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Insights 30 Jun 2014

On Our Radar: Quarterly Trends Spring 2014

By Livia Martini

Once a quarter, SustainAbility shares its latest thinking on a handful of trends currently ‘On Our Radar’. In Spring 2014, we are thinking about impacts of the EU’s softening of climate targets, China’s ‘green decade’, and the data privacy debate’s push/pull on corporate responsibility and future business models.

Energy’s Cleaner, More Distributed Future Dealt a Blow

In January, the European Union relaxed its position on renewable energy by making renewable targets non-binding and removing national accountability. NGOs and some multinationals such as Shell, reacted with concern, worrying that the resulting ambiguity over the future of the EU’s climate policy could lead to a European energy crisis. NGOs and lobby groups have turned to Germany in an effort to convince Chancellor Merkel to take a stronger stance on the continental bloc’s energy future. However, even Germany, often cited as the leader of the EU’s commitment to renewables is accelerating cuts in aid to operators of wind and solar plants and has become the first nation in Europe to charge owners of renewable plants for their use of electricity. The above-mentioned policies have led some like financial journalist John Dizard to wonder if the “policy tide is turning back to the utilities’ favor.”

We have been following energy’s uncertain future recently, though despite the real ambiguity, the directionality of ‘cleaner’ and ‘more distributed’ has been hard to dispute. European policy as it relates to sustainable development has frequently been a harbinger for what to expect in the rest of the world, and as Rupert Darwall of the Wall Street Journal states, 2014’s early developments offer a stark lesson: “When it comes to unilateral cuts in greenhouse emissions and aggressive incentives for renewables, this is a global race you don’t want to win.”

Will China’s ‘Green Decade’ Be a Boon for Big Business?

In early March, Chinese officials declared a ‘war on pollution’, promising to toughen environmental laws and hold polluters accountable. This follows the Chinese Communist Party’s Third Plenum at the end of last year, which laid out plans to accelerate environmental preservation through stricter regulation. While most regulation has been targeted at the oil, coal and mining sectors, China has shut down approximately 8,347 heavily polluting companies and rejected $19.5 billion worth of potentially polluting projects spanning a wide variety of industries. While the country’s stricter regulatory environment should be a welcome step for cities like Beijing, which was recently classified as ‘uninhabitable for humans’ by the Shanghai Academy of Social Sciences, the real impact of such regulations is unclear.

One concern is the discrepancy between national mandates and regional implementation. According to a recent article in the New York Times, enforcing environmental regulations through local bureaucracies and influencing the state-run economy—in which state-owned oil companies exert enormous influence—has been challenging. A second concern is that even
if enforced, China’s new regulations may just transplant its pollution problem. According to the vice-minister of the Chinese Environmental Protection Ministry, the central and western parts of China are being “encouraged to develop coal-to-gas… replac[ing] coal burning in the eastern regions” of Beijing, Hebei, and Tianjin.

Still, Credit Suisse predicts that China’s green decade will prove a boon to local and international companies that adhere to and push ambitious environmental performance particularly in the areas of waste to energy, hazardous waste, cement treatment and wastewater treatment. For example, things like China’s Circular Economy Promotion law incentivizes less resource-intensive manufacturing through tangible carrots like reduced taxes. The Institute of Public and Environmental Affairs and The Global Think Tank similarly argue that multinationals will benefit from a greener China if they drive the environmental performance of their suppliers. Assuming we see central government rhetoric on environmental protection trickle down to the local level (still a big “if”), leadership companies that are already working with their Chinese suppliers to reduce (or rethink) the environmental impact of manufacturing are poised to benefit from China’s ‘green decade’.

Data Privacy: Can we Have Our Cake and Eat it Too?

Ongoing revelations about online snooping have highlighted individuals’ susceptibility to constant surveillance and reignited a debate about the rights of citizens—and by extension, consumers—to data protection. Nowhere has this debate resonated more in the corporate sector than the technology industry, which has been caught in a kind of crossroads. In a recent article titled, Why Silicon Valley’s Top Dogs Fought Back So Feebly Against NSA Spying, Mother Jones journalist Josh Harkison argues that tech companies like Twitter and Google are trying to balance tempered support of the fight against NSA spying while not directly challenging the government and “appearing too anti-establishment.” A primary reason for this balancing act is a noted realization that it is not a big leap for the pro-privacy crowd to turn against Silicon Valley’s data mining and online advertising practices, making a staunch position on data privacy anathema to today’s – and certainly tomorrow’s – leading business models.

To that end, ripples from the consumer privacy debate have surfaced in industries well beyond Internet and social media firms. The US Federal Trade Commission has recently focused on the health and wearable fitness industry, citing its potential contributions to improving health outcomes, while raising concerns about health data being sold to the highest bidder. Telecom companies too are balancing the reputational risks of selling data with the massive revenue upside. While Verizon believes it can sell consumer data and be a leader on privacy—

“It’s not a reputational risk if you do it right…” says Verizon executive Colson Hillier—Deutche Telekom is going the opposite direction, having recently launched an encrypted email service. As the company’s CEO stated, “the protection of the private sphere is a valuable commodity.”

So valuable, in fact, that it is catalyzing a whole new industry for consumer and business-driven cybersecurity products. According to the co-founder of one of these new businesses, Wickr, a secure messaging app, “Over the next 10 years those who will thrive will be companies that offer privacy and security…[with] features just as good as Google, Facebook and Microsoft.” Expect more fragmentation – of regulatory outcomes, corporate policies, and executive rhetoric – rather than less in the near-term, as data-driven companies (which is increasingly representative of the whole private sector) test the public’s limits and hope to remain flexible to where the wind blows next.

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