Climate risk and zero-deforestation commitments: Why voluntary pledges are insufficient

Channels: Policy

Companies: Blue Maia

People: Pernille Holtedahl

Policies that incentivise the shift to a green economy are necessary to get to grips with climate change, argues Pernille Holtedahl

If you want change, a lever is useful and the more solid it is, the better.

Legislation and monetary incentives are two excellent levers for changing behaviour. While that may seem self-evident, much public policy today seems to be in denial of that intuition. Instead, the money seems to be riding on 'voluntary pledges'.

While there are positive intentions behind voluntary action and some success stories exist – for example, the current drive to reduce plastics consumption in the UK is largely driven by public opinion and may produce results – they are often insufficient.

For large, intractable challenges like global climate change, policy experts will tell you that policies that incentivise the shift to a green economy are necessary.

But in the wake of the most recent IPCC report, there has been preciously little policy action – instead we have seen generic calls for action and a lot of hand-wringing.

Indeed, this is a pattern that repeats itself across many environmental challenges. In the related debate on how to end tropical deforestation, a lot of hope has been pinned on companies' willingness to reduce deforestation by voluntary action such as no-deforestation commitments and commodity traceability initiatives.

Large multinationals such as Unilever and Nestle undoubtedly want to do the right thing, but their pledges and initiatives fall short of what is needed: a recent stock-take of results show that while the number of commitments is increasing, implementation is very uneven and deforestation rates largely unaffected.

These companies have good intentions but, in addition to implementation challenges, they are arguably constrained by a lack of appropriate market and policy signals.

And it's not just that voluntary measures are inefficient from the perspective of achieving change; there is evidence that businesses quite like mandated changes too, at least if they are done well.

While accepted wisdom has it that businesses hate regulation, I would suggest that businesses hate bad regulation, but many embrace the good kind. For example, international oil companies have for years operated with an internal price on carbon, even if the market doesn't provide one.

Self-destructing as it may seem, they'd quite like an official one as it creates a level playing field and more certainty about a future they consider likely.

In this case, business appears to have more foresight (or courage) than regulators.

Likewise, the financial community has spent years agreeing on the merits of greater transparency on climate change reporting but, over a year after its publication, supporters of the voluntary Task Force on Climate-related Financial Disclosures (TCFD) largely still sit on the fence when it comes to implementing its recommendations.

"In the wake of the most recent IPCC report, there has been preciously little policy action – instead we have seen generic calls for action and a lot of hand-wringing"

I would venture that many of these companies – along with soft commodity producers who know they could, and should, invest more in tracing the provenance of their products – would quite welcome a more forceful steer from the authorities.

Some will argue that it would be premature to do so, that the implementation tools are not there yet.

But the pace of technological progress (eg. commodity tracing tools such as Trase) and the opportunity to develop tailored accounting tools suggest these hurdles can be overcome.

Common for these examples is that companies can find it hard to act on their own because of the costs involved, uncertainties about outcomes and the possibility that being a laggard is more profitable than being a pioneer.

This is when a more collective approach can be useful: a move that is risky individually will be less so when undertaken collectively.

Voluntary action is positive but let us not fool ourselves into thinking that it alone will solve a pressing problem like climate change in time.

Pernille Holtedahl is founder of Blue Maia, a 'green finance' advisory firm.