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Walking the Talk on Climate Change after the Pandemic: Reorienting State-Owned Enterprises towards Sustainability

Leonardo Beltran is Non-Resident Fellow of the Institute of the Americas, Member of the Board of SEforALL, and former Deputy Secretary at the Mexican Department of Energy

if governments are to respond according to the crisis, one of the best instruments they have are their State-Owned Enterprises (SOEs). SOEs have a competitive advantage in their readiness to emerge from a crisis and embrace the international new low-carbon development framework, for three reasons: corporate governance, mandate and scale

Water falls through these enormous pipes to activate the 20 turbines of the Itaipu hydroelectric plant on the Brazilian-Paraguayan border. Credit: Mario Osava/IPS

MEXICO, Mar 31 2020 (IPS) - This year started with the news of the appearance of a new virus, COVID-19. The impact and severity of its effects in public health, mortality and the world economy are overwhelming. No public health system was prepared for this crisis, and yet governments are reacting deploying different policies to mitigate the crisis, and recover as fast as possible.

However, public opinion is divided, some support a more stringent approach on human liberties, others more emphasis on the economy, but the reality is that this is a false dilemma. You cannot privilege one over the other, because without health you cannot produce, and without production or sustenance there is no health.

If governments reorient SOEs mandate towards sustainability, they will have at their disposal the tools arising from their 2030 ASD and Paris Agreement commitments

The Intergovernmental Panel on Climate Change in its 2014 report warned about the risks of global warming, in particular for health and the economy.

In terms of health, the risks of vector-borne diseases will generally increase with warming, due to the expansion of the season and area of infection, despite reductions in some areas that will become too warm for disease vectors.

In economic terms, systemic risks due to extreme weather events that would lead to the collapse of infrastructure networks and essential services, and the risk of food and water insecurity and loss of livelihoods and incomes in rural areas, particularly for poor populations.

Today we are observing with COVID-19 the vulnerability or our public health systems and the combined effect of the fragility of the economy globally. To the extent that we continue without adjusting our way of production and consumption, global warming will continue to accelerate, precipitating the materialization of negative impacts for biodiversity, ecosystem services, economic development, and aggravating risks to livelihoods and for food and human security.

Moreover, if we are to prepare for this future, governments in designing their recovery plans can assess their alternatives and support a sustainable growth path. In 2015, the world agreed upon a new vision that would guide their actions in the future adopting the 2030 Agenda for Sustainable Development (2030 ASD) and signing the Paris Agreement.

These agreements included a set of tools to assist countries select their most efficient pathway towards low carbon development. In fact, recovery after the pandemic would be easier if governments “walk the talk on climate change” reorienting their State-Owned Enterprises towards sustainability.

 

Credit: United Nations

 

2030 Agenda for Sustainable Development [1]

In September 2015, the heads of state and government at the UN headquarters in New York City adopted the 2030 Agenda for Sustainable Development.

The international community committed to promote the sustainable development agenda in its three dimensions – economic, social and environmental – in a balanced and integrated manner, for which it is essential to guarantee lasting protection of the planet and its natural resources and where there is universal access to a supply of affordable, reliable and sustainable energy.

One of the key elements in the 2030 ASD includes a commitment to enhance international cooperation to facilitate access to advanced and cleaner fossil-fuel technology.

 

Paris Agreement [2]

On December 12, 2015, in Paris during the 21st Conference of the Parties (COP21) to the United Nations Convention Framework on Climate Change the international community signed the Paris Agreement, an international treaty in which for the first time all nations came together into a common cause to undertake joint efforts to combat climate change and adapt to its effects.

The Paris Agreement has two fundamental pieces to fight climate change. First, foster low Greenhouse Gas Emissions (GHGs) development by incorporating carbon planning in government policy, and the second, finance flows consistent with a pathway towards a low carbon economy.

 

Walking the Talk on Climate Change

Today more than ever, if governments are to respond according to the crisis, one of the best instruments they have are their State-Owned Enterprises (SOEs).

SOEs have a competitive advantage in their readiness to emerge from a crisis and embrace the international new low-carbon development framework, for three reasons: corporate governance, mandate and scale.

  1. Corporate governance. SOEs have an institutional structure in which there are representatives of the government. Therefore, board members representing the State would be careful enough to voice and reflect the views of the government administration into the assessments and performance of the SOE.
  2. Mandate. SOEs typically are seen as a mean to pursue development strategies of the sector, or as tools to buy into foreign technologies and know-how. Thus, embedding sustainability into the mission of the SOE on one hand, would be easier given that usually the majority of the board members are government officials; and on the other, an SOE normally operates in sectors that are deemed strategic for the state, energy being one of those, and sustainability would certainly would have an effect in the way SOE corporate policy is conducted.
  3. Scale. SOEs in the energy sector represent 70% of all the assets of oil and gas production, and around 60% of the coal power plants globally [3].  Therefore, to accelerate the recovery and the pace towards low-carbon development, size matters, and in this case, given that SOEs dominate the energy sector, a policy focused on low carbon growth naturally has to be led by SOEs.

 

If governments reorient SOEs mandate towards sustainability, they will have at their disposal the tools arising from their 2030 ASD and Paris Agreement commitments. These jurisdictions would be able to move faster in their low-carbon recovery pathways, promoting an innovation ecosystem with technology, finance and carbon planning tools to spur new markets and business models needed to adapt to this new future.

Therefore, an opportunity for governments to speed up recovery and walk the talk on climate change is by reorienting their SOEs towards sustainability, driving their mission and their Raison D´être.

There are a number of benefits for the different stakeholders.

For the government, the new mandate would open access to the resources (technology, finance and carbon planning tools) available in the 2030 ASD and the Paris Agreement; it would be consistent both with the national and international obligations on climate action, and it will send a strong signal of the commitment of the national government to tackle the challenges posed by climate change.

For the SOEs, it would improve their competitiveness by aligning their mission to the new low carbon development architecture, and especially by granting them access to climate finance, clean energy technology and carbon planning tools.

For the general public, it would be easier to hold accountable their governments, assess the value of taking climate action, and eventually to enjoy the social revenue of a low carbon future.

 

[1] UN General Assembly, Transforming our world: the 2030 Agenda for Sustainable Development, 21 October 2015, A/RES/70/1, available here

[2] Paris Agreement to the United Nations Framework Convention on Climate Change, Dec. 12, 2015, T.I.A.S. No. 16-1104.

[3]  Prag, A., D. Röttgers and I. Scherrer (2018), “State-Owned Enterprises and the Low-Carbon Transition”, OECD Environment Working Papers, No. 129, OECD Publishing, Paris.

 

 
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