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Why Climate Change and Other Global Problems Are Pushing Some Business Leaders to Embrace Regulation

October 19,2018 22:24

Businesses aren't supposed to want more regulation of their activities. This growing trend is the subject of a research program at Hult International Business School, where we have followed a number of CEOs and companies involved in such advocacy ...


Executive Summary
While it’s become normal in recent years to see some businesses taking proactive measures to tackle some of the world’s most pressing social and environmental challenges, it generally remains a widespread assumption that business leaders see government intervention and increased regulation as something to be avoided. But there is now a growing trend of some CEOs actively lobbying for more ambitious government action and regulation on a whole range of social and environmental issues. Nowhere is this more clear than on climate change, where dire predictions are galvanizing action in the private sector. Ultimately, long-term legitimacy, reputation and license to operate are at stake. And CEOs are realizing that private, voluntary actions will not be enough to solve the major problems we face. The scale of today’s social and environmental challenges needs government action, too.

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Global carbon emissions need to be reduced to net zero by 2050 to have a good chance of holding global average temperature rises to no more than 1.5oC, a level that would be disastrous, but not catastrophic for human civilization.
So states a new report from the Intergovernmental Panel on Climate Change (IPCC), which sets out the policy choices governments around the world need to make over the next 12 years to 2030 if they want to limit global temperature rises to 1.5oC rather than 2oC.
If global temperatures rise more than 1.5oC, the risks of draught, floods, forest fires, heat-related deaths and loss of agricultural productivity all worsen significantly.
The response from political leaders so far has been mixed. Some governments may be poised to revise their climate change targets in line with the call for net zero emissions by 2050.
Others have been less enthusiastic. The Australian government has rejected the report’s call to phase out coal power by 2050. In the U.S., President Trump’s response to the IPCC report so far has been to cast doubt on it. This follows his summer 2017 announcement that he was withdrawing the U.S. from the Paris Climate Agreement. Since then the Trump Administration has been busy unravelling a series of public policy initiatives and regulations that underpinned the Paris commitments the U.S. had made, like the Clean Power Plan and vehicle emissions standards, citing them as an impediment to business.
Predictably, environmentalists, pro-environment politicians, and countries especially vulnerable to climate change have reacted to all of this with distress.
But perhaps a little less predictably, so have many business leaders.
For example, many American CEOs spent considerable energy in the weeks building up to Trump’s Paris announcement lobbying the President not to withdraw. Over 1,700 companies and investors have subsequently signed the We Are Still In statement, making public their commitment to uphold the agreement.
While it’s become more normal in recent years to see some businesses taking proactive measures to drive innovation to tackle some of the world’s most pressing social and environmental challenges, it generally remains a widespread assumption that business leaders see government intervention in the economy and increased regulation as something to be avoided.
But there is now a growing trend of some CEOs actively lobbying for more ambitious government action and regulation on a whole range of social and environmental issues.
Many businesses were actively involved in lobbying governments to make an ambitious agreement on climate in Paris in the first place. Unilever CEO Paul Polman was one of many who worked tirelessly to push governments to higher ambition. More than 365 companies and investors voiced their support for the US Clean Power Plan in 2015. More than 200 companies have publicly called for the introduction of carbon pricing. Business leaders are now calling on governments to create the policy frameworks to achieve net zero emissions by 2050.
And it’s not just on climate. Companies invested significant resources in pushing for high public policy ambition in agreeing the UN Sustainable Development Goals in 2015. On human rights issues, companies have lobbied the UK government for stronger regulation tackling Modern Slavery in corporate supply chains, and the Cambodian government for stronger protection for worker’s rights.
What’s going on? Businesses aren’t supposed to want more regulation of their activities. This growing trend is the subject of a research program at Hult International Business School, where we have followed a number of CEOs and companies involved in such advocacy activities over the past few years.
Part of what’s been driving more ambitious corporate action on innovation to address social and environment challenges is increased pressure and higher expectations from the rest of society that business should play a role in helping sort out contemporary global challenges. Ultimately, long-term legitimacy, reputation, and license to operate are at stake.
A number of CEOs are realizing that such expectations cannot be met by innovation and voluntary actions alone. The scale of today’s social and environmental challenges requires government action, too — there are some ways in which public policy can drive change that cannot be achieved otherwise.
In some cases, regulatory change can lead to direct commercial benefit, creating markets that didn’t exist before, or handing competitive advantage to those better able to capitalize on the regulatory change. For many companies, the right solutions are available for tackling social and environmental challenges, but they don’t become commercially viable unless regulatory change aligns commercial incentives with the right thing to do.
As a result, some CEOs have started overcoming their aversion to government intervention and fears that incompetent government meddling will get in the way of prosperity. There’s a growing recognition that ambitious government intervention has a crucial role to play in both addressing global challenges and helping business succeed.
So what are these companies learning about how to do this kind of advocacy well? Our research, as well as recent studies by others such as Business Fights Poverty and Harvard, and scholars at the University of Lugano in Switzerland, point to a number of key issues to get right.
Respect the leadership role of government, but be prepared to use your voice and influence. Your activities should be aimed at informing and supporting—but not replacing—the responsibility of governments to decide public policy. But that doesn’t mean business should be silent if government is not acting in the public interest.
Aim for public policy outcomes that seek to effectively address societal challenges. The aim should be to reach solutions that address the problem and have consensus backing, rather than making sure your own interests prevail regardless of the impact on others. This may sometimes involve accepting public policy initiatives that could result in a short-term hit to profits, because in the long run they are going to help solve the problem, and help maintain your longer-term legitimacy. The outcomes you are aiming at need to be consistent with key universal standards, such as UN Global Compact and UN Guiding Principles on Business and Human Rights.
Be inclusive. Traditional lobbying is done between government and individual companies or trade associations. But advocacy for more ambitious public policy is more effective if it is done on a multi-stakeholder basis. Public policy outcomes are going to be more effective if all groups affected have had a say in shaping them. Ensure the voices of the marginalized have a say in the process.
Consider active joint advocacy with NGOs. Unlikely partnerships between companies and NGOs can have more impact on influencing policymakers, as each can compensate for the weaknesses of the other. Governments can distrust NGOs as being purely ideologically motivated, and can distrust business for being purely profit-motivated. Joint advocacy can deal with these legitimacy questions of both sides.
Be transparent and truthful. Lobbying often happens behind closed doors, and the worst kind of lobbying in the past has been characterized by misinformation and misdirection. Public policy outcomes are going to be more effective if people have confidence that they know what different groups were calling for and they can trust the basis on which these positions were put forward. Be transparent about third party lobbying organizations that you offer financial support to.
Invest to be able to advocate from a robust evidence base, for example on climate or health and nutrition.
Make sure you have coherence and consistency between your external advocacy positions and internal policies and practices. You should also ensure the advocacy positions of trade bodies you are a member of are consistent too.
Make sure you have the right skills and capabilities. It turns out that lobbying to persuade governments to introduce new regulatory measures often requires a different kind of skill set to the traditional government affairs function. Many companies have found themselves hiring in campaigners from NGOs to join their advocacy teams.
Finally, this is a question of personal leadership. Our research showed high levels of peer networks in CEO advocacy for more ambitious government action – each CEO reaching out to others to make the case for them to get involved in advocacy coalitions. An effective approach needs a personal commitment from the top.

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