The political tide is turning and the economic implications of climate change for all types of businesses will be here much sooner than any of us predicted.

Climate change is not just affecting the global energy system, it is restructuring the global economy, reshaping geopolitics which in turn is starting to significantly influence foreign policy decisions.

A new superpower race has begun in which first world economies compete to get to net zero first. Those who aren’t fast enough will be left behind.

Since US President Biden’s Climate Summit last month, renewed pressure is on countries to reduce greenhouse gas emissions targets further. Coupled with the rapid commercialisation of sustainable technologies, the green transition is speeding up. A new superpower race has begun in which first world economies compete to get to net zero first. Those who aren’t fast enough will be left behind.

COVID-19 has accelerated this transition, forcing a policy reset for governments around the world that recognises economic recovery must be green. The European Parliament announced a €672.5 billion stimulus package to help Europe “build back better” and aid the “green transition” while the UAE adopted a new circular economy policy, with government seeking to partner the private sector to achieve emissions targets.

In stark contrast the Australian federal government sees our post COVID economic recovery as gas-led, taking Australia in the opposite direction when we are already lagging behind. And it’s now economists, not just scientists, who are sounding the alarm.

The International Energy Agency’s Net Zero by 2050 roadmap has called for “nothing short of a total transformation of the energy systems that underpin our economies” which means “no investments in new fossil fuel supply projects from now on”. I cannot overstate the significance of this report.

The enduring Australian political rhetoric that positioned climate enthusiasts as economic terrorists is not going to age well. It is obvious that we can’t rely on iron ore or coal exports into the future to stimulate the economy and jobs, as there will no longer be a demand for those commodities. Government emissions targets around the world tell us that.

The Climate Council argues Australia must get carbon emissions down to net zero by 2035 and failure to do so could see Australia become economically isolated from our trading partners. If our emissions targets continue to lag behind we risk a de facto carbon price being placed on goods. The EU has proposed just that –  a “carbon border adjustment mechanism” seeking to reduce the cost burden of shouldering a transition to cleaner infrastructure.

An enduring national energy policy is needed, for the faster we undertake the transition the less impact businesses will face.

Australian businesses are slowly heading in the right direction

In Australia, the transition has largely been driven by big business, not the government. Emissions-intensive industries are now linking executive bonuses to achieving climate and sustainability targets. 

Shareholders with traditional interests in profit are now pressuring public companies to be more socially responsible. They are holding boards accountable for failures in their fiduciary and social responsibilities in relation to climate risk. 

As a result, more and more large public companies are starting to measure environmental (including scope 3 – customer emissions) and social indicators of their business as “performance”. Many companies are also adopting triple bottom line reporting, counting financial, environmental and social outcomes. Company Sustainability Reports will continue to take on new meaning and prominence at board level.

Governments must provide the right investment signals to secure our financial future

An enduring national energy policy is needed, for the faster we undertake the transition the less impact businesses will face. Bipartisan support at the federal level to merge climate and energy policies will provide the right investment signals and give business the confidence to invest in the transition. 

Business and government must also embrace a more circular economic model. The current linear models (a calling card of China’s influence over the past 20 years to mass produce products with limited life span for consumers to dispose of quickly and buy new again) are a gradually tightening noose that global brands must loosen. 

Circular economy models are not a gimmick, they are an economic opportunity for businesses and governments alike, providing massive GDP and job creation benefits across many sectors. 

Corporate Australia requires politicians to have long-term vision, see past the three-year election cycle and recognise the science and economics of climate change. Failure to recognise the changing tide and continuing to swim against the current of global policy will have significant economic repercussions that will set Australians back for future generations and squander the relative prosperity we have enjoyed.

Jeff Olling is global chief of stakeholder relations at sustainability advisers iugis, a role he has held since July 2020. He practiced as a Barrister before transitioning to the energy sector in 2011, after which held a number of senior roles in both multi-national and state-based energy infrastructure companies and helped shape strategic thinking on national policy direction and regulatory reform.