simon zadek

“We have an Accord that has some of the elements of a legally binding agreement that we need”, opined Achim Steiner from UNEP, “do not under-estimate what we have achieved. And on the trade regime, another year gone and hundreds of millions or billions of dollars investment and income generating on hold and at risk”.

Saturday afternoon, exhaustion showing on peoples’ faces, but an almost full room of folks ponder on the topic of trade and climate. “”it is about competition”, says Egyptian Trade Minister Rachid Mohamed Rachid, “will a climate deal lead us to be penanalised in an approach that we are not fully engaged in, that is, protectionism”. Pascal Lamy, doyen DG at the WTO, reflects with typical cautious flair, “I am mostly concerned with open trade, but i have a duty to care about the environment, i have an order of priorities, which we need to respect…Copenhagen is a step forward”  …”there is the potential of a multilateral framework that may work”, he adds making an art out of optimistic conditional statements, or perhaps conditional optimism. Madame Leuthard, Swiss President, “climate arrangements could be trade distorting…we have considered but failed to define ‘environmentally friendly products’, so we cannot factor this into trade arrangements, and does this discriminate against nations that cannot afford clean technologies, as claimed by the Indians and others”.

“A large part of this planet is underdeveloped”, argues Anil Sharma, “lets not kid ourselves, the discourse needs to be very honest, you cannot separate us from history, the situation has been brought about my unsustainable production and consumption. this is not a blame game, its just true. The entire agreement on carbon credits is unethical, ‘i have enough to pay you for my past sins rather than solving them’, Copenhagen has come out with a disappointing soft landing…so what shall we do where people die of hunger, what shall we tell them, your wealth was based on our resources, resources and technology have to be made available to poorer countries free…nations like India are in a position to be partners, but we have to be agreed on the goal that the poor nations will be supported freely…we can talk and talk, but will we address it honestly…on trade, we are committed to a fair regime that honestly corrects historical distortions, that is why Doha must come to a correct conclusion”.

“Trade might contribute to climate, it is not always damaging because of transport”, intervenes Lamy offering a technocratic anecdote to the preceding comments…”the Montreal Protocol on CFCs shows how it can be done, it did not create problems with trade…we have to try to reach the same point with climate”.

Polite, informed, and profoundly disfunctional.

Leuthard: “overcoming subsidies must be part of the solution, even although it would be hard, just as we have to consider ways to benefit environmentally friendly goods”.

Rachid: “to use trade to manage climate we need to resolve existing distortions first, which is what lies at the heart of the current negotiations…we have to accept the need for rational carbon border adjustments, to agree on environmental goods and services, and we have to agree on the issue of transport”.

Sharma: “the fundamental issue is about people, are those made poor in the past going to be held in poverty for ever…when you have one billion people denied food security, what do we say about biofuels…do we want to feed SUVs or people”.

Lamy: “We have an agreement that allows for protection of the environment, this is not protectionism…when is protection protectionism, that is what we have a mechanism for resolving such things”.

Steiner: “30 years from now there will be two powerful ministries in each government, one will be about financial capital, and the other dealing with natural capital…we are in a race against time and not progressing because of history…in change people get hurt and we need to deal with this…the current technology diffusion model is not credible, we have to focus on the economy, the low carbon economy…our debate is too abstract, too protective”.

Lamy: “can we join the two negotiations…there is no real trade off between these issues, more within these issues…there is a legal bridge, so we can connect already…that they are stuck is about domestic vested interests in both cases…so my simple answer is no”.

Many folks will know the ‘valley of death’ as a stage in the investment cycle of new clusters of investment opportunities where great and potentially profitable ventures cannot progress for lack of the scaled and correctly calibrated risk capital.

Davos this week has exposed a second and far more worrying valley of death. Sessions on water scarcity, deforestation, climate and any number of profoundly relevant topics reveal an underlying cycle. Initially comes the radical concern from civil society, then a more coherent call to arms, then a gradual moblisation of major actors, and then some serious analysis and reflective analytics….THEN…we all say ‘something must be done AND it can be’…it can be surely because everyone is at table, from national presidents to chief executives to the leaders of major corporate NGOs…and then…yes, and then there is this moment when folks say ‘here is an example, lets to some pilots, cases and briefings’, or they wring their hands and say ‘we do need better laws and for them to be enforced’.

