The pros and cons of Bill Gates’ green premiums

You could argue it is a bit rich that Bill Gates, co-founder of tech­nol­o­gy titan Microsoft and one of the world’s wealth­i­est peo­ple, is call­ing for busi­ness­es to dri­ve cli­mate change. How­ev­er, there is no debat­ing that con­sumer and investor demand is forc­ing organ­i­sa­tions to clean up their process­es for the future of an endan­gered plan­et.

In How to Avoid a Cli­mate Dis­as­ter, his lat­est book styled a “green man­i­festo”, pub­lished in Feb­ru­ary, the 65-year-old bil­lion­aire intro­duces the con­cept of “green pre­mi­ums” or the dif­fer­ences in cost between a fos­sil-fuel-based way of doing some­thing and the clean, non-emit­ting way of doing the same thing. But how achiev­able is Gates’ vision?

A fresh approach to doing busi­ness is essen­tial to avoid a cli­mate dis­as­ter, posits Gates. This new way requires courage from busi­ness lead­ers to take on risks they are not used to tak­ing and also that investors are not used to reward­ing. It’s a sim­ple prob­lem, he sug­gests: we must stop green­house gas­es by the mid­dle of the cen­tu­ry or else.

Green pre­mi­ums essen­tial­ly show how much it will cost to “zero out emis­sions” in all sec­tors of the econ­o­my where fos­sil fuels are involved, includ­ing pro­duc­ing elec­tric­i­ty, man­u­fac­tur­ing, agri­cul­ture, trans­porta­tion, and heat­ing and cool­ing. 

There are four areas where organ­i­sa­tions can make “a prac­ti­cal dif­fer­ence”, accord­ing to Gates. The first involves “mobil­is­ing cap­i­tal” to reduce green pre­mi­ums. Sec­ond, busi­ness­es should buy green­er prod­ucts. Next, they should expand research and devel­op­ment. Final­ly, dri­ve down green pre­mi­ums by shap­ing pub­lic poli­cies.

“Work­ing in these four areas will not always be com­fort­able,” Gates con­cedes, though he adds: “These are short-term costs required of every busi­ness leader who wants to do more than pay lip ser­vice to cli­mate change. In the long run, these risky steps will be good for busi­ness.”

The glob­al reac­tion to his green man­i­festo, and green pre­mi­ums in par­tic­u­lar, has been ambiva­lent. Mol­ly Scott Cato, a Green Par­ty politi­cian, who from 2014 until last year served as a mem­ber of the Euro­pean par­lia­ment for South-West Eng­land, is in two minds about them. 

“As an econ­o­mist, I like and agree with the green pre­mi­ums prin­ci­ple of using mar­ket incen­tives to tack­le the cli­mate emer­gency and the con­sid­er­a­tion of how to achieve well­be­ing with min­i­mum ener­gy use is impor­tant,” she says.

On the flip side, the pro­fes­sor of eco­nom­ics and finance at the Uni­ver­si­ty of Roe­hamp­ton, says: “Green pre­mi­ums are too tech­no­log­i­cal­ly focused and adopt the adage that if you can’t mea­sure it, you can’t man­age it.” Scott Cato con­tends the planet’s sys­tems are high­ly com­plex and ungovern­able: “Many of the solu­tions require social rather than tech­no­log­i­cal inno­va­tion.” 

Stress­ing the need for greater inter­na­tion­al col­lab­o­ra­tion and high­er appre­ci­a­tion of the com­plex­i­ties, she says: “Gates’ pro­pos­al is also too exclu­sive­ly focused on the cli­mate and con­se­quent­ly risks dis­place­ment, for exam­ple where are the bio­fu­els grown and have they destroyed peat­lands for food growth?”

Oliv­er Bolton, chief exec­u­tive of Earth­ly, a tech plat­form that helps busi­ness­es become “cli­mate pos­i­tive” through sci­ence-backed nat­ur­al solu­tions, iden­ti­fies anoth­er hur­dle. “The use of green pre­mi­ums is ulti­mate­ly going to be dri­ven by gov­ern­ments chang­ing pol­i­cy,” he says, “so it could be hard at the out­set for busi­ness­es to use the mod­el.”

