Opinion | For-profit businesses cannot be trusted to aid climate change fight

The devastating floods that caused so much damage in Hong Kong and southern China this week are yet another reminder of the growing effects of climate change. What can businesses do to help?

When there is so much talk in business about transparency, compassion and environmental responsibility, the answer might not be what most people might expect. When it comes to climate change, there is not much businesses can do.

If Hong Kong and mainland China want to reduce the effects of climate change, they need to regulate businesses more and cut emissions as fast as possible. Leaving it to the market is a recipe for more destruction.

This is because businesses have no inherent interest in what is good for society, other than ensuring there are future customers. Business goals are defined by whatever generates the highest short-term financial return. That is not a value judgment. It is simply the reality of the current economic system.

Milton Friedman, the father of modern economics, said the only social responsibility of a business is to increase its profits as much as possible. It is a cast-iron rule, and well-intended ideas about sustainability or ethical governance don’t change that.

Despite all the talk about morality in business, companies will always choose the most profitable path because any company which fails to maximise profits loses market share. A rival that cuts costs by whatever means, even wrecking the planet, has a competitive advantage. In the long run, a less ethical company will beat a higher-minded competitor by growing faster and more profitably.

The notion of putting profits first being the only driving force in business helps explain why companies pollute the environment. It is simply more profitable than respecting nature. It explains why it makes sense to do absolutely anything that boosts profits as long as it is lawful.

This is where the line gets drawn. Businesses cannot help in the fight against climate change because they do not need to care for the planet or society, and nothing within the current system says they should.

All businesses need do is obey the law. It is governments that define the framework in which businesses operate. Only governments can influence the outcome.

They must exercise this influence because it is currently simply not profitable for most businesses to do anything to slow the pace of global warming. There is no profit in closing oil refineries and cement factories, which is what needs to happen. There is no money to be made from stopping glaciers melting, forests burning or devastating floods like those seen recently.

Of course businesses want to appear helpful. That’s what all the talk of “net zero” that calls for more sustainable business practices are about. In reality, almost nothing societies do today is truly sustainable, including in the renewable energy sector – the equipment required to generate wind, hydro and solar energy today requires vast quantities of non-renewable resources.

Moreover, net zero is a sham. First, the target is too far into the future to matter. Achieving net zero in 2050, or even 2060 in China, is meaningless when the concentration of greenhouse gases in the atmosphere, on current trajectory, will make unstoppable climate change inevitable long before then.

Second, net zero depends on carbon capture. Societies intend to carry on polluting as long as they find a way to offset their emissions by planting trees or sucking carbon out of the air. But there is not enough land or time left to plant the trees needed. Many trees are also dying as temperatures rise, which increases emissions.

Climate change: carbon capture projects are not living up to their promise

Carbon sequestration technology is still in its infancy and too expensive. And what should societies do with all that carbon they hope to capture? Where are they going to store it for eternity? Who is going to pay?

Finally, net zero does nothing to reduce the concentration of greenhouse gases in the atmosphere, which is the main source of the climate problem.

All the talk in business about accountability and ESG (environmental, social and corporate governance) is certainly comforting. But it is a dangerous distraction from the reality of climate change, which makes it even harder for societies to do what’s needed.

Regulatory intervention is the only effective way to stop floods like we have seen. Only governments can stop the climate from getting completely out of control.

Graeme Maxton is an economist, author and former secretary general of the Club of Rome. His latest book, A Chicken Can’t Lay A Duck Egg, is now available in English

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