The challenge of climate change and the economy - Thoughts on sustainability II

In Part I of this series on sustainability we had examined the challenge of sustainability in the current framework of our economy & capitalism.  In the 2nd part, I examine the issue of climate change solutions in the context of economic and real-world challenges.

Source: Unsplash, Master Wen

Before we jump into the real world let us analyze the world of fiction, it is interesting to note that in the world of fantasy fiction from JRR Tolkien to Michael Sullivan we have descriptions of thick lush green forests and talking trees. In contrast, the world of science fiction describes the future as dystopian. Even Elon Musk attempts to build a rocket to shift humanity to Mars. In his famous book Capital, Thomas Piketty takes clues from literature to get an insight into the prevalent society and the economy. Implicit in our current world of literature & business is the prediction of a bleak climatic future of the earth.

In the real world, we are all aware of the perils of climate change.  Despite this, our leaders and business are not able to take the urgent actions necessary, limited by the needs of the economy, profit targets, and political considerations. I hence look at the climate change solutions from the viewpoint of the most important person in the room, the consumer.

1.  Measurement – Cue and Rewards

Climate change is ultimately driven by our consumption habits and in capitalism what we consume is what will get manufactured. How do we change our habit of going for the cheapest short-term alternative (the list price) to the cheapest long- term alternative (incorporating climate change)?  To change a habit, we need a cue to trigger the right decision and a reward to reinforce the habit.

The answer lies in measuring and putting the key climate impact metrics upfront in front of the consumer in a manner that is easy to understand.  We need to be able to look beyond the marketing gimmicks of calling everything sustainable.  E.g. a wooden product while more sustainable compared to plastic is not truly sustainable unless sufficient afforestation was done to replace the trees cut or is recycled.

What percentage of the product is biodegradable? What proportion of recycled material is used in the product? Were harmful chemicals utilized in the manufacturing process? How energy efficient is the manufacturing process or the operation of the device? Verification of these facts could require the utilization of technology such as block-chain and/or independent agencies to certify the metrics.

A verifiable, standardized measurement process with an easy to understand scorecard is the 1st step in allowing the consumer to make an informed choice. It is the cue during the purchase decision-making process required to change habits. It is also a reward.  E.g. we buy energy-efficient appliances because besides it being ecologically sustainable, we save on energy costs. We need to understand the impact of our purchase decision on the environment through a quantifiable metric to get the satisfaction of a reward. 

Ideally, putting such metrics should be made mandatory for all products & services by the government. However, in the real world, this initiative needs to be taken by independent agencies, sustainability-focused corporates, and conscious consumers.

2.  Scale & Funding

The 2nd most critical aspect of the fight against climate change is building scale. The price drop in renewable solar energy globally is a prime example of how scale can make sustainable solutions cheaper to existing fossil fuel alternatives. Hence while handcrafted products are great impact investments, the true impact to reverse climate change will require scale sufficient to make sustainable solutions price competitive for consumers.

While improved consumer habits can help drive scale, the key ingredient to the formula is financing.  Environmental, Social & Governance (‘ESG’) investing is one of the fastest-growing investing areas globally, yet it remains small compared to the funds burnt by investors in business such as WeWork, Oyo & Uber.  There is also the issue of simply re-labeling conventional investments as ESG.

Large businesses globally have become larger and more profitable over the last decade, gathering both market share and clout. The default mode of competition is to build scale at the cost of profitability, eliminating competition, and steadily improving the product to achieve consumer satisfaction.  To compete in this scenario requires significant funding. It is the scale that will satisfy the affordability requirement of the consumer. An advantage of the prevalent competitive structure is shifting a single large business, say an Amazon to sell verifiably sustainable products could create a large impact quickly. Hopefully, the Tesla stock price rise will inspire enough investors to take the plunge.

3.   Employment and the economy

Global economic growth has declined steadily over the past decade, driven by various factors including rising income inequality. Climate change naysayers argue that sustainability initiatives negatively impact legacy industries & employment.

In essence, reversing climate change can be as big an employment generation opportunity as machine intelligence and automation. While in principle both can be disruptive, the shift to sustainability can be smooth if it is accompanied by consumer demand and affordability.  Assuaging the concerns of the naysayers will require verifiable standards not just for domestic industries but also for imported products.  In the era of free trade agreements, this could be the next frontier of global trade negotiations. 

Over the long term, sustainability will add to productivity and efficiency viz. recycling or renewable energy effectively frees us from the limitations of the commodity markets. Degrees in the environmental sciences and sustainable technologies shall be in demand given the massive human resources required to measure and verify environmental impact, innovate new technologies, fund them, and create policies in the area.

To conclude, the employment generation and entrepreneurship opportunities for sustainability can create a virtuous cycle combining purpose with consumption and employment. The power to roll this wheel will come from consumers and it is here that the initial focus should be.

In my next article, I will examine the challenge of affordable housing in the context of rising income inequalities.