Dr Jane David­son, pro vice chan­cel­lor for sus­tain­abil­i­ty and exter­nal engage­ment at the Uni­ver­si­ty of Wales, is more scathing of green pre­mi­ums. “I’m dis­ap­point­ed at the propo­si­tion that ‘green’ is more expen­sive,” says the for­mer min­is­ter for envi­ron­ment and sus­tain­abil­i­ty in Wales. “This is clas­sic short-term think­ing, when each year the costs of us not being green goes up, con­tribut­ing to cli­mate change. 

“Green pre­mi­ums are the wrong answer to the wrong ques­tion. We need a new val­ue sys­tem that dri­ves cli­mate and bio­di­ver­si­ty-led action, and dri­ves out fos­sil fuels, waste and obso­les­cence.”

Despite the head­lines and promis­es, there is con­cern that envi­ron­men­tal, social and cor­po­rate gov­er­nance strate­gies are large­ly mean­ing­less, in part because they are not reg­u­lat­ed and tricky to mea­sure accu­rate­ly. More­over, could it be that by com­mit­ting to a net-zero tar­get in 29 years, as many have, busi­ness­es are delay­ing action on cli­mate change, as it is not an immi­nent wor­ry?

Indeed, while a search on finan­cial data ser­vice Sen­tieo indi­cates that ref­er­ences to 2050 in cor­po­rate lit­er­a­ture have dou­bled in the past two years, a PwC sur­vey released in mid-March found cli­mate change ranked ninth among glob­al chief exec­u­tives’ per­ceived threats to growth. Addi­tion­al­ly, 27 per cent of the exec­u­tives sur­veyed report­ed being “not con­cerned at all” or “not very con­cerned” about cli­mate change.

Wor­ry­ing­ly, this tal­lies with research from French-head­quar­tered dig­i­tal design soft­ware cor­po­ra­tion Das­sault Sys­tèmes, pub­lished in Sep­tem­ber, that shows the coro­n­avirus cri­sis caused 32 per cent of organ­i­sa­tions to scale down atten­tion giv­en to envi­ron­men­tal sus­tain­abil­i­ty, while 18 per cent paused it com­plete­ly.

“As organ­i­sa­tions come out of cri­sis mode, it is vital they quick­ly return to mak­ing envi­ron­men­tal sus­tain­abil­i­ty a pri­or­i­ty,” urges Séver­ine Trouil­let, pub­lic sec­tor and edu­ca­tion direc­tor for Das­sault Sys­tèmes in North­ern Europe. “This can be done by set­ting short to mid-term goals to help reach long-term ambi­tions, as well as build­ing upon the already accel­er­at­ed adop­tion of tech­nol­o­gy to reduce their foot­print and increase their hand­print, mak­ing pos­i­tive impacts on the envi­ron­ment and com­mu­ni­ties.”

Trouil­let believes those com­pa­nies that act now can still achieve a com­pet­i­tive advan­tage. “Eco-con­scious con­sumers will con­tin­ue to vote with their wal­lets, mean­ing busi­ness­es fail­ing to take it seri­ous­ly will lose rev­enue and strug­gle to keep pace with rivals,” she says.

Peter Bakker, pres­i­dent and chief exec­u­tive of the World Busi­ness Coun­cil for Sus­tain­able Devel­op­ment, con­curs. But he says a new wave of lead­er­ship think­ing is imper­a­tive. “Three rad­i­cal and strate­gic busi­ness mind­set shifts – rein­ven­tion, resilience and regen­er­a­tion – are crit­i­cal to real­is­ing a sus­tain­able and inclu­sive soci­ety,” the Dutch­man says. 

Bakker con­cludes: “It is time to move beyond ambi­tion and tar­gets and make net zero real, with­in the next decade.”