In this expert view we ask what is the relevance of this research in today’s business environment? Are these issues on the board’s agenda? Are they seen as risks or opportunities to business growth and success?
Why here, why now?
Although climate change has been rising up the agenda in recent years, poverty is not a new issue. But both of these are now moving centre stage. The world’s most powerful leaders will meet at Gleneagles in Scotland in a few week’s time. Surely the protracted political instability in Iraq, the economic rise of China, the threat of terrorism will provide enough food for debate, to keep these leaders busy for the duration of the conference. But now, the UK government has firmly placed climate change and Africa at the top of the agenda for the G8 Summit, affirming the critical importance of these two issues for the future of the planet and its people.
Why these issues?
Such a decision shows a growing recognition that these two immense challenges - poverty (in Africa and other nations) and climate change - cannot be resolved by any one group in society, let alone by any country acting in isolation. Any serious attempt to mitigate the worst effects of these issues and to provide long-lasting and workable solutions will require action from across the globe and from all parts of society; it will require the leadership of government and wider society, and also the innovation and creativity of business.
The bottom line?
The results matter to business – and not just to the personal ethical concerns of people employed in corporations. Market instability and reputational harm are among the significant risks to commercial success from the millions living in poverty in Africa and elsewhere.
On the flip side, more and more frequently, the business opportunities in poor communities and countries are also being extolled. The management writer, C.K. Prahalad writes in his book, The Fortune at the Bottom of the Pyramid: “If we stop thinking of the poor as victims or as a burden and start recognising them as resilient and creative entrepreneurs and value-conscious consumers, a whole new world of opportunity will open up.”
Similarly, Professor Stephen Schneider of Stanford University has argued that it is down to business to move the agenda forward on climate change. In early 2005, he argued: “The business community is what is going to push this [Bush] administration or the next one into international action, because it will make sense for them to do so.” The business community would act, he added, because of the commercial opportunities offered by adopting energy efficiency measures and investing in new, lower carbon technologies, and through fear of the commercial threats posed by climate change.
The case - from the advocates of action - is clear. Companies will succeed by developing new products, technologies and ways of working, which provide them with competitive commercial propositions in new and existing markets, whilst contributing to the policy objectives defined by government. In doing so, they can avoid the risks to reputation that may come from inaction, as well as help to mitigate the worst effects of political instability and environmental damage.
How do these arguments relate to the behaviour of business today? Indeed, how aware are companies in the UK about the issues of global poverty and climate change? Do they consider these issues to be significant, and what do they think they will need to do within the next decade?
These were the crucial questions that the Article 13 team set out to answer in their new piece of original research: “Climate Change and Poverty: A Business Opportunity?”
What we did
Article 13 conducted a review of the activity and attitudes of the UK business sector in relation to the two critical issues of climate change and global poverty.
We wanted to look at the business opportunities and risks relating to the issues, in each case considering three main themes:
Awareness: How much awareness was there around the business opportunities and risks
Significance: What was the nature of the business opportunity / risk and who was it relevant to?
Action: What is business doing or planning to do?
The research included four main elements, each of which informed the findings of the final report: A ‘Crystal Ball’ seminar in December 2004 with 25 chief executives, interviews in early 2005 with 7 business people responsible for social and environmental issues, and 9 expert commentators from NGOs, think tanks and specialist bodies, a review of the FTSE-500 in early 2005 and a survey of 174 future business leaders at the AIESEC conference in early 2005.
This approach provided a rich and informative guide to current practice and expectations with regard to business action on climate change and poverty.
It does not tell us what works and what doesn’t, but it does point us to how vanguard companies are addressing these critical global challenges, and the opportunities they believe are there to be taken.
What we found…
So how aware are business leaders in 2005 of these two key issues?
We found that awareness of climate change issues is growing rapidly across UK business, with a significant change having occurred in the last few years. As one interviewee from an energy company stated: “If I’d gone back five years, it was fairly narrowly focused, but today it is a board level issue.”
From our sample, almost 4 out of 5 companies expect to consider climate change issues in 2005, with one out of those 4 elevating it to a specific item on the board agenda.
The majority of large UK companies in our sample did not consider global poverty to be a significant business issue. Interviewees from civil society organisations were equally sceptical about business interest in poverty, although they recognised that some companies – typically the larger companies – were beginning to spot the opportunity to market to poorer people.
Our findings show that only two-fifths of companies expect to consider global poverty issues in 2005, with just a fraction of those that would consider the issue, actually elevating it to a specific item on the board agenda.
It is clear that both these issues are viewed differently in terms of their significance and relevance. So of the companies that are considering them, why are they? Do they see them as a risk or opportunity, or both? Is there something that others could be learning?
A wide range of opportunities are expected to emerge for business. According to interviewees, technologies that can mitigate the effects of climate change, currently being used in hybrid cars, will enter the domestic sphere in new products such as boilers. Technologies that can save energy or enable people to have low emissions energy will have potential in the UK and internationally. Government policy is also expected to encourage innovation, with incentives for wind farms, bio fuels and other products that contribute to the growth of renewables.
