Government and civil society have long fashioned policy decisions around an alleged trade-off between economic success and social & environmental progress.
The result is a catastrophic divide between business, government, and society.
“We are living in an interminable succession of absurdities imposed by the myopic logic of short-term thinking.”
– Jacques-Yves Cousteau.
Hyperbolic discounting is the logical fallacy that occurs when one favors a smaller nearsighted reward over a larger future gain. Consequences assumed to occur in the future are perceived less significant the further from today they are deemed to arise. Neoclassical economics further contends that one discounts future rewards by a fixed percentage for each unit of time one must wait to receive said award.
The major impediment to short-term thinking is a failure to consider long-term implications.
Policymakers, narrowly focused on garnering political goodwill and acquiring or maintaining positions of power, are notorious culprits of hyperbolic discounting. As such, government has drastically affected the renewable energy industry through countless regulations and rules, both hindering and advancing sustainable initiatives.
Differing policy prioritization, cultures, and opinions of climate change have prevented governments around the world from coalescing on any one issue.
A renowned example is the 1997 Kyoto Protocol, an attempt to delineate an international agreement for the reduction of carbon emissions, only to meet opposition from the United States, refusing to ratify because emissions targets were not imposed on the developing world.
Yet, even the more prolific efforts have failed to result in sufficient mitigation of climate change.
On February 17th, 2009, U.S. President Barack Obama signed into law the American Recovery and Reinvestment Act (ARRA), otherwise known as the “Recovery Act”, introducing novel energy incentives for business, such as increasing the amount of funds available to issue new clean energy bonds.
The list of initiatives endure, yet the carbon emissions still grow.
CURRENT STATE OF AFFAIRS:
25 million viewers watched the 2016 Presidential debate, a number 10x greater than that of just four years ago.
While some tune in for the sport, policy stances relative to sustainability range from a complete denial of global warming to a full embrace of renewables. These opinions may seem insignificant to the outcome, but the 2016 United States presidential election will have wide ramifications on business and clean energy policy moving forward.
LEFT VS. RIGHT:
Disclaimer: TheSustainableInvestor is not asserting a political stance, rather attempting to portray the wide gamut of climate change views held by the 2016 presidential candidates.
Hilary Clinton: “(Climate change is) the most consequential, urgent, sweeping collection of challenges we face as a nation and a world.”
Democratic candidate Hilary Clinton vows to install half a billion solar panels by the end of her first term, aspiring to generate enough renewable energy to power every home in the U.S. within ten years. However, it has not gone forgotten that Clinton supported both offshore oil drilling and hydraulic fracturing (fracking) during her time as Secretary of State. Moreover, the Clinton Foundation has accepted millions from oil titans of the likes of ExxonMobil and ConocoPhillips.
Democratic candidate, Bernie Sanders, led the opposition to the Keystone XL pipeline. Sanders asserts the United States must take a leading role in confronting climate change by transforming our entire energy system from fossil fuels to clean energy.
“Unless we take bold action to address climate change, our children, grandchildren, and great-grandchildren are going to look back on this period in history and ask a very simple question: why didn’t the United States of America, the most powerful nation on earth, lead the international community in cutting greenhouse gas emissions and preventing the devastating damage that the scientific community told us would surely come?”
The other side of the political spectrum is taking a slightly different stance.
Donald Trump: “I am not a believer in climate change.”
Last week, while Pope Francis proclaimed to thousands that climate change could “no longer be left to a future generation to resolve”, Republican candidate Donald Trump disagreed, contending, “You know – look: It’s weather and we have bad floods. And frankly, it’s been that way for so long, and honestly, weather changes and you have storm and you have rain and you have beautiful days. But I do not believe we should imperil the companies within our countries.”
Florida Governor, Jeb Bush, holds a more moderate view relative to the other Republican candidates. Bush states climate change should not be ignored, but should be “a small part of prioritization of foreign policy.” Interestingly, it was recently unearthed that Bush’s own state of Florida is suffering massively from climate change: 2,120 miles of land in Florida reside less than three feet above the high tide line. This equates to 300,000 homes, or $145 billion in property value, at risk.
