Of all the disruptions experienced by Irish businesses this decade – the pandemic, return of inflation, Brexit and supply chain rationing – the challenge of mitigating climate change has moved to the top of the corporate agenda. The rollout of Carbon Budgets to reduce Irish greenhouse gas emissions in half by 2030 is the major challenge for business leaders writes Danny McCoy, Ibec, CEO.
Note: This piece was originally published in Business & Finance magazine, vol. 59, no. 1, available to read, with compliments, here.
The United Nations’ Sustainable Development Goals (SDGs) are a collection of 17 interlinked global goals reflecting the wide breadth of issues under the concept of sustainable development. The issues range from global imperatives to alleviate hunger, poverty, inequality; to achieve stable peace; enhance access to education and the promotion of diversity, along with environmental preservation goals which in turn come under a number of further categories related to air, water and biodiversity goals. Climate action, is specifically covered as SDG #13.
The last decade has seen an emphasis on the so-called ESG agenda, covering Environment-Social-Governance issues. The ESG agenda is sustainable development captured within a corporate business context. In my role as CEO of Ibec, Ireland’s largest business representative organisation, I have witnessed the emergence of a global business focus towards Stakeholder capitalism away from Shareholder capitalism, which would have been the dominant paradigm thirty years ago.
Milton Friedman’s exhortation that the business credo should be “the business of business is business” and that the single objective should therefore be shareholder value maximisation is still largely the default position. ESG concerns, whilst factored in additionally, are still subordinate in most cases to the financial metrics of corporate sustainability. The nascent shift in thinking towards stakeholder values being maximised are challenging this dominant shareholder paradigm.
Ibec’s Business Leaders conference last year on Stakeholders and Sustainability captures the corporate zeitgeist where both sustainability and stakeholder engagement are seen as going hand in glove with traditional business objectives. The other global trend, with relevance for the concept of sustainable development, is collectivism. Collectivism is a reaction to the period of individualism that has extended over four decades across the western world.
The Great Financial Crisis of a decade ago was a catalyst for revising some of the more extreme aspects of individualism, that ultimately gave rise to what many refer to as precariousness. Whilst precariousness may refer to the social and governance aspects of ESG, workers’ rights and data protection as examples, it clearly captures the environmental dimension too. The stakeholders in environmental terms must be considered as cross jurisdictional particularly so in the context of Ireland’s post-Brexit Shared Island initiatives. It is far too short-sighted to think that the jurisdictional borders of the island will determine the spillovers on some of the great challenges of our time.
The sustainability of our shared natural environment and co-joined energy, food production and waste systems gives tangible expression to this mutual interdependence. The European Union, as part of the international environmental agreement set out in Paris in 2015, aims to substantially reach a net zero carbon union by 2050, with an intermediate target of reducing greenhouse gas emissions by 55% of 2018 levels by 2030.
This intermediate target constitutes a near doubling of the output ambition outlined just three years ago. Given the costs of abatement are nonlinear, in that they will increase very significantly for greater percentage reductions, the costs will significantly be more than doubled. After the disruption from the global Covid pandemic, there is also less time left until to 2030 to achieve the target. Whilst the benefits of swift action are also potentially non-linear, the test now is to do more, at significantly higher costs and with less time.
The world-leading Science Foundation Ireland Research Centre on Energy-Climate-Marine, MaREI considers the options in trajectories towards the target and the big choice between Early or Delayed Action scenarios. However, the initial starting level will be substantially determined by role of Land Use, Land Use Change and Forestry (LULUCF). This sets a binding commitment for each EU Member State to ensure it is accounting for emissions from land use that are entirely compensated by an equivalent removal of carbon dioxide from action in the sector.
The national peatlands and forests are sources of carbon capture but as they are exhausted by harvesting, new replenishment stocks are required. In the case of peatlands, or bogs, they are exhaustible fossil fuel resources, so they need to be preserved, whilst forestry assets are renewable resources that require careful husbandry to ensure net carbon neutrality. The lack of binding and enforceable targets with a full societal appreciation of the enormity and hard trade-offs involved has meant that progress has been uneven over the last three decades. It has not been a spectacular failure, as some commentators would now suggest.
Enormous social and economic progress has been achieved in reversing population decline from emigration, to creating world-class living standards and quality of career opportunities, supportive social protection nets and enlightened global mindsets within the population. The decoupling of GHG emissions from economic growth has been significant but the challenge to go further by halving emissions within a decade and to being net zero carbon within the next 30 years is daunting.
The technological progress of the last 30 years must offer us some confidence though. The challenge is not so much the technical know-how but rather the societal know-what. Slogans and trite virtue signalling from all sectors of society reveal an ignorance of the task at hand to achieve sustainable development. The strong form of sustainable development which collapses quickly to stating mitigation, not adaption, is always and everywhere the only outcome. That offsets in other jurisdictions are somehow morally repugnant when emission reductions is best done where the economic costs are least and by facilitating investment and technology transfer into developing nations to achieve other societal objectives. That natural capital is always superior to human, social and technology capital.
Each of these attitudes in turn compounds the problem rather than alleviates it and pushes us off the path of solution. The new credo might be that the business of business is sustainability.