In one session on ‘water’, we faced a superb set of analytics provided by McKinsey with its global cost curve for water, then drilled down to country level for several nations. Round the table sit many CEOs of some of the world’s most well-known consumer brands together with their corporate counterparts in the NGO community. And what was the action suggested: cases, pilots, guidelines, and a rather abstract notion that there was a need for better rules, regulations and pricing. Let me be clear, these are seriously smart, committed folks, they have power, money and influence, and in the main the right values and a desire to opertionalise them…but…

This is the new valley of death, everyone agrees with the analysis, the urgency and the possibility, and some of the most powerful folks are at the table…and then we implode into marginal actions or fall back on old tools to create systemic change.

What is the missing piece of this unseemly puzzle, we have knowledge, goals, inspiration and the powerful. Is it the youth that are absent, or perhaps the threat of revolution…is it a mind set problem “we have to think about a different way of doing business” says a leading business man… “and short termism is the enemy of the good”, says another. “We know how to create closed loop systems”, says an eco-business warrior, “efficiency saves money, but one can do the wrong thing efficiently”, rehearses a world leading designer.

Of course stuff does get done, loads of it, and sometimes there is a seriously ambitious punt to solve a major problem. Soros’ pitch to use a store of capital, US$100 billion, sitting at the IMF called ‘Special Drawing Rights’ to finance action on climate took an expected step forward today when  the IMF’s boss more or less endorsed the approach publicly in a plenary. Climate geeks were elated, although Obama’s economics guru, Lawrence Summers, could not hide his displeasure at this unexpected twist.Watch this important space to see how this develops in the weeks and months ahead.

And that old topic of corporate accountability. Well, after much arm-twisting, the US Securities and Exchange Commission announced on day two of Davos that listed companies will in future have to disclose climate-related risks. This decision, hailed by activist groups such as CERES, could prove a game changer in levelling up the playing field in forcing companies to work out these risks in order to be able to report on them, and for unwilling investors to ‘read up on the topic’ so that they can understand the topic that so many of them are amazingly still trying to avoid.

So stuff does get done, and some of it has the potential to be game changing. In the two examples, both were considered ‘wacko’ when first tabled, the Soros proposition having been roundly dismissed by the mainstream when he talked about it at Copenhagen, and climate-related disclosure having been long resisted as irrelevant, impractical, or downright inappropriate.

Sustainability’s very own ‘valley of death’ remains, however, the norm, as the deputy prime minister of Zimbabwe said in a session i moderated today on land use and the environment, “we do seem to often to be paralysed by analysis”, alongside Ian Davis of McKinsey’s comment (they were sitting side by side) that “we are in danger of reducing our ambition by resort to projects of little scale for the sake of action”.

Muhtar Kent leads a breakfast discussion about the global challenge of water, leveraging a report launched entitled Charting Our Water Future prepared by McKinsey with numerous other folks. “The global needs of Coca Cola is the equivalent of 8 months use across Mexico City”, we are told alongside Coke’s commitment to become a ‘zero water take’ company.

“We cannot stay as we are, we need to look for another approach…there is a way to deal with the growing gap…today withdrawals are growing at 2% a year, there is a gap of 40% by 2030 between demand (7000 billion cubic meters) and supply…productivity improvements will only deal with 20% of the overall gap, and there is a further 20% of the gap that can be closed by increasing supply in historic ways…that leaves a 60% gap where ‘something different’ needs to be done to address.”

McKinsey has applied the ‘cost curve’ methodology to water and brought crystallized data to the discussion at a high level (see Project Catalyst for how this method has been applied to carbon mitigation).

“Looking at India, the analysis suggests that the water gap ‘can be solved’, that the vast majority of the solutions lie in water productivity improvements in agriculture, and that the net costs are about US$6 billion per annum, ‘not a huge cost for a country like India’…”.

“South Africa is facing a gap by 2030 of 3 cubic kilometers (without taking climate change into account, with this factored in, goes up at least a third)…there are many things that can be done…the ‘new way’ is to take the least cost solution and it can be dealt with, at a cost of US$300 million a year, but the ‘new cost’ given that saving arise would offset all these costs at a national, aggregate level…many countries face a crossroads, this least cost solution approach is how we all need to go if it is to be affordable”.

“Water is a social not an economic good”, explains a South African Minister, “we do understand that water is finite, but we have to take account of the socialist nature of our society…we have to develop an approach sensitively”… “there have to be other ways to incentivise better use of water, not just economic pricing”, argues an Indian chief executive… “pricing comes second, first is knowledge, we know how to do far better before pricing becomes the problem…we need a campaign to achieve best practice”, asserts a German water expert… “we have seen successes, also in the poorest communities in South Africa, “where we can get people to value water without charging them…this message has to be understood at the national level”…. “we do need to price water in agriculture, but we cannot leave this to market forces, water is key for food security, addressing poverty and other policy goals”, says a gentleman from the national federation of agricultural producers.

