Business Opportunities in the Post-COP21 Era
The 2015 United Nations Climate Change Conference (also known as COP21) led to the creation of the Paris Agreement, a historic agreement to keep global warming below 2°C. In order to achieve COP21’s goals, governments need to work with other stakeholders such as the business sector. Partnerships between governments and the business sector can lead to opportunities that may reach COP21’s objectives faster and more effectively, including the creation of better climate change solutions.
Not only will these solutions address climate change, they also help to conserve the planet’s resources, which translates to more raw materials to support businesses’ goods and services. They will also create opportunities for the business sector to more directly address environmental issues such as pollution and extreme weather, resulting in better productivity. They will produce new job opportunities, increasing social and economic stability.
Addressing the Climate Finance Gap
There is a significant disparity between the amount of money available to accomplish COP21’s goals and how much is actually needed to achieve them. Under the Paris Agreement, developed nations committed to creating a “roadmap” that will enable them to raise USD 100 billion every year by 2020 for climate financing. They also pledged to continue mobilizing USD 100 billion annually from 2020 to 2025. The Organisation for Economic Co-operation and Development (OECD) claims that climate finance from developed nations to developing nations reached USD 62 billion in 2014. This amount is projected to increase to USD 83 billion each year from 2015 to 2020.
USD 83 billion every year from 2015 to 2020 is not enough to achieve COP21’s goals. Experts caution that climate change may worsen in the future, rendering it more difficult to reach COP21’s targets. In its 2016 report, the United Nations Environment Programme (UNEP) said that “[government] pledges put forward to cut emissions would still see temperatures rise by 3C [sic] above pre-industrial levels, far above the 2C [sic] of the Paris climate agreement.” Although global carbon dioxide emissions remained flat in 2016, at least 35 billion tons of carbon dioxide was added to the atmosphere in the same year. Research by non-profit organization Climate Central revealed that the global average temperature change in February 2016 was 1.55°C, exceeding COP21’s 1.5°C warming threshold. In August 2017, the US, a major source of climate finance, formally withdrew from the Paris Agreement.
These developments necessitate that governments will have to work harder to reach COP21’s objectives with fewer resources at their disposal, which will be a monumental challenge. UNEP states that “[the] cost of adapting to climate change in developing countries could rise to between USD 280 and USD 500 billion per year by 2050, a figure that is four to five times greater than previous estimates.” Governments cannot shoulder such a huge cost by themselves. Attempts to do so in order to achieve COP21’s goals could lead to overstretching public funds to the point of sacrificing other important social services.
The business sector can help prevent this scenario by filling in gaps in governments’ climate financing. According to the International Finance Corporation (IFC), the period between 2017 and 2030 holds a USD23 trillion climate-smart investment potential in emerging markets. If the business sector takes advantage of this prospect, it can complement government funding for climate change initiatives. More funding for climate change initiatives could lead to more opportunities to reach COP21’s goals faster and more effectively.
What Are Climate-Smart Investments?
Climate-smart investments promote low-carbon and climate-resilient growth by boosting the development of climate change solutions such as renewable energy, sustainable cities and sustainable agriculture. They are excellent opportunities for the business sector to attain COP21’s objectives. An increase in climate change solutions will stimulate low-carbon and climate-resilient growth, and when low-carbon and climate-resilient growth is high, COP21’s goals can be successfully achieved.
Examples of climate-smart investments include:
- Green buildings – The IFC claimed in its 2016 report that the climate-smart investment potential of four East Asian countries― China, Indonesia, the Philippines and Vietnam―will reach at least USD 16 trillion by 2030. Almost 81 percent of this total (USD 12.9 trillion) is expected to be spent on the construction of new green buildings in China. Meanwhile, investment opportunities in green building construction in Indonesia, the Philippines and Vietnam are projected at USD 345 billion. The IFC likewise spotted climate-smart investment potential in the four countries’ transport and waste sectors. Commercial investment potential in climate-smart urban transport and municipal solid waste for the four countries are at nearly USD 1.4 trillion and more than USD 53 billion, respectively.
