Crucial role for businesses

A recent Mckinsey analysis on how businesses can play the climate challenge brings out several points of concern.

The author is hopeful that there will be a portfolio of policy interventions aimed at broad economic considerations under the present climate. A number of them will “prove to be, frankly, pretty inefficient. But they will be there, and they will create, in effect, very strong signals to shift and reallocate capital over time.”

It is a time for transition whether one subscribes to the climate change theory or not. There are going to be big opportunities during the transition and this will “create winners and will create losers. We are going to enter a phase of creative destruction that will cut across multiple sectors.”

He advocates that businesses should pay particular attention to getting the timing right on their portfolio choices. To go slow and just wait until the policies have fully matured before making capital reallocation positions or risk going too fast?

But above all, the point of concern he raises, which increasingly is becoming evident is that as policy interventions play out, they will translate into the risk of real protectionism. Some of that protectionism will be very overt, as he says, in the form of trade protection masquerading as climate action. Other forms of protectionism will be much more implicit, through highly differentiated local standards that benefit local players.

So what’s the big deal? Will that not be good for local players? Yes, but it will, frankly, raise the costs of the transition. And it will raise the costs for businesses who want to play globally. Is that good?

Can businesses take actions to encourage efficient policy action and to discourage the voices of protectionism?