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European Affairs
International Development
Business Is Playing an Important Role in Safeguarding the Environment
By Bertrand Collomb
As the international debate over sustainable development gathers pace, business is playing an increasingly constructive role in trying to find solutions. Although the extent of business’s engagement is not always appreciated, it is clear that multinational corporations will have to play an active role in finding solutions to such crucial challenges as meeting future world demand for energy and protecting the environment. An increasingly important player in the search for such solutions is the World Business Council on Sustainable Development (WBCSD), which groups 170 companies from the United States, Europe, Japan and a number of emerging nations. WBCSD is a global organization, but is complemented by regional or national councils of a similar nature. The latest one, a China Business Council for Sustainable Development, is now being established after three years of efforts.
The organization was created after the Earth Summit in Rio, in June 1992, with the aim of gathering together businesses that had positive attitudes toward environmental issues, including climate change. After Rio, we decided that even though there were no scientific certainties about climate change, we should still work together and take positive action. Several companies undertook voluntary commitments to reduce emissions, including some that went beyond the requirements of the Kyoto Protocol.
At the UN World Summit on Sustainable Development in Johannesburg, in August 2002, business really took a front seat. For various reasons, many governments were a little hesitant. At a time when the emerging countries were emphasizing poverty or eradication of poverty, rather than climate change and other issues, it was especially interesting that the WBCSD agreed on a joint statement with Greenpeace, an organization with which business has not had particularly amicable relations. Civil society and business were effectively saying: “OK. We have started moving, so we have to keep moving forward. You governments are a little bit shy for political reasons, which we respect, but the train cannot stop now that it has left the station.”
This is the kind of approach that WBCSD has long taken on climate change and energy issues. But what happened in and after Johannesburg led to a sudden evolution in business thinking. Johannesburg emphasized the eradication of poverty. Now one might say that it was easier to talk about the eradication of poverty than about thorny environmental issues. Even if you do not do very much, it is a good topic for a conference. That is one line of argument.
The other line of argument is that poverty is a real problem, and that anti–globalization forces have obliged us to focus on poverty and inequality issues, and therefore on growth, because clearly poverty cannot be eradicated without growth. We can probably have economic growth without eradicating poverty, if we do not manage it well. But we certainly cannot eradicate poverty without growth.
And, of course, if we are also taking the environment into account, we want sustainable growth. But all this talk about poverty and economic growth led companies that have been in the forefront of action on climate change to wonder where they stood.
All the scenarios for the future of the world economy show that the need for energy will increase significantly. In the next 20 or 25 years we shall probably need to double world power generation capacity. Even if you are the boldest dreamer, it is clear that most of the energy increase in the next 25 to 50 years will come from existing technologies, the large majority from fossil fuels.
Even if we make a lot of progress on renewable sources of energy, it is not going to change drastically the percentage of energy that is going to come from those sources. It may double it. But even then, renewable sources will still only account for seven percent to eight percent of total energy supplies, compared to three percent or four percent today. That is not going to change the face of the world.
Enormous potential savings, however, can be achieved through the more efficient use of energy, especially in emerging markets. All over China, for example, you can find cement being produced in ugly, dirty and inefficient plants with very small vertical kilns. Not only do those plants produce poor quality cement, but they are also heavy polluters and very inefficient users of energy.
That is only one example. There are several other industries that have enormous potential to improve their efficiency and their impact on the environment. So it is probably wrong to assume that in future we shall still need the same amount of energy to achieve the same amount of economic growth. We probably can make relatively significant improvements in existing trends. That does not mean that we shall not need more energy – it means that it is probably wrong simply to extrapolate on the basis of current figures.
Such savings, of course, will be possible only if we use the best available technologies. A lot of people talk about the need for technology transfer, but in my experience technology transfer is not the problem, because the technology is widely available. It is rather a question of technology management. What can make a difference is not just the transfer of technology, but the transfer of the skills to manage it. That means that international companies have a role to play, because anybody can write a check and get the most modern cement plant from the manufacturing supplier. But the plant cannot be run at top efficiency without expertise, experience and accumulated know–how.
International companies can be of great help to emerging countries, both directly and indirectly. They can help directly by better managing some of the industrial facilities in those countries, and indirectly by setting benchmarks against which local companies are going to have to judge their performances.
I am not suggesting that international companies should take over all the industries in emerging markets in order to make them efficient, which obviously would not be acceptable to developing countries. But the transfer of technology and technology management know–how will have a striking impact on local, non–international companies and even on international companies based, for example, in China. We see enormous potential in that approach. On the other hand, the need to continue to strengthen economic growth in order to eradicate poverty means that we cannot arbitrarily curtail energy needs.
The availability of affordable energy in a sustainable way is clearly going to be critical. It is not just a question of reducing emissions. We must combine emissions reductions with affordable energy.
Now, what is actually happening around the world? The first thing, of course, is the Kyoto protocol. From a legal point of view, entry into force of Kyoto is dependent on Russian ratification, which is unlikely to happen soon, if at all. So Kyoto is probably in limbo for quite some time and maybe forever.
But even in the United States, many companies are taking the issue of carbon dioxide emission reductions very seriously. One third or more of the companies that are members of the Business Roundtable have undertaken voluntary commitments to reduce their emissions in their business plans. The United States is also spending a great deal of money on research into this issue, while Europe is not doing as much research as it should. Europeans should be discussing the kind of research programs they should be working on. Research, at least, should not be politically controversial and could be the subject of a joint effort worldwide.
