CNBC Business | JANUARY 2007

JANUARY 2007

Climate change is a great challenge for humanity and a great opportunity for entrepreneurs

Putting together this month's magazine was a difficult job, seeing as it grapples with a global calamity yet seeks to identify the profit potential of climate change to business. We opted for the cover line 'How you can profit from...' in the end, because history shows us that whereas political will, voluntary restraint and idealism cannot be relied on, human greed usually can.

The €100 trillion or so of investments managed by fund managers globally is a fearsomely powerful weapon against climate change, especially if it is wielded on the basis of fiduciary responsibility and risk management rather than comparatively flimsy green credentials – or, God forbid, idealism. The perception of that risk changed in the fourth quarter of 2006, based on Sir Nicholas Stern's wide-ranging report, The Economics of Climate Change, which was computed on the economics of risk rather than the morality tale delivered by Al Gore in his otherwise instructive film An Inconvenient Truth.

Like a powerful tide scouring a shingle beach, investments premised on climate-related risk avoidance will powerfully reshape the world economy. Stabilisation of greenhouse gas concentrations at 450-550 parts per million by 2050 – a necessity recognised by Stern – will only occur if there is one global price for carbon. Yet this will not occur without extraordinary political will and cooperation. Given the improbability of a harmonised global tax regime – something the delegates at this month's Davos World Economic Forum are only too aware of – the only way to price carbon is to trade it. This is already practised within the European Trading Scheme and it is crucial that the ETS is renewed after 2012. It is also of paramount importance that the scheme is extended beyond Europe's borders. The biggest hope of this happening rests on European Commission president José Manuel Barroso's recent conversion to the green cause, Angela Merkel's EU presidency, the Democrat victory in last autumn's US mid-term elections and KofiAnnan's prioritisation of global warming at the UN.

Although there is no promise, of course, that global warming will ever be reversed, the widespread surge in activity among the business community suggests that it is at least being seriously addressed. Indeed, at a grass-roots level, our 'Top 50 Low-Carbon Pioneers' feature shows a remarkable breadth of progressive leaders presiding over progressive companies.

The vast majority of interviews conducted certainly suggest high levels of green idealism among both US and European business communities. But even as they grope for political support, these entrepreneurs view climate change in terms of specific business opportunities more than as a vague threat.

We offer a snapshot of an exciting emerging market, spanning both large corporations and newly listed carbon trading houses and green venture capital. This does not mean that our planet's future and the path set by modernity won't continue to rest on an apparently irreconcilable contradiction between economic growth and environmental well-being. But it does provide some grounds for hope.