By Ioannis Ioannou, Associate Professor of Strategy and Entrepreneurship, London Business School
In Homage to Catalonia, George Orwell wrote, “In trench warfare five things are important: firewood, food, tobacco, candles, and the enemy. In winter, on the Zaragoza front they were important in that order, with the enemy a bad last.”
It is often difficult to stand up and address an unspoken but vitally important subtext when the tragedy of war rears its ugly head as it has done in Ukraine. However, that is exactly what United Nations Secretary General António Guterres did when he looked another enemy squarely in the face and said that it would be “madness” if countries “[were to become] so consumed by the immediate fossil fuel supply gap that they neglect or knee-cap policies to cut fossil fuel use.”
Pledges made at the end of the COP26 climate summit saw all countries forge new commitments to phase down coal and fossil fuel subsidies, while 23 countries went further, committing to phase out coal entirely. Yet it has taken but one crisis – a severe one, granted – to jeopardise the course of this important ambition. In March, the EU Commission published REPowerEU, a strategy to cope with Europe’s dependency on fossil fuels and in particular Russian gas. At its heart, the plan stated that the EU must “maximise its efforts finally moving towards both climate goals and energy security”.
European nations are in fact struggling to break free of their reliance on Russian fossil fuels in the face of the Russian invasion of Ukraine, but seem to have chosen to head in an unwelcome new direction, with Germany and Italy reactivating old coal power plants and natural gas now imported into Europe from all over the world. Meanwhile, some governments are even seeking to secure increased oil supplies including supplies from regimes with a controversial, to say the least, record on human rights.
Taking a step back however, the sobering truth is that limiting global warming to 1.5 degrees Celsius is already extremely difficult to achieve, even under the best-case mitigation pathways of the Intergovernmental Panel on Climate Change (IPCC). If developed nations fail to consider the long-term effects of their present raft of short-term actions in the wake of the Ukraine war, then it will become even more likely that the global community will never even have a fighting chance of staying within 1.5 degrees Celsius.
A perfect storm
One would hope that in addition to the environmentally harmful short-term policies presently being contemplated, governments will also think seriously about the negative long-term implications of their actions for the climate crisis and, furthermore, that they will choose to double down on the transition to renewable energy. In other words, we would need creative policy-making and regulatory innovation that will, on the one hand, ameliorate the short-term impacts of the energy crisis while, on the other hand, will strengthen a deep institutional commitment to transition to cleaner sources of energy. This dual objective is hard to achieve, but it is essential that we do.
However, the failure of the Biden administration to inject power and enthusiasm into its ‘build back better’ initiative, and the guttering light of Europe’s Green New Deal, suggests we are not quite in the era of Franklin D Roosevelt’s powerhouse New Deal. There is seemingly a knowledge of the scale of the climate crisis, and yet the resources and the resolve to deliver real change appears to be fading.
This failure of resolve is of fundamental importance especially for capital markets because investors will be less likely to invest at the scale and speed required to achieve the transition to renewables if the words uttered by governments point towards renewables but their actions and strategic commitments point towards fossil fuels. Failure to make a permanent move to a zero carbon economy would bring with it considerable risks. As Santiago Lefebvre, founder and CEO of international environment network ChangeNOW, has said: “It’s precisely because we are not making this transition quickly enough that we risk continued and sustained shocks to our economic system from crisis and disasters.” Lefebvre goes on to say that the only way to divorce ourselves from Russian fossil fuels is to dissociate ourselves from the hydrocarbon economy altogether.
In fact, the short termism often imposed by the election cycle makes it hard to believe that many countries and their political elites will pursue the challenging route that is necessary so as to achieve the levels of restraint and innovative reform that would ultimately leads us to a more sustainable, equitable and inclusive future. This fundamental flaw becomes even more accentuated when governments are faced with a crisis of the enormity posed by Russia’s invasion of Ukraine – when the cost of living explodes and fuel prices shrink already constrained household budgets. Under these conditions, not only are we faced with a worsening climate crisis but also, we are faced with the risk of the re-emergence of dangerous populism and the further undermining of our democratic institutions. The election of Trump in the US, and the Brexit vote in the UK are stark reminders.
Choosing the sensible path
The Russian aggression against Ukraine threatens us all in many and complex ways and it is important that those who believe in freedom from tyranny stand shoulder-to-shoulder to face down the calamitous actions taken by the Kremlin. However, we should also not forget the existential threat posed by the unfolding climate crisis: it has not gone away simply because the attention of the global community has (understandably) shifted.
The last thing this critical yet friable process of transitioning to a zero carbon economy needs is a crisis-inspired derailment with a resulting loss of vision. The pledges by governments even before the war in Ukraine – even if fully achieved – fall well short of what is required to bring global energy-related carbon dioxide emissions to net zero by 2050 and give the world a decent chance of limiting the global temperature rise to 1.5 degrees Celsius.
Achieving Net-zero requires innovative, creative policies and an interconnected approach, touching on many different aspects of modern life, giving rise to a fundamental rethinking, and rebuilding of the global infrastructure. In fact, the UN’s Sustainable Development Goals call for nothing short of a new industrial revolution that would profoundly shift the foundation of our global economy and our worldwide social structures. What may seem formidable can and must be broken down into strategic and practicable plans for transformation that start with sound long-term orientated analysis, moves on to solutions, and ends in implementing real change.
Ioannis Ioannou is an Associate Professor of Strategy and Entrepreneurship at London Business School. He is a strategy scholar whose research focuses on Sustainability and Corporate Social Responsibility (CSR). He seeks to understand whether, how, and the extent to which the modern business organization contributes towards building a sustainable future.
