Shaking up the private sector

The private sector has a key role to play in the new sustainable development agenda, says IIED's Mick Blowfield, but let's keep multinationals' commitment to change in perspective.

Surveys of the priorities of the private sector often ignore vital informal economies, such as this one in Hanoi (Photo: Bill Vorley/IIED)

For anyone interested in how the private sector relates to sustainable development, the annual World Economic Forum meeting in Davos is the focal point this week. The ski resort is where heads of companies, senior politicians and celebrities rub shoulders to, in their own words, "share insights and innovations on how best to navigate the future".

Ahead of the event, PWC released the findings of a survey asking about their list of top priorities. At the top were fears about global security, over-regulation, cyber-threat, and growth. Sustainable development was a long way down, with climate change, for instance, getting a mention from about half the 1,000-plus respondents.

Should we be surprised? No: the list of concerns this year is roughly the same as last year, without much change in priorities. What's more, the PWC survey, like others by the likes of Accenture (PDF), only looks at big, multinational firms. It ignores the majority of businesses in the world that are small, medium or micro, and often exist outside of the formal economy.

A sustainable agenda

But nonetheless the findings are important. The new Sustainable Development Goals are teeming with ambitions that can only be achieved if the private sector plays its part. That includes obvious ones such as economic growth, but also energy for all, sustainable resources, and gender equality.  

The new climate change agenda that came out of the COP in Paris likewise requires an active and innovative private sector to play its part if we are to keep global warming to less than 1.5 degrees.

Not surprisingly, there's a lot of excitement about the role of the private sector in the emerging new sustainable development process. A hundred major companies have committed to achieving 100 per cent renewable power, signalling massively increasing corporate demand for renewable energy. The Breakthrough Energy Coalition of 27 major investors has promised a US$2 billion for clean energy innovation.

Putting this in perspective

But let's put this in perspective so that we don't lose sight of the size of the climate challenge. That 100 companies have committed to renewable power is great, but the companies who signed up are not from the biggest greenhouse gas emitting sectors.  

They are in retail and finance and advertising, and don't include airlines, steel, or transport. What's more they include companies such as Nestlé that have outsourced some of their most harmful activities to companies that have no sustainability sensibility.

Or take the 27 investors promising $2 billion for clean energy. That's less than $75 million each. For a big investor, $75 million is a small amount. The promise equates to putting a small bet on clean energy, knowing that it probably won't pay off, but if it does the returns will be huge.

It's called 'contrarian investing' and is the kind of thing Nassim Nicholas Taleb highlighted a few years ago in Black Swan. So, this isn't big news: it's normal investment practice.

What's more, the Breakthrough Energy Coalition is making its commitment contingent on governments putting up matching funding. That's to say that the private investors want tax payers to reduce the investment risk by putting up collateral.  

There may be tax payers who would rather see investors paying more taxes rather than getting what amounts to subsidies for investment in new technology.

All told, we should probably be welcoming the private sector to what will hopefully be a fast moving sustainable development agenda. But we shouldn't go crazy just because they are coming to the party. They need to pull their weight.

Mick Blowfield (mick.blowfield@iied.org) is director of IIED's Sustainable Markets Group.