Aligning Business and Government on Climate Change

In 1914, Singer Sewing Machine was the seventh largest company in the world, dominating the sewing machine market with a 90% share of all sewing machine sales outside the United States. Years later, IBM created a whole new market for computers with its room-sized mainframes, ushering in a new technology era for business. More recently, Amazon upended the retail sector by expanding the market for online consumption. A great deal of business history can be written about companies creating, dominating, and upending markets.

But, not all: Business history is about so much more than what happens within markets.

Today, we know that industry actually transforms the conditions in which markets operate, including the atmosphere, the weather, biodiversity, and access to physical assets like clean water. Scientists believe this. Investors believe it. Equity markets believe it, too; as do the Pope, the Dalai Lama, and Jewish and Muslim leaders. The consensus on this view extends far beyond science and the academy; it includes 99% of the nations on this planet.

When President Trump withdrew the United States from the Paris Accords, citing his duty to protect the welfare of U.S. citizens against the “unfair costs” of participating in these agreements, he ignored the impact of U.S. market activities on industry operating conditions in the United States and abroad, as well as America’s contributions — as the world’s second biggest polluter after China — to this impact. In the United States alone, researchers estimate that weather-related climate changes from business-as-usual market activity will worsen inequality and stunt economic growth in southern states.

The President’s decision to withdraw the United States from the Paris Accords reveals a divide between those who see markets as (merely) powerful engines of wealth creation and those who see markets as even more powerful engines of both wealth creation and massive wealth destruction. It is ironic that the staunchest defenders of an exit from the Paris Agreement are also those with a more limited view about the power of markets. Michigan Rep. Tim Walberg’s comments at a recent town hall express this sentiment directly: “If climate change is real, God will take care of it. … Can man change the entire universe? No.” In contrast, signatories to the Paris Accords believe that markets are powerful enough to change the earth — via the conditions in which they operate — for better or worse.

It’s an odd thing to see government leaders with strong convictions about the curative powers of markets stop short of admitting that these same market powers could create or address climate change. Markets become a less powerful actor in this view — a second-rate power on the grandest of scales. What does it mean to have strong faith in the power of markets to produce wealth and improve social welfare, if doing so ignores their greater power to increase the frequency and intensity of natural events, like floods and hurricanes, which can obliterate decades of wealth creation in a single day?

The business community recognizes that human-influenced changes in the natural environment are already influencing market dynamics. Reinsurance companies like Munich Re and Swiss Re have been tracking a rise in the frequency and intensity of economic loss events from floods, droughts, earthquakes, hurricanes, and tornadoes since 1980. Now, with advanced artificial intelligence and Big Data tools, they are modeling future climate scenarios, and putting a price on disaster. They factor in the odds of the global economy conforming to principles articulated in the Paris Agreement.

The real divide over climate change is about how powerful markets are. If markets are powerful enough to change the physical world and its atmosphere, and these changes can be slowed or reversed, it follows that markets and governments need to work closely together to minimize the effects of markets on climate change. After all, markets alone are not fast enough or focused enough, by themselves, to produce the requisite changes. Markets may be powerful enough to achieve appropriate levels of atmospheric carbon reductions, but they need to be focused on the problem.

The Paris Accords embrace this view. Acknowledging the power of markets means strengthening government involvement, not abandoning it. If U.S. leaders want to effectively represent U.S. industry and market interests at the upcoming G20 Summit in Hamburg, they would do well to have this message in mind.