Europe has said it will try to meet the Kyoto targets, whether or not the Protocol is ratified. There is a European Commission directive to that effect. The directive does not specify how each member state must reduce its emissions; it is up to the member governments to allocate reduction targets and quotas. The directive also provides for a European emissions trading system, although some countries have objections and may opt out.
The situation is complicated because while the states are going to allocate targets, the Commission has reserved the right to check on whether it leads to disruptions of trade in the European Union – although nobody knows exactly what the Commission would do in that case. It is a trial–and–error process.
The approaches of the member states are very different. The United Kingdom started two years ago with a system combining compulsory and voluntary elements, and is now ahead of the game. But the UK trading system does not exactly match the Commission system, so there will have to be some adjustment.
Germany has a very good understanding between its industry and its government and believes it can put together a system with minimum Commission intervention. The French situation is a bit more complicated. The industry was threatened by tax penalties by the previous Socialist government that was voted out of office in 2002, and has worked out a voluntary system with the current center–right government. After the Commission published its directive, it is not clear how the transition from the voluntary to the compulsory system is to be managed, and we are trying to find a solution in talks with the government. For its part, the Spanish government is openly telling its industry: “Don't worry. We’ll be the last.”
But at the end of the day, everywhere, there will be targets, and there will be penalties if the targets are missed. So, for industry, the system is working and the system will deliver reduction emissions. The problem is outside industry because clearly the numbers that have been put in the plans for transportation and housing, for example, are just numbers. And I am not sure ways can be found to implement those numbers in practice.
And then there is the proposed Clean Development Mechanism (CDM), under which companies could be credited in their own countries for savings made in emissions in countries outside the OECD area. There is a big theological argument over the CDM, which European environmentalists say is immoral. They say that we should do our duty first in our country and not try to evade our responsibilities by doing it somewhere else. Business, of course, does not agree with that argument. So the Commission has compromised by limiting the share of reductions that could be claimed in this way to six percent of the total for the time being.
There are some other difficult issues for international companies. What happens, for instance, if you decide to transfer production from one country to the other, which is a politically sensitive issue? The Commission has ducked the issue and said it should be decided by the member states. This is absurd because it is the only issue that is really European in nature and should have been dealt with in the directive.
I do not want to be pessimistic however, because it is clear that everybody is much more sensitive to the issue than they were ten years ago. Things are happening. But they are happening in a framework that is not very easy to control.
And there are some issues that need to be looked at more closely, given our future needs. There has clearly been a change in attitudes toward nuclear power, even in Europe. Finland has decided to build a nuclear plant. And it has done so after undertaking a very interesting process of democratic consultation, in which the issue was discussed among the general public and in Parliament. It was not a technocratic decision that was forced on the Finnish people. So, it could be an example for other countries, even though Germany continues to dismantle its nuclear plants.
People are even beginning to accept that global warming cannot be avoided, so that there should be a debate about how to alleviate its impact. There could be a tradeoff between how much we want to do to reduce emissions and how much we ought to do to cope with the consequences of global warming as it happens.
The issues outside industry and power generation seem to be the most interesting and important. In the construction industry, for example, less than 20 percent of the carbon dioxide emitted by a building comes from the materials with which it is built. More than 80 percent comes from the functioning of the building. There is a lot to be done in reducing emissions from buildings.
We could probably reduce the amount of energy used in a building by well over half if we built it right, if we changed the standards, with only a ten to 25 percent cost increase. Ecological architecture involves numerous ways of saving energy, including insulation, thermal inertia and ventilation.
One problem, of course, is that you can do this for new buildings, but new buildings are only a tiny part of the global building stock. Retrofitting existing buildings is much more difficult. But some of it could be done without endangering economic activity, because it could be good for business. Then there are the issues of transportation and urban planning, where there is a lot of progress to be made, but it is not easy.
Fulfilling our energy needs while taking account of climate change remains the most pressing issue. In business, we have a feeling that people began to recognize this and other environmental issues some years ago and that recognition has created a movement in society. Business is probably the element in society that has advanced farthest and most consistently.
Now we can see some of the potential, as well as some of the problems. But what we really need is a policy framework in which business can work, because it cannot do everything by itself. We can do a certain number of things on our own. But if we are to be effective, we need to have a global policy framework. We need to make sure that companies that invest heavily in environmental protection do not lose their competitive position as a result.
Such an international policy framework must include the United States, because we cannot solve the world’s issues without the United States. We also need to include developing countries because if they want to grow they will grow. We cannot say or do anything that would hinder their growth. But at the same time, we have ways of ensuring that they could grow with much less waste of resources than we did when we grew 20 or 30 years ago.
And we have to go beyond Kyoto. It creates political difficulties these days when we start talking about Kyoto. But the good thing about Kyoto is that we are approaching the end of the period it covers. If we want to do anything by 2008, we should start now.
It would make a lot of sense for business to try to do something now beyond Kyoto. Now, as long as Russia holds Kyoto in the balance, it might be politically difficult to decide whether Kyoto is alive or dead. But that will not make very much difference anyway in practice. It is not unlikely that some of the Kyoto targets will be missed anyway, because there is so little time left and there seem to be some difficulties in meeting them.
That, however, does not matter very much if the movement could be started again. I do not know how it can be restarted. But, from a business point of view, that would be a very positive development for the years to come.
Bertrand Collomb is Chairman of the Board of Directors of Lafarge, and was recently elected Chairman of the World Business Council on Sustainable Development. He was Chief Executive Officer of Lafarge from 1989 to 2003. He previously served as CEO of Lafarge Corporation, the North American arm of the group. He joined Lafarge in 1975 as a regional manager in cement operations in France.