So if reinventing global governance is the game plan, who are the key players.

Are they the gathered assembly at Davos, the obvious cast of characters, or are there folks lurking on the fringes of the elite who might compete for a place at the table, or even redesigning the table or owning all or a piece of it.

The most recent entrant is BASIC = BRICS – Russia (or maybe ’self-definition without Goldman Sachs’). China-led or at least conceived of, it was of course these folks on whose door Mr Obama knocked on the search for Wen Jiabao. So in the popular game of geopolitical tag, 1:0 to BASIC if the opponent was the US-led G8.

BASIC met just last weekend, thoughtfully before Davos and a week or so in advance of the ‘not so hard and fast’ closing date for countries to register their commitments under the Copenhagen Accord. Reporting in The Hindu, China and India announced their decision not to sign up to the Accord for now. Indian Prime Minister Singh highlighted BASIC’s commitment to the UNFCCC and Kyoto and queried the legitimacy of the Accord beyond a high level political statement emerging from a battle worn Copenhagen.

Early days, and so far BASIC is focused on climate and largely reinforcing an understandably furious but wildly out-of-time G77 position. But could BASIC become a more widely transacted governance currency in times to come.  BASIC might be a refreshing antidote to the G8, but it could in the end be little more than an anti-G8. Such zero-sum politics would not serve us well, least of all the citizens of BASIC nations, since being defined by opposition is little more than being ’shadow like’. Could BASIC raise its game and conceive of a different politics that grapples with global problems rather than relocating the drivers of disfunction.
Curious will be to see to what extent BASIC becomes a reference point in the coming discussions at Davos in the coming days.

A well-worn ritual is that in the days preceding Davos folks like me are asked by assorted bystanders, “what will it all be about this year”. And so as I begin my annual pilgrimage up the Magic Mountain, I find myself musing on this modern koan. Yes, we will surely talk about financial regulation, or perhaps just about the forthcoming assault on bankers. And yes, we will surely wring our hands about Copenhagen and debate how best to move forward. And certainly, we will review progress in emerging from the recession, and I will eat my (much beloved) hat if cadres of American’s do not bemoan the undervalued Renminbi. And without any doubt, domestic US politics (and its global fall-out) will dominate the corridor gossip.

Billions of words, quite literally, will be spoken and even on occasion heard about these all-important topics. But are they an ‘all-sorts’ collection, or do they provide the backdrop to an X-ray of our current needs and options.

It is less than 600 hours since we passed into this second decade of the new millennium, and we are already struggling to keep up with momentary events. We have witnessed yet another horror in Haiti and, despite the inevitable shortfalls, a clear show of all that is good in our international community, compassion and response. And we have seen the spectacle of American democracy punish Obama through the ballot box, which could drive him to embrace a more populist economics, and an unseemly parochial politics, as witnessed already in Clinton’s pronouncement on internet freedom in support of Google’s tangle with the Chinese. And on that topic, we have seen China emerge from Copenhagen in a very different frame of mind, less inclined to pursue its designed humility of recent decades, and more willing to exercise their muscle by laying down the law, certainly their own, and increasingly the international rules of the game.

Davos 2010 is framed in no small part by the results of our collective efforts since its predecessor. Davos in January 2009 was a conversation about two fundamental needs, to drive economic recovery through strong fiscal stimulus and a guided, rescued financial sector, and to secure a strong global climate deal in Copenhagen.

Positively, the global economy did not crash and appears now to be on the mend, largely because of China’s economic resilience and our collective fiscal stimulus. Also, the financial sector did not crash, and much of it is now emerging from its own Y2K in rude health, indeed some would say too rude by half. The good news is that the greatest recession in history has, we hope, done its worst, and we are alive to tell the tale.

Copenhagen was a mess, and the outcome less than most desired or, for climate deniers and carbon profiteers, feared. Positively, however, low carbon economics did move into the mainstream. There is no doubt that China, India and Brazil understand that if their time has indeed come it will have to be a ‘low carbon moment’, and they are readying themselves, more than most of the North Atlantic incumbents, to win in this arena come what may.

The ultimate fall-out from the events of 2009 is yet to come. On the economy, the West has now acquired a debt hangover of almost unimaginable proportions that could go down in history as the pivot on which global economics finally swung east and southwards. On climate, it seems we are heading for a 3-4 degree centigrade increase in global temperatures, a cause for huge concern unless the emerging scandals around the IPCC wrongly convince us all that it was all a self-serving fuss about nothing. Crucial is how we pick up the pieces of last year’s exhausting melodrama, which brings us to the topic of governance.

