Twelve months ago, the Glasgow Climate Pact 2021 was signed. Signatories reaffirmed the pledges made by nations in 2015 in Paris; to pursue the goal of keeping global warming to 1.5C. Many argued that the goal lacked ambition as it would merely avoid the absolute worst impacts of climate change. Despite Paris 2015 and Glasgow 2021 promises, the planet is still on course for a 2.5C warming, assuming past promises are kept and targets hit.
The presidential vision for COP27 set out by Egypt is to move from negotiations to implementation. A little less conversation and a little more action, some could say. It’s a bold vision, but then again, with 2.5C looking likely, bold visions are necessary.
How can the International Trade & Investment community contribute?
The IPCC’s AR6 laid out several pathways to Climate Resilient Development. With a rapidly closing window of opportunity to achieve this vision, everyone must take responsibility and play their part. That means governments, industry associations, corporations, and SMEs must make immediate changes. Wholesale changes are needed to their behaviours, policies and activities to reduce emissions and adapt to a changing climate.
But what can be done, and how can this be delivered in the fast-paced, competitive world of international trade and investment?
Here are some immediate, realistic, and impactful actions that Exporting Companies, Investment/Export Promotion Agencies, Multinational Investors, and Local/National Governments can take today.
1. Exporters – Stay ahead of evolving environmental regulations in target markets.
9th November is COP 27 Finance Day – focusing on policy and regulatory approaches to incentivise sustainability and combat greenwashing.
Countries worldwide are bringing in new all-sector environmental regulations to meet legally binding decarbonisation targets. Some are already here, with Mandatory Carbon Reporting a legal requirement in over forty countries worldwide. Ultimately, such regulations will become more widespread and more stringent as countries tighten their regulations to support their climate goals.
Environmental laws will significantly affect companies that are exporting to those destination markets.
Over the next several years, for example, the UK is looking to reduce the climate/environmental impacts of Supply Chains. Similarly, the EU is bringing in a Sustainable Products Initiative to ensure products are reusable, recyclable, energy efficient and not made of environmentally harmful ingredients.
If you are a company looking to export your product into a new market, part of your market entry strategy needs to assess today’s environmental regulations.
For example, the new EU Carbon Border Tax will require EU companies to report on the carbon emissions of imported goods, meaning that companies in Asia and beyond will have to comply to be able to access the European market (and very few companies in Asia are currently even aware of this). It is therefore vital to carry out a horizon scan of the regulations of tomorrow to understand the landscape and the implications for your business.
Even experienced exporters who are well-established in international markets need to stay on top of the evolving regulations to stay competitive and minimise the risk of penalties or loss of market share. Greenwashing, too, is under increased scrutiny – Regulators and consumers are wising up to it, and companies won’t get away with it. Volkswagen’s disastrous “diesel-gate” scandal in 2015 led to $4.3Bn fines in the US and compensation claims in the UK. It was a public relations nightmare and significantly damaged the German company’s reputation.
Earlier this year, only 10 out of 12,000 companies in Europe were assessed as “ready for EU Green rules” and, with China, Japan, South Africa, Canada, the UK, Malaysia and Singapore all developing their own rules, the landscape is complex and the stakes are high. The potential rewards from exporting could quickly be undone if a company is unprepared.
2. Investment & Export Promotion Agencies – Promote Green Investment and Target Support towards Clean Companies.
11th November is COP 27 Decarbonization Day – focusing on efforts to support and accelerate low-carbon development pathways in key industries.
Globally, countries, regions and cities have recognised the need to invest in green sectors and attract progressive, clean businesses. Even countries whose economies are heavily based on oil have seen the light. For example, Saudi Arabia, the largest exporter of oil in the world, is investing heavily in renewable energy projects as part of its Vision 2030 strategy, and has even announced a new electric vehicle company, Ceer, which is expected to attract $150m of FDI and create 30,000 jobs.
The sector is already hyper-competitive, and as industries modernise and green industries expand, the competition to attract investment in these sectors will intensify.
We saw this first hand in the UK in 2021 when Tesla chose Berlin over Somerset for its European Gigafactory. Investment Promotion Agencies need a compelling and holistic offer to attract investment in green industries and seal the deal on FDI projects. That offer must speak the investors’ language and present a holistic value proposition.The proposition should include skills in clean technologies, clusters of buyers/suppliers in low-carbon supply chains, and incentives and aftercare support targeting progressive, eco-friendly companies.
Many IPAs (such as Business Finland and Halifax Partnership) have already developed Green FDI Strategies. The strategies above aim to fill gaps in low-carbon sector supply chains such as renewables and bio-circular technologies. Others, like the UK, are looking for ways to support domestic companies in clean sectors, such as e-mobility, to export to new markets.
