7 Climate Insights from the 2008 Financial Crisis

The period 2008-2012 was very different, however, and financial crises need a broader economic perspective, so I wanted to write an article on the key developments I observed from those difficult, and uncertain, years. Equipping ourselves with a clearer understanding of the past financial crisis and how it impacted climate might equip us to weather the storm ahead.

Lehman Brothers’ collapse on 15 September 2008, accelerated a process which sent global markets into meltdown and triggered an economic tsunami that hit global economic shores hard. At the same time, the UK Climate Change Bill was passing through Parliament (only 4 MPs voted against) and the Act was signed into law on 26 November 2008. This committed the UK to an 80% reduction in greenhouse gasses (GHGs) by 2050 (now net zero), and rolling 5-year carbon budgets from 2008. It was a good time at the Climate Change Committee (CCC) and a personal career highlight. The economic and climate worlds were then set to diverge, however, and it was inevitable that we were impacted. The next five years were eye-opening. Here are seven of my main observations:

1.  Long-term targets held even if short-term actions slowed. As the Financial Crisis unfolded, it became clear that financial and economic stability were understandably the policy focus and that climate was to become ‘important but not urgent’. Climate was somewhat downgraded and defunded, with various public bodies downsized and disbanded. That said, the 2050 targets, and interim budgets, remained in place in the UK, and many national pledges were also made through the crisis. Aspirations and goal setting did not always translate to accelerated climate action, however, which slowed markedly, particularly outside the EU where energy and climate programs were less mature.

2.  ‘Core business’ in boardrooms did not include climate. At the corporate level in 2005-08, climate was starting to move from contained CSR and ESG initiatives to be taken seriously in boardrooms. Lehmans’ own Business of Climate Change had over 750,000 downloads in 2007. As soon as the crisis hit, however, many leadership teams reverted to what was being termed ‘core business’ and short-term quarterly earnings prospects. In the climate community, it took us all a while to realise that core business meant action on climate was largely to be sidelined. In those years, most companies had not made public commitments on climate (a few had energy and waste targets), so their pivot and inaction was largely seen as good business sense and a focus on value preservation and creation.

3. Efficiency and cost savings took you only so far. The climate community’s next tactic - to stay relevant - was to look at sustainability as efficiency, arguing that being more efficient in inputs was a lower cost model and more resource efficient. This line did work, but it did not get us close enough to boardrooms and the C-suite. Energy, water, waste and carbon were not considered strategic issues, so they only got us into conversations, and solutions, at the functional level. Some progress was made on efficiency and cost reductions, but the idea of bringing climate into corporate strategy or transformation, in a way that digital was starting to make major inroads, remained elusive. Climate wasn’t transforming sectors in the way in which digital was starting to disrupt the analogue world.

4. The technology and economics for scale wasn’t there. Many are aware that solar, wind and battery prices have fallen by 80-90% over the past 15 years because of Moore’s law and Wright’s law, primed by policy. At that time, however, many of the renewable solutions, particularly for electrification, were just too expensive to be considered economic to deploy at scale. Of course, there were early adopters (I’ll return to that too) but the sheer economic cost initially prevented largescale deployment. Let’s not forget, however, that over time the German feed-in-tariff, and low-cost Chinese manufacturing, turbo-charged the world’s solar industry. Moreover, long-term renewables deployment globally has outstripped every single projection, including Greenpeace’s: as costs fell rapidly, their scalable deployment was more akin to car and television adoption curves, from modular manufacturing, rather than multi-billion pound capital infrastructure projects.

5. Seeds of the 2020 wave of Climate Champions were sown amidst the crisis. Just as some of the world’s major tech firms (Amazon ’94, Netflix ’97, Google’ 98) survived the dot-com crisis and then thrived through the 2000s, some of the biggest names in climate survived the financial crash (albeit some with support) including Tesla, SolarCity, NextEra Energy, Iberdrola; others started their own transformation journey, including the much-heralded shift from DONG to Orsted. Those that slowed down or switched track, however, struggled to catch up in the later part of the 2010s, including many of the largest incumbent energy majors and global auto manufacturers. It became clearer that these sectors were on the cusp of tipping points, driven by an increasingly favourable alignment, and combinatorial advancement, across policy, economics, and technology.