- Energy storage – According to Energy Storage Trends and Opportunities in Emerging Markets, a 2017 report commissioned by the IFC and the Energy Sector Management Assistance Program (ESMAP), “[energy] storage deployments in emerging markets worldwide are expected to grow over 40 percent annually in the coming decade.” In Sub-Saharan Africa, yearly stationary energy storage deployments are projected to reach at least 900 MW and cost over USD 2.5 billion by 2025. Improving energy storage deployments through more investments will bring environmental and economic benefits, providing reliable electricity access to remote communities without having to build expensive electrical grids that run on fossil fuels, and empowering societies to be productive and reach COP21’s goals.
- Sustainable transport – The IFC states that, by 2030, the overall climate-smart investment potential of Argentina, Brazil, Colombia and Mexico will be at more than USD 2.6 trillion. Roughly 60 percent (USD 1.5 trillion) is expected to be spent on new investments in the four countries’ transport infrastructure, as well as on improvements in their existing transport infrastructure. The IFC also projected that approximately USD 901 billion will be allocated to the construction of new green buildings for Latin America’s future sustainable cities.
- Climate-smart agriculture – The Business and Sustainable Development Commission’s October 2016 report Valuing the SDG Prize in Food & Agriculture: Unlocking Business Opportunities to Accelerate Sustainable and Inclusive Growth claims that “[business] opportunities in the implementation of the Sustainable Development Goals (SDGs) related to food could be worth over USD 2.3 trillion annually for the private sector by 2030.” To attain these business opportunities, annual investments worth USD 320 billion are needed, and unlocking these opportunities will help ensure food security.
Greater investments in climate-smart agriculture could also turn people away from unsustainable farming methods such as slash-and-burn agriculture (a cultivation method that involves burning and clearing forests for planting) and the use of chemical fertilizers and pesticides. Less dependence on unsustainable farming methods can cut the planet’s greenhouse gas (GHG) emissions and help achieve COP21’s goals. The report added that food-related business opportunities in line with the SDGs can create close to 80 million jobs by 2030, more than 90 percent of which will be in developing countries.
How Can Governments Encourage More Climate-Smart Investments?
To encourage more climate-smart investments, governments need to create an enabling environment for these:
- Integrate climate targets into national development strategies – When governments try to reach climate targets through stand-alone projects or policies, achieving climate targets could be delayed. When the climate targets are attained, they will primarily benefit the sectors that are connected to the stand-alone projects or policies. Integrating climate targets into national development strategies gives all sectors of society opportunities to help reach climate targets. As a result, climate targets are achieved faster and their effects are felt by everyone.
- Establish strong incentives for private investment – Governments should ensure that it is simple to make private investments in their countries. What are the political, economic, social and technological risks that hinder private investment opportunities in their nations? Addressing these will improve investor confidence, possibly leading to more business investments, including climate-smart investments.
- Use public funds to catalyze market growth – Certain aspects of climate change projects, such as project preparation and development, can be expensive and risky, making business investors feel apprehensive about these ventures. Governments can ease business investors’ fears by giving financial support to climate-smart investments. Examples of government financial support to climate-smart investments include providing initial capital for climate change projects and creating more public-private partnerships. When business investors see that climate-smart investments are safe and profitable, they may view these as opportunities instead of expenses. More climate-smart investments, in turn, can help governments achieve COP21’s goals faster.
Opportunities for the Business Sector to Go Beyond Achieving COP21’s Goals
COP21 is an opportunity for different social sectors to work together to address climate change. By working together, they develop innovative ways to tackle the issues. Collaborations between the business sector and governments can produce climate-smart investments, which can generate climate change solutions faster than stand-alone projects and policies.
COP23, the 2017 United Nations Climate Change Conference, was held in Bonn, Germany, from November 6-17, 2017. One of COP23’s goals is to make progress in the execution of the Paris Agreement. Focus will be placed on the “development of guidelines on how the Paris agreement’s provisions are to be implemented across a wide range of issues including transparency, adaptation, emission reductions, provision of finance, capacity-building and technology.” The climate-smart investments formed after COP21 can serve as stepping stones to achieve the goals of COP23. Climate-smart investments could ensure that the Paris Agreement’s provisions are recognized and implemented across various issues and sectors, especially the business sector.
The success of climate-smart investments will benefit all stakeholders. They provide opportunities to achieve COP21’s goals as well as other sustainability goals.
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