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Sustainability (Climate Contracts)

February 18, 2014

President Obama recently declared that "climate change is a fact." This statement echoes that of many scientists, environmentalists, activists, corporate risk managers and government officials. Its causes are roundly debated, and its solutions even more so, but most of us would agree that something's amiss.

A couple of weeks ago, I had the honor of attending a two-day Environmental Sustainability Leadership class at the Wharton School of the University of Pennsylvania. As part of the program, we were given a number of reading materials that corresponded to lectures and presentations from prominent faculty members at Wharton who have become experts in various facets of sustainability.

One of those experts was Eric Orts, Professor of Legal Studies and Business Ethics, and Director of the Initiative for Global Environmental Leadership at Wharton.

Professor Orts shared with us an article that he wrote for the Virginia Environmental Law Journal in 2011 (Volume 29) entitled, Climate Contracts. In it, he asserts that policymakers and academics often argue that a comprehensive global treaty is the only effective method by which to regulate greenhouse gas emissions, but efforts to negotiate and enforce such a treaty have not met with success to date. Alternatively, he suggests smaller, more plentiful "climate contracts" as a more realistic way of altering behavior and achieving environmental goals in the long run.

As a foundation to his argument, he outlines several reasons why global comprehensive approaches to climate change are unworkable. They are:

  • First, there are too many people and too many countries for a comprehensive solution to work.
  • Second, the economic interests of different countries are too much in direct competition, making an agreement to sacrifice short- or medium-term economic benefits for the long-term global common good unlikely.
  • Third, difficult ethical claims about fairness and justice in climate change policy reduce the likelihood of an effective comprehensive agreement.
  • Fourth, the extremely long time horizon for serious consequences predicted for climate change compared with the relatively short-term attention spans of human beings leads to motivational issues that are especially problematic at the global level.
  • Fifth, the institutional means to effectively monitor and enforce a comprehensive solution to climate change are absent.
  • Sixth, given economic globalization, significant economic "leakage" (such as businesses relocating from heavily regulated places to less regulated places) may be expected to occur within any comprehensive approach.

Instead, Orts argues that a series of multiple "climate contracts" working together from a bottom-up (rather than top-down) approach are more likely to achieve success. These could include non-comprehensive international agreements (such as the formation of technical standards or reporting best practices or developing "green" technologies), bilateral or multilateral climate treaties (for example, between the "big four" emitters of greenhouse gases: China, United States, India and the European Union) or multiple municipal plans (where over 70 percent of the world's population lives).

Private entities such as nonprofit organizations, business coalitions and alliances, and consumer organizations can also play an important role with their own agreements. The Carbon Disclosure Project is an example of an effort where thousands of corporations have voluntarily chosen to disclose information about their carbon footprints ahead of any public disclosure requirements.

Similarly, many companies have established voluntary "climate contracts" to reduce their carbon footprints within a specified period of time. For instance, American Express set a voluntary goal of reducing its carbon footprint by 10 percent between 2007 and 2012. In reality, we reduced our footprint by 27.5 percent with an absolute decrease of 10.2 percent, and have subsequently established a goal of another 10 percent reduction by 2017. This is in essence a "climate contract" with our various stakeholders: customers, employees, shareholders and the public. (See my CSR Now! post from December 17, 2012)

What do you think? Does this "bottom-up" approach advocated by Professor Orts make sense to you? We would like to hear your clicking here. Or alternatively, follow me on Twitter at @timmcclimon and comment there. Thanks for reading and sharing this blog with friends and colleagues.

P.S. Did you know that total greenhouse gas emissions have actually increased by more than 19 percent (as of 2011) since the Earth Summit in Rio de Janeiro in 1992 even though some countries such as the United States have decreased or stabilized their emissions?


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