6. Global agreements can’t just reflect one region’s priorities. Heading into COP 15 at Copenhagen (2009) when a global agreement successor to the Kyoto Protocol (1997) was sought, there was a European presumption that the world would look at the EU, see what great work it was doing and want to replicate that at the global level. That view could not have been more wrong. As an Anglo-American, to me it was clear that to American eyes there was a view that while Europe liked to regulate, the US liked to innovate, so the US was not necessarily going to want to replicate the EU model fully despite some enlightened states e.g. California using regulation to drive change. Then there are China and India, and their need for rapid economic development, as well as the Middle East’s concerns about their major form of revenue. People weren’t looking at the issue holistically enough and working out how to reach agreement with those different, and often disparate, positions and interest. The focus was often on moral responsibility rather than economic opportunity and self-interest.  The Copenhagen agreement was only ever likely to be a stepping stone, but people were expecting a major breakthrough given the build-up. 

7.  Climate had to be framed as a growth driver to make a comeback. After licking our wounds in 2010 and swallowing the core policy and core business narratives, it was increasingly clear that the cost narrative, so eloquently stated in the Stern Review 2006 (1-5% cost to do something, 5-20% damage, and great uncertainty, if you do nothing) was not cutting through. A group of economists emerged in 2010 starting to espouse ‘green growth’, the idea that moving from high to low carbon could be a growth driver, not just a cost choice. As this gathered momentum, it became clearer that climate could be one of the predominant growth drivers of the 21st Century. This culminated in the New Climate Economy project and the Better Growth, Better Climate report in 2014, of which Llewellyn Consulting and I were part, Nick Stern and Felipe Calderon led, and Obama endorsed, which paved the way for better US-China relations on climate, as growth alignment was easier to achieve, and the path to agreement in 2015 in Paris was more clearly laid out.

Of course, this time will be different, but as Mark Twain said: ‘History doesn’t repeat itself, but it often rhymes.’ The world is markedly better prepared this time: the politics, economics, and technology look that much more surmountable. It will be interesting to see how value creation is focused, and calibrated, 15 years on. Certainly, there is a much better understanding of how climate action can drive growth and value creation across sectors, with guiding lights in energy and mobility, as well as more companies differentiating themselves in the consumer products and retail sectors too. While COPs are likely to continue to be incremental markers in progress, with some years providing bigger stepping stones than others, there is no doubt in my mind that many of the 2030 climate champions will be formed through the coming turbulent period. Those companies will emerge stronger, seemingly out of nowhere for those who weren’t looking closely. By contrast, those that decide to slow down and focus on near-term ‘core business’ will be left behind. I expect a bifurcation in 2025 when those that have the right foundations in place and have reimagined their business models will start to pull away, and rapidly.

Finally, on a personal note, from those wondering what went on and how we got here on climate: we tried. We didn’t make half as much impact as we wanted, we tried to keep the ball moving and set some foundations. There were certainly moments of delight, disappointment, and sometimes despair. We were rebuilding the strategic narrative of ‘where to play’ and ‘how to win’ the whole time. It was a strategy, comms, and mobilisation challenge I am pleased to have been a part of, and to see what then subsequently bloomed.

We will get through this storm, although the world will look different on the other side. What if the winds could even be harnessed to help achieve long-cherished goals? This time, it’s just possible that our progress with climate action could be not slowed, but accelerated.

Acknowledgements

With sincere thanks to John Llewellyn, Dimitri Zenghelis, Hope Davidson, Ollie Potter, Stuart West, Tom Hyner, and Lucy Carlyle who commented, and made excellent suggestions, on earlier drafts of this article