Markets working to support sustainable development

Did Davos 2015 embrace sustainable business?

10 Feb 2015

With the dust settling on the annual World Economic Forum (WEF) meeting in Davos, what pointers can be drawn from the conference for sustainable markets in 2015? We draw light on what happened at the Swiss ski resort, which brought together the world’s most rich and powerful businesses, and produced echoes of previous calls for such multinationals to seriously consider their environmental and social responsibilities, particularly in the lead-up to potentially crucial climate negotiations culminating in Paris in December.

The week began with Oxfam calling for a global tax conference to address tax loopholes, eliminate tax havens and ensure that some of the most profitable companies pay their fair share of tax, an argument backed by IIED’s Camilla Toulmin. Lawrence Haddad, senior fellow at the International Food Policy Research Institute argued for substantial support from business and government to make “investments in research and development that make green growth and poverty-reducing growth compatible”.

A familiar argument was raised about the lack of women represented at Davos, with 17% of the participants being women, but an improvement on the relative 11% of women on the boards of the world’s largest companies, and the 3.4% of female chief executives on the Fortune 500. At least one state leader, President of Rwanda Paul Kagame, raised the necessity for the involvement of more women at forums like Davos in order to make the decisions to tackle climate change and build green economies. This backs research by the IIED and others detailing the importance of recognising and involving women’s and girl’s perspectives when forming climate policy.

The Swiss ski resort of Davos. Source: Wikipedia

On the eve of Davos, WEF released the results of consultation with CEOs and senior business leaders which showed greater concern for environmental risks such as extreme weather and climate change than economic risks such as unemployment or fiscal crises. However, this was contradicted by a PWC survey of global chief executives, where climate change was not amongst the top 19 risks identified.

Beyond such conjecture, there were both a number of important statements and commitments made at the conference. The implication of the recent drop in oil prices for renewables formed a key discussion point at Davos. Christiana Figueres, Executive Secretary of the UN Framework Convention on Climate Change, argued the drop in oil prices showed the relative benefit of renewables given that they proved a less volatile investment than fossil fuels.  Furthermore, she argued that the risk of ‘stranded assets’ for fossil fuel investment was no longer an ‘academic discussion, but a shareholder reality’. Figueres went on to say that countries could take advantage of the fall in fossil fuel prices by decreasing or eliminating subsidies, such as diesel fuel rebates. In an argument backed by Lord Nick Stern at Davos, subsidies could be reduced with minimal impact on consumers. Under such a scenario, if the oil price recovered, in a new market where it didn’t have strong subsidies it would find it difficult to compete with cheaper solar and wind energy. As Figueres pointed out, the viability of renewables was exemplified by the Fossil Free Stock Index (FFIUS) outperforming the S&P 500 by 1.5 percentage points in 2014.

A number of other key leaders both in business and governance circles used Davos as a forum to advance a concerted approach to sustainable markets. UN Secretary-General Ban Ki Moon has previously used Davos to urge business leaders to get behind initiatives such as the UN Global Compact. In Switzerland this year at the release of an UN Environment Program (UNEP) report the Secretary General pressed that “we must break the tyranny of short-term thinking in favour of long-term solutions”. UNEP Executive Director Achim Steiner led a session which discussed how to stimulate flows of finance and technology to create the momentum for large-scale low carbon investments, and a ‘viable carbon market’. The UNEP report found particular promise in green bonds, the market for which was mooted to have reached USD 40 billion by the end of 2014, institutional investment such as that from pension, insurance and sovereign wealth funds, and new banking initiatives particularly in developing countries like Brazil, Bangladesh and China where ‘green credit regulations are being pioneered which ensure that credit approvals by banks match environmental and social priorities, taking into account externalities and risks in certain projects.  

Sustainable market governance mechanisms were a key point of discussion at an Davos side event where Paul Polman, chief executive of Unilever, led the call for a price on carbon saying: "if you don't price what you value, you don't get people to react". This was backed by Feike Sijbesma, chief executive of Dutch nutrition and materials company DSM who in pushing for a “big climate deal in Paris” argued that a price on carbon was a key constituent part of any deal. Meanwhile in a development for sustainable forestry markets, an event at Davos on deforestation free supply chain focussed on two main themes; how deforestation connected with climate change and relevant climate agreements, and secondly how pledges to eradicate deforestation in supply chains for palm oil, soy, pulp and paper could be achieved. Commitments by multinational companies like food and agricultural giant Cargill to eliminate products derived from deforestation from their supply chains were welcomed by observer NGOs such as Greenpeace. In the trade sphere, 14 major WTO members, including China, the EU and US announced efforts to pursue a “global free trade” in environmental goods, which would eliminate tariffs on products including solar panels and wind turbines.

As seen here, amongst the 0.0001% of top earners represented at Davos there was some movement on key elements of sustainable markets that could form part of a global low-carbon economy. Although as John Sauven from Greenpeace noted, “we need more progressive companies to stick their heads above the parapet and walk the talk” and eschew “circular arguments” in a pressing year for the environment.