Sadek Wahba, PhD is the founder, Chairman & Managing Partner of I Squared Capital and a Senior Fellow at Development Research Institute, NYU
COP26, the United Nations “Conference of the Parties” on climate change held last November in Glasgow, produced mixed results and generated mixed reactions. On the other hand, climate scientists and activists decried the incremental nature of the agreements.
Can COP27, scheduled for November 2022 in Sharm el-Sheikh, Egypt, do better?
Possibly. But in the U.S., in particular, private-sector initiatives may count for more.
The typical focus of the Conference of the Parties is on government mandates and targets. These are a major factor in Europe, where the European Commission typically drives climate policy, with climate advocates and the private sector in supporting roles.
The U.S. is a different story. Starting five years ago, the Trump administration halted climate programs and withdrew from major climate change initiatives including the Paris Agreement. But states, advocacy groups and the private sector continued to lead. Climate advocacy is increasingly driven by U.S. corporations. In 2020, Larry Fink of BlackRock declared that “climate risk is investment risk” and pledged to ask every company in its $7 trillion portfolio to disclose its carbon emissions. Under investor pressure, U.S. companies have made ESG reporting a mainstream element of their disclosures.
All of these factors are reasons for optimism — for the U.S., to be sure, but also because the U.S. approach will have an impact on global climate progress.
I have argued that private-sector investment is essential if we are to build truly modern infrastructure and create a base of infrastructure that effectively addresses the climate crisis. Only the private sector can generate and deploy the amount of capital needed to make up our infrastructure funding gap and put infrastructure investment on a sound, long-term timeline independent of political cycles.
The capital needs of climate-friendly infrastructure are particularly intense. Green alternatives are currently more expensive than conventional approaches. This is true whether we are discussing renewable energy that requires investment in new technology or the development of new forms of steel, concrete or asphalt that produce less carbon, consume less water and require lower levels of petroleum to manufacture.
But it is not just a matter of investment. The private sector is nimble and agile, capable of rapid innovation. And it is deeply experienced in technology — an essential component of our climate response. Smart grids and smart cities will run on artificial intelligence (AI). Operational technology will make physical infrastructure, such as pipelines, safer and reduce the likelihood of catastrophic spills and of emissions that cause long-term damage.
Although my focus is on infrastructure, that is by no means the only domain where the private sector can have a decisive impact on climate mitigation. Because the private sector has already spent so much time and effort on climate, the result of shareholder and stakeholder pressure, it has pioneered an array of responses, from limits on business travel to reduced office footprints and hybrid work arrangements. The Covid-19 pandemic has been a change driver, but under that pressure, private sector agility is once again on view.
All of this is true of the U.S., but what about the rest of the world? In the absence of strong United Nations mandates, or of decisive action by European and Asian governments, the hope must be that a private-sector approach can be globalized. That might happen as a natural result of how business is done; global companies can easily “export” their U.S. innovations to other geographies.
Based on my perspective, such exporting should be a major focus of COP27. And the U.S. should lead the discussion. We have a natural platform. As the conference begins, we will have a year’s experience under our belts in implementing the $1.2 trillion infrastructure bill, one of the largest infrastructure initiatives ever embarked on by any country with a substantial component focused on climate change mitigation.
But perhaps our most important contribution might be to shift COP27’s focus to the role that the private sector can play in delivering climate initiatives across all sectors. Infrastructure is among the most important, but every possible contribution should be on the table. There is not much time to spare before COP27 begins, and the U.S. should be pushing hard, right now, to set the private sector at the center of the agenda.
We should have a great deal to talk about in Sharm el-Sheikh.