The last 12 months has deprived us of any remaining trust in our collective ability to do the right thing or to get it right in practice. Yes, we saved the bankers from their own folly, but once rescued they have returned to their old ways. And yes, the huge fiscal stimulus did help, but in so doing we have mortgaged our children’s futures, and done nothing to prevent a rerun of the housing and consumer booms that helped to cause the problem in the first place. And on climate, we must hope that self-interested national economics drives us along a low carbon growth pathway because the fractured international relations emerging from Copenhagen will not provide the framework for more conscious collective action in the future.

Davos 2010 should be about reinventing global governance. Our experience of Doha (remember Doha?) and Copenhagen (remember this even if you want to forget it) say it as it is – our way of handling international affairs is simply bust. We have to fix our approach to climate and trade, but also a ton of other cross-border stuff from energy security to arms proliferation and terrorism. The UN, frankly, hardly passes the ‘laugh test’ these days, the G8 is well past its sell-by date and the G20, MEF and now BASIC remain at this stage immature manifestations of our governance problems rather than emergent approaches to solving them.

To give due where it is warranted, the WEF has recognised that the real agenda is about global governance in launching a major initiative at Davos 2009 entitled the ‘Global Redesign Initiative’. This was the frame for its Dubai-hosted ‘Global Agenda Councils’ meeting last November, and in fact will be softly humming (hovering up knowledge and insights) in the background throughout the predictably chaotic discussions on the Magic Mountain this month.

Global governance is of course not just about what happens globally, in fact quite the reverse. We must all be concerned that the US courts appear intent on strengthening the corporate lobby, just as deepening restrictions in China reinforce unhelpful, populist nationalism. National developments profoundly impact our capacity to build effective international governance.

Crucially, we have to face up the intimate relationship between effective global governance, and enabling corporate governance. Despite brave attempts (by collective initiatives like CERES and private initiatives such as the Al Gore-Chaired Generation Investment Management, our efforts to balance the public good with private rights have been less then effective. In the main, they have been undermined by the narrow, Anglo-Saxon fiduciary approach that privileges private shareholders whose representatives, fund managers, have in the main little interest in the real economy let alone our future. Let us not forget that it is the corporate community in the US, driven by short-termism embedded in their interpretation of fiduciary accountability, that more than any other driver has undermined that nation’s capacity to act with others internationally on climate change.

Climate change and financial regulation, definite topics for Davos 2010, need to be seen as two sides of the same coin, and that coin can be best understood as being about economic not ‘global’ or even national governance per se. Our greatest challenge in addressing climate change is to channel finances into low carbon growth and development. Although we might well need some lubricating public funds for this, the overwhelming proportion needs to come from private sources, as Project Catalyst and others have pointed out. The greatest impediment to such an investment in our very survival is the short-termism of the bulk of the international investment community that leads them to discount the value of a future economy and so rationalise their unwillingness to invest our funds according to our undoubted needs.

Economic ownership must be part of the global governance agenda, and not just because of the unruly behaviour of Messrs Putin and Chavez. ‘Corporate responsibility’ has squeezed some additional public value from today’s dominant economic model, certainly. And public policies can make a difference when they can get to the statute books and be effectively implemented, probably more so in China today than in the US and maybe even Europe. But its not enough, and in the cases of climate and capital markets, way too little too late. Yet today’s re-emerging force of public ownership, through sovereign wealth funds, state-owned enterprises, public-private partnerships and renationalisation, remains a desperately immature alternative that will not contribute to a new social contract without more open minds, serious design innovation and effective political engagement. We do not want to go backwards towards a 20^th Century model of public ownership. But today’s approach will not do, and we need to build new forms of capital ownership and stewardship that secure the public interest and private rights at an historic time that requires unprecedented innovation in governance and economy.

Davos 2010 should be about global governance, with a focus on its national and corporate underpinnings. It should see Copenhagen for what it was, not a disaster but the clearest possible signal of the need for radical change in how we organise our affairs. Similarly, financial regulation should not be seen as an organ of retribution, but a more fundamental move to reassess the nature of capital ownership and how associated power is exercised. Resurging public ownership and the up-swelling of all forms of public-private partnerships should be welcomed as the most important experimentation in organising our economic affairs since Hayek’s disciples won the ideological battle of the 1970s and thereby changed our lives and our understanding of ourselves.