A tipping point in the climate crisis?

Feb 10, 2020
While there are positive trends in the fight to stem climate change, we must now enter an era of intense innovation to win the battle.

By Kate van der Merwe

As we look ahead to a new decade, we stand at a critical inflection point. We need it to be one in which emerging climate change trends catch on with the same intensity of the climate events happening across the planet. In this series of articles, I briefly explored what climate change is and why it matters, investment and 
reporting developments, and the evolution needed in our decision-making. 

In my final article of this series, I will look at emerging macro-level trends across sectors and jurisdictions and, more broadly, ideas about how our economy might function sustainably.

Emerging sustainability trends 

There have been significant recent developments in both business sectors and operational processes. The insurance sector, for example, transformed as severe weather events made the impact of climate change more apparent. The 2017-18 period – the worst two-year period on record for natural catastrophes – cost insurance company Munich Re $225 billion.

It is interesting to see companies trying to navigate significant change. One such example is the retail giant, H&M. The company is in a carbon-intensive sector and is modifying its business – partly driven by conscientious consumers – while facing many reputational challenges about fair labour, resource-intensive manufacturing and damaging waste outputs. When H&M launched its ‘Conscious Collection’, it was labelled as “sustainable”. However, a lack of transparent and credible substantiation triggered accusations of greenwashing. Facing challenges from multiple angles, H&M decided to invest $52 million in 16 sustainable retail start-ups through its venture capital arm. At a governance level, there are positive eco-focused trends in tax (carbon taxonomy) and law (climate litigation), with some bold steps forward (EU Green Deal), countered by steps backwards (the US exit from the Paris Agreement). 

Tax

Previous articles discussed individual companies’ internal carbon pricing, but jurisdictions also incorporate carbon pricing to tax or cap emissions. Carbon taxes encourage reduced emissions while enhancing potential revenue streams to mitigate further emissions. Valuable lessons can be found where these taxation approaches have failed, most notably in the case of Australia. These lessons should be remembered as more and more countries use carbon pricing initiatives such as taxation or cap-and-trade, and different methods continue to be refined and further embedded.

Litigation

Another growing trend is climate litigation. In 2019, climate change litigation cases were taken in at least 28 countries, and while a significant number of cases arose in the US, many originated in lower-GDP countries and are being brought by a diverse range of claimants – environmental activists, activist shareholders and state bodies – mostly against governments but, increasingly, against companies, as well. A landmark case, Urgenda Foundation v. The State of the Netherlands, was recently decided, concluding that the Dutch government must prevent “dangerous climate change”. This ruling recognised the government’s responsibility to reduce emissions in keeping with its position of power in a developed nation.

Circular economy

Alternative concepts, such as the circular economy, are becoming mainstream. A transition to a circular economy requires system change. Since industrialisation, we have used the linear take-make-waste model, which is problematic for finite resources and waste management. A good circular design incorporates full life-cycle design thinking and accounts for ease of repair and elimination of waste. An estimated 9% of the global economy is circular, so there’s plenty of opportunity for innovation. The CEO of Royal Philips, Frans van Houten, is a supporter of the concept, saying: “Building a global circular economy is not just an environmental imperative, but a great opportunity for companies and individuals everywhere to enter a new phase of health and prosperity.”

Although political inertia continues (a disappointing COP25, for example), each new study released seems to intensify the immediacy as impact of the climate tipping points and society grows more aware, anxious and demanding of change. 

circular-economy

Time to act

At this pivotal juncture, we need to enter a new era of intense innovation to redefine the way we exist. The momentum of climate movements from ‘Fridays for Future’ to the fossil fuel divestment campaign to the mainstreaming of innovative alternatives gives great hope.

Going forward, it’s important that we do not get distracted, despite the volatile geopolitical environment, and continue to educate ourselves on this complex and evolving threat, make personal and structural changes, and engage with the conversation. There are encouraging trends, but they need impactful finance practices that support the transition to a healthy, sustainable world.

Kate van der Merwe ACA is responsible for Global gFA Reporting Optimisation at Google.