It is of utmost importance to note that while the political campaigners are divided, the experts are not. 97% of active climate scientists actively endorse the position that human-contributed carbon emission is a legitimate notion.
In fact, numerous media outlets, aspiring to appear “objective”, are presenting both sides of the climate change debate, creating a false illusion of equivalence.
The simple truth is that 9 of the 10 warmest calendar years on record (since 1880) have occurred since the year 2000. Scientific evidence directly measuring rising surface air temperatures, subsurface ocean temperatures, retreating glaciers, and changes inflicting physical and biological systems asserts the following.
It is clear from extensive scientific evidence that the dominant cause of the rapid change in climate of the past half century is human-induced increases in the amount of atmospheric greenhouse gases, including carbon dioxide (CO2), chlorofluorocarbons, methane, and nitrous oxide. – American Meteorological Society.
The global warming of the past 50 years is due primarily to human-induced increases in heat-trapping gases. Human ‘fingerprints’ also have been identified in many other aspects of the climate system, including changes in ocean heat content, precipitation, atmospheric moisture, and Arctic sea ice. – U.S. Global Change Research Program.
Last week, 92 brand companies, ranging from The North Face to Clif Bar, 50 professional athletes, 53 ski resorts, and 13 snow sports trade groups joined forces and wrote a letter to President Barack Obama, asserting a mutual concern regarding the affect of climate change on the snowsports industry. The letter, to be delivered in October, is a representation of a mutual plead for stronger climate change mitigation policies.
The snowsports industry views climate change as an economic risk as well as an environmental issue. Our businesses support $62 billion in tourist-related revenue, 964,000 jobs and $4.6 billion in annual retail sales. We are united in our desire to reduce carbon emissions and transition to a clean energy future.
ON THE DOCKET: COP, PARIS:
In December of 2015, policymakers, business leaders, and environmentalists from around the world will congregate in Paris for the United Nations Framework Convention on Climate Change (COP 21), to negotiate post-2020 global objectives for the reduction of greenhouse gas emissions.
COP 21 represents an opportunity to alter our trajectory.
For decades, governments have convened on climate change, but to no avail. As greenhouse gas emissions have reached catastrophic levels, experts are deeming COP 21 as either the ultimate solution or the last resort.
WHOSE RESPONSIBILITY IS SUSTAINABILITY?
Government? Business? Consumers? Investors?
The aforementioned question is vital, and arguably unanswerable.
Large for-profit corporations, by and large, have the capital necessary to instigate change. Yet, government has in its power the ability to mandate corporations to behave a certain way. And consumers and investors drive business activity. Goods/products that cannot be sold will cease to be produced.
The distinction between failure of government and failure of business is stark.
It is the exact distinction between excellence and equity.
Excellence and innovation is the responsibility of business. Government is entrusted with education, security, and social justice. Public goods. Of course, spillover effects are prevalent. Effective government creates technology which becomes a positive externality for business. Effective business contributes social justice as a byproduct of fair treatment of employees. Yet, it is the responsibility of government to intervene when business fails to provide enough jobs. The reverse is simply not true. It is not – or it should not be – the responsibility of business to step in when government fails its core mandate of social justice.
A large source of policy debate stems from a varying prioritization of public goods: importantly, the manner in which government spending should be allocated.
The market tends to avoid or ignore risk until faced with abrupt crisis: a lost lawsuit, legal challenge, or act of violence.
This week, the risk to the Volkswagon business model became a reality, as news of the company’s intentional distortion of carbon emissions became public. This lack of integrity resulted in the resignation of CEO Martin Winterkorn, a cost of recall of $7.3 billion, and a colossal market cap plunge in the stock market.
Historically, corporations have generally been unwilling to alter practices without government intervention, exemplified by the necessity of government involvement to ban investments in Cuba, North Korea, and Iran. The chief impediment has been that numerous, conflicting restricted lists of objectionable companies have prevented a critical mass from uniting on any one issue.
Bond vigilantes have become a credible force in the bond market by forcing rates higher in inflationary environments, prior to Federal Reserve action. In some circumstances, the bond vigilantes have been so successful that government action has not been required.
Is it possible “ESG vigilantes” could emerge, coercing company action by affecting stock prices prior to government intervention, such that intervention no longer becomes necessary?