“Chinese entrepreneurs are very energetic, but they don’t always think through every detail before acting,” says Dr. Lin. “They’re juggling so many balls in the air that one or two may get dropped.” Nevertheless, he’s confident that the race to go green will allow China to meet its targets and help it become a world leader in renewable energy technologies. “People view this as a brand new market with great potential,” he says, “and the possibility to create intellectual property that can be sold.” 

Useful links 

OECD work on China, including a report on eco-innovation

The OECD’s Chinese-language site – 网站(中文) 

OECD Insights: Sustainable Development 

OECD work on climate change and green growth

IEA work on climate change and transport

China Sustainable Energy Program factsheet 

Photos by Jacques Bron

Subsidising Pollution?

How can we reduce fossil fuel use and make the switch to clean energy?  Debates on fossil fuel dependence and its consequences for the environment have reached a crescendo as COP15 nears its deadline.  But did you know that governments still subsidize the use of fossil fuels?  Helen Mountford of the OECD Environment Directorate, Peter Wooders of the IISD and Dr. Fatih Birol of the IEA explain the importance of dealing with these contradictory policies.

Useful links:

OECD and COP15
The IISD Blog
COP15