Soon – if not already – a Green FDI & Trade strategy will no longer be a ‘nice-to-have’ but will become an absolute necessity for every IPA.
And these strategies are not and cannot be limited to just “green sectors”. Traditional sectors – from financial services to agri-foods, life sciences to advanced manufacturing –need to modernise, improve and reduce their environmental impacts. To support their countries’ net-zero transitions, IPAs must, firstly, play a part by developing policies and frameworks to identify, prioritise, and support ‘Climate FDI’ from progressive, green companies.
Secondly, support also needs to include help to connect these prospective foreign investors with clean domestic suppliers who meet key climate criteria. Finally, IPAs should prioritise the most environmentally friendly investors for enhanced account management and aftercare services.
3. Local & National Governments – Plan for the Future and Build Climate Resilience into Investment Policies
12th Nov is COP27 Adaptation Day – looking at Adaptation technologies, Early Warning Systems and financing food security.
While efforts to reduce GHG emissions are critical to mitigate the worst effects of climate change, even the most optimistic future scenarios predict 1.5C of global warming. Consequently, this means significant risks and impacts on cities, infrastructure, systems, and industries – some of which are already being observed today.
Environmental pressures such as extreme temperatures, changing precipitation patterns, and poor air quality will affect transport systems, food security and health outcomes.
Adapting to the changing climate is critical.
Local and national governments need to proactively take the lead by researching to understand the likely impacts of climate change on their locality. Once identified, governments can then direct funding towards building resilience into these systems. Countries, including China and the UK, and cities such as Dubai (through the Dubai Future Foundation, in partnership with OCO Global) are already working to assess the impacts of climate change on their localities.
These countries are working to understand the risks ahead and are actively developing informed investment strategies that respond directly to those challenges.
Moreover, with risk comes opportunity
Climate-smart adaptations are not just a cost – they will bring more comprehensive economic, commercial and societal benefits. Promoting investment into effective, integrated solutions like Smart City technologies (as is happening in South East Asia through ASEAN) will not only help protect against the worst impacts of climate change, but will bring benefits to citizens such as reduced congestion, increased employment, and improved food and energy security. There is a clear and compelling business case for investment in adaptation – the main challenge is to make that case and secure the funding required.
4. Multinational Investors – Leadership to spread good environmental practices through supply chains
17th Nov is COP27 Solutions Day – highlighting stories of green entrepreneurship and innovative climate solutions by the private sector.
For the net-zero transition to occur, everyone needs to play their part. In the private sector, the maturity of multinational corporations’ environmental practices varies significantly, from leaders to laggards. Small businesses, too, have a significant environmental impact, mainly through their essential role in the supply chains of larger companies.
FDI can be crucial for spreading good environmental practices through industries and supply chains.
A 2021 research study by OCO and Perspective Economics found that foreign-owned firms, “are more likely to demonstrate progressive sustainability initiatives than domestic firms,” and that “investment promotion and FDI should be considered as important drivers of emissions reduction.” International investors can bring positive environmental impacts to domestic industries.
This can happen through spillover effects from innovation, knowledge sharing and improved standards, both horizontally (to competitors and partners) and vertically (to suppliers and customers).
Multinational investors must lead from the front and bring domestic suppliers with them.
Carbon emissions can be directly avoided by spreading good practices throughout the value chain. This can be achieved by localising supply chains, engaging domestic suppliers that meet minimum sustainability standards, and working collaboratively to improve standards. Companies like Unilever and Walmart are ahead of the pack on this, and are using their experience, purchasing power and resources to spread good practices to their new and existing suppliers.
Enough talking – it’s time to Sharm-El-Sheik a leg and ACT!
So, whoever you are, and whatever your organisation’s industry, focus or structure, there are actions you can – and should – be taking now to embed sustainability into your business practices, supply chains, and export and FDI strategies to prepare for and transition towards a low-carbon future.
Yes, it is the right thing to do and there is a moral imperative for us to tackle climate change. But more than that, the key point is that there is a commercial imperative to act, to ensure that your organisation is:
- well prepared to avoid the risks of having an unsustainable business;
- well positioned to seize the opportunities arising from new low-carbon industries; and
- well ahead of the competition in fast-paced, evolving international markets.
The famous Elvis song, ‘A Little Less Conversation’ perhaps sums up the expectations for COP 27:
“Don’t procrastinate, don’t articulate, It’s getting late, gettin’ upset waitin’ around, A little less conversation, a little more action, please.”