One-third of companies identify new products as the key opportunity arising from climate change, with another third identifying new markets.
As these examples suggest, the opportunities are shifting from the energy sector to a wider range of organisations. For one government interviewee, “Any company that can contribute to a low-carbon economy has an opportunity.” An interviewee from the financial sector confirmed: “Climate change is increasingly significant to high-energy users. More importantly, the service sector companies, like banks, are starting to realise they can have a major impact on climate change in terms of their lending and leasing activities.”
Several companies emphasise that partnerships between business, civil society and government will be an essential element in creating innovative solutions to the challenge of climate change. However, this perspective is contentious, with others suggesting the regulatory framework to be of over-riding importance, and even questioning the value of partnership in contributing to effective action.
Respondents to Article 13’s research survey were two-to-three times more likely to identify global poverty as a business risk than a business opportunity. A wide range of risks were identified. They ranged from quite general statements about the risk to long-term business sustainability (mentioned by 1 out of 4 respondents) to risks of rising costs, reputation, litigation and employee dissatisfaction.
However, over one-third of companies did identify new markets as the key opportunity arising from global poverty. One out of 5 respondents mentioned new products and new ways of working in partnership as other types of opportunity. As one interviewee from a financial institution stated: “The issue of poverty has a direct economic impact on our business: if we are able to remove people from poverty they potentially may become a viable customer of the bank.”
Business interviews emphasise the importance of working closely in partnership with non-governmental organisations in delivering anti-poverty initiatives. As one engineering company stated: “The dynamic has shifted toward greater cooperation between NGOs and business.”
Civil society organisations also confirm the importance of partnership, with interviewees concentrating on the challenges in making them operate effectively. As one person commented: “Some partnerships are more useful than others – particularly when companies go in and foster an environment of trust on the ground. It has to be a more long-term consultation, rather than a one-off discussion.”
Interestingly, we found that a vanguard of companies were taking a range of concrete actions to address climate change and poverty.
Those addressing climate change are buying green energy, reducing emissions and energy use, developing risk management systems, and lobbying government and holding discussions with regulators.
Despite the relatively low priority given to issues of poverty, several companies we spoke to highlighted actions they are currently undertaking to combat poverty, both in the UK and overseas. Many of these initiatives are focused on charitable giving, but others include training programmes, supply-chain monitoring, product development and distribution and economic regeneration.
Indications for the future – a mixed bag
Our findings also confirmed that awareness of climate change is likely to increase in the next decade, driven in part by the implementation of the Kyoto protocol and the EU trading scheme, but also by the influence of foresighted leadership. Over three-fifths of the leading companies – who had placed climate change on the board agenda – perceived the issue to be highly significant over the next ten years, compared to one-fifth of the full survey sample. Overall, 70% of companies surveyed identified the issue to be significant or highly significant over the next ten years.
The picture is less positive for poverty. A modest proportion of companies, just over 40%, believe that global poverty will be a significant issue within a decade. As one NGO comments: “Poor people aren’t perceived as profitable, so they fall off the map”.
The story does not end here however. Another core aspect of Article 13’s research involved those we might call “future leaders” (students forming part of the AIESEC international network) and their perspectives shed a different light on the long-term picture. Read our briefing paper: “What the future brings” to hear their story.
This article has provided a snapshot of the research findings. We see a growing awareness among businesses of these issues. We also see the range of perspectives on why and how climate change and poverty are relevant to businesses. For some they represent risks, for others, opportunities. Foresighted business leaders are hewing out a path, for those that follow; innovating, testing and clarifying the business opportunities; thinking out of the box. Often these are companies under immediate pressure, for them the challenge is concrete, here and now, not a vague future threat.
The evidence suggests that the innovation being demonstrated by these forerunners, is going to be ever more important in addressing the social and environmental challenges faced by the world.
But one thing does emerge clearly, business cannot succeed alone. The scale and complexity of the challenges are just too big for any one organisation. Vital knowledge and experience in tackling these issues resides with scientists, community groups, local governments and international networks. Perhaps most importantly, Article 13’s survey demonstrates that people from each of these sectors recognise the importance of working in long-term relationships which deliver benefits to each of the partners and contribute most effectively to the most serious global challenges that we will face in the coming decade and century.
Click here to order a copy of the full report.
Also in this feature:
© Article 13 2005
Article 13 are specialist advisors in governance, business responsibility and sustainable development. We develop policy and strategy through the use of research and engagement to deliver innovation, governance and organisational responsibility. We work with companies, governments and academic institutions to meet the growing pressure for better performance, whether it be social, environmental, ethical or economic. This pressure is based increasingly upon cold, commercial reality; good governance is no longer optional.
We are about breaking the cycle and looking beyond traditional responses so we leap frog to innovative solutions.
Our approach is underpinned by our use of research in areas such as insight, social, action learning and deliberative mapping. We use participation and engagement plus to implement all our work and build innovative strategies, advocacy, policy and communications as a consequence of our process.