Business and Policy: now is the time to reach across the divide

Why is policy engagement essential for businesses to achieve their sustainability goals? How should ambitious businesses work most effectively with governments? How can public-private cooperation more rapidly unlock investment and scale markets?

Here are some of my reflections from my first six months at WBCSD on why policy engagement is becoming essential for ambitious businesses in sustainability and why more and better public-private engagement is needed in the inevitable but uncertain decade of transformation ahead.

Transition planning is moving to center stage

 Transition planning is emerging as a critical component of a firm’s business strategy – helping to explain to customers, shareholders, governments and investors how they will align their core business with a net zero, nature-positive, and equitable future. As countries look to meet their net-zero commitments, they are beginning to explore mandating transition plan disclosure, including through the EU Corporate Sustainability Reporting Directive and the Transition Plan Taskforce (TPT) set up by the UK government.

This is bringing to the forefront dependency on policy shifts

As transition pathways are better understood, the dependency of businesses on policy shifts to achieve their climate, nature and equity goals becomes clearer. For instance, businesses may depend on governments scaling infrastructure to access low-carbon power or their suppliers may need to access recycled materials that can’t currently be traded. As an example, Iberdrola has set in its Climate Action Plan a target to reach zero net emissions across all its activities by 2040. They have highlighted that policy ambition to get all parties across the value chain on board will be essential to achieve their target. At the same time, the longer governments delay, the more disorderly, disruptive and abrupt the policy response will inevitably be, creating greater uncertainty and risks to business.

And driving disclosure of policy engagement up the business agenda

It was only two years ago that the ‘5th P’ was added as a criteria to the UN Climate Change High-Level Champions Race to Zero campaign, calling upon businesses to align policy engagement with their net-zero pledges. Now, investors are demanding increased accountability on political activity, the UN High-Level Expert Group (HLEG) on the Net-Zero Emissions Commitments of Non-State Entities highlighted the need to align lobbying and advocacy, and the TPT Disclosure Framework recommends disclosing information on how the business engages with governments and policymakers in order to achieve their strategic ambition. Last year, the We Mean Business Coalition, involving WBCSD, launched the Responsible Policy Engagement framework, and earlier this year, one was launched for Nature, providing toolkits for business.

Governments are also increasingly recognizing the scale of investment that will need to come from the private sector to achieve their national targets

 With governments facing challenging fiscal and market conditions, a significant expansion of public sector climate finance is difficult. Governments are increasingly looking to the private sector to finance the mitigation and adaptation investments needed – estimated to be US$2tn in emerging and developing countries by 2030 and up to US$1.6tr to reach net zero in aviation, shipping, road freight, steel, and cement is up to $1.6 trillion. The UNFCCC’s Global Stocktake Synthesis Report emphasized the need for stronger cooperation between governments, businesses, finance and civil society to accelerate progress and the next round of national climate plans (NDCs) under the Paris Agreement (due by February 2025) are being pitched as national and sectoral economic and investment plans – recognizing the need to bring in the private sector to accelerate low carbon and climate resilient growth.

However, most businesses and governments are not yet working together to drive economy-wide systemic change

Businesses need clear policies that create transition opportunities to catalyze long-term planning and investment in the development and scaling of new solutions. This can include regulations, subsidies, public procurement and carbon pricing. Governments need backing from the private sector to support the implementation of new policies. However, even where a policy will support businesses to achieve their goals, many are not leaning in to support. As an example, the Inflation Reduction Act in the U.S., which unleashed US$110 bn in private sector investment into new clean energy manufacturing in its first year of implementation, was publicly supported by only 19% of S&P 100 companies. At the same time, only 13 percent of countries actively collaborated with the private sector to develop their national climate plans in 2021.

With incentives increasingly aligned, combined with uncertainty, this could create space for new effective models of cooperation between government and businesses

 At present, the world is not on track for a net zero, nature-positive, just transition. We are reaching tipping points of transformation – both positive and negative. Whilst renewable energy and electric vehicle deployment has been doubling every 2-3 years, climate scientists are alarmed that surface air temperatures have reached 1.5°C above the pre-industrial norm for the first time over a year. As governments and businesses increasingly grapple with these exponential changes as core strategic and economic risks and opportunities, incentives are aligning. This shared challenge opens up space for new approaches for the public and private sector to work together to jointly solve problems that can unlock investment and drive market creation, value and jobs.

This makes it an exciting time to catalyze engagement between the public and private sectors to accelerate sustainability. The challenges are not to be underestimated. The geopolitical context and political battlegrounds opening up around the cost of the transition create major uncertainties. But due to growing risks and opportunities, the alignment of interests are only going to increase.

This year and beyond, I and the brilliant team I am fortunate enough to work with, are looking forward to working with our members as we identify how we can positively contribute to this agenda.

• To support members to make the business case for sustainability-focused policy engagement.
• To build capability amongst businesses to align and activate their advocacy with their sustainability ambition.
• To develop innovative mechanisms for businesses and governments to problem-solve together to drive net zero, nature positive and just transition pathways.

Key Messages:

I hope you will join us on this journey! For more information please contact: pamm@wbcsd.org.