Insights

Mitigating Climate Change: Supply and Demand

What can we do as individuals that is really going to make a difference? In the run-up to COP26, we outline an idea about how to empower and incentivise us as individuals to consumer more sustainably and mitigate climate change, in parallel with ongoing top-down actions by governments, regulators and markets to create sustainable supply.

By Chris Parsons, Head of Advisory · October 29, 2021

climate change

With COP26 coming up and the recent Earthshot Awards underway last week, we are seeing numerous pledges, climate strategies and net-zero plans being announced by governments. As investors, global leaders and even royalty push the agenda, it inevitably leads us to question what else we as individuals and as a society could be doing to help move things along.

In a recent Financial Times article, Katie Rae – Chief Executive of VC firm The Engine states “Capitalism is part of the solution” but it requires a reconfiguration our economic systems, which ClearlySo has previously touched upon in our blog on ‘Fiscal Tilting’. Financial investment in tech innovations to tackle climate change is scaling up rapidly, with VCs having already poured over $40bn into climate tech companies between 2020-2021, 37% up from the two years prior. But we need to create sustainable demand as well as sustainable supply to address the major social and environmental issues that our world is facing.

We face three major barriers. First, national governments are by nature short-term given their political cycles; they are primarily focused on being re-elected and shy away from imposing policies that could lose votes – even if these decisions are better for voters medium-term or long-term. Secondly, we have become a massively consumption-driven society, with many of us used (and arguably addicted to) lifestyles based on consumption beyond our means. Thirdly (except for the global minority who have sufficient wealth to make purchasing decisions more philanthropically), we base our daily decisions on money. But due to globalisation we do not see or know about, and we do not directly pay the full cost of the social or environmental consequences of our purchases (e.g. understanding how our clothes or food are made and transported, or the pollution and global warming impact of traveling by car or plane).

While the onus should not be on the individual alone to make impactful changes to alleviate climate change, we should still be empowered and incentivised as people to make sustainable choices in our daily lives.

We need to be incentivised financially to make sustainable choices in our daily lives. We as consumers should financially benefit if we behave sustainably or pay an additional cost if we make an unsustainable choice. It is not just a one-way tax (as “environmental” measures are often portrayed in the media). Enabling individuals today to improve their own “bottom line” by behaving more sustainably is essential to achieve mass and positive behaviour change.

How? One idea – the “EarthCard”. Every time we pay for something, we are awarded points if the purchase is deemed socially or environmentally sustainable, or we are deducted points if the purchases are not. These points have a financial value so will affect us as consumers. We each have an EarthCard (an app and / or physical card) which records these points for every transaction we do. Less like something out of Black Mirror or science fiction, but more like a cross between a loyalty card and a credit card. Like credit cards, at the end of each month these points are added up. We receive a financial payment (if our total points are positive) or we pay a fine (if our total points are negative). Thus, it is within our control (so we are empowered) and we have a financial incentive to make sustainable purchases. We can also choose to buy or sell our points with each other – like an individual carbon trading mechanism.

This requires major new infrastructure of course but in particular needs:

  1. Software that records these points and keeps track of our individual totals every month with the possibility to enable us to trade with each other
  2. An independent register of purchases that records all types of purchases and the appropriate level of positive or negative points each ones accrues (and points should be proportional to the size of payment – for example, buying an air-source heat-pump would accrue more positive points than buying water in recycled bottles)

For (1), the rapid and continued advances in app and mobile technology hopefully means this is possible. For (2), an expert group independent from governments would be required to devise a register and system, based on science, to decide how much positive or negative a specific purchase would derive. This should be based on science (e.g. GHG emissions created or saved over a certain period). To win public trust, this entity, the register of points and data behind the social / environmental points (good or bad) have to be scientifically robust and validated by peers, and the entity assembling and managing this data has to be entirely independent from any political body.

This is likely to require new investment. In return, if successful such a scheme should future massive costs (health, insurance etc.) currently paid by governments (and funded through taxes) to address caused by climate change and any social conflict resulting from extreme weather events.

“Using emotional words like Earth or ‘planet’ (because they relate to ‘home’ which has huge personal resonance) is far more powerful in empowering people than ‘carbon’ or ‘climate’ (which are so massive and nebulous that we cannot relate to them)”

I believe that most people are very worried about climate change but do not know how to help mitigate it through our daily actions (because we have limited supply chain visibility and influence over our purchases), or we cannot afford to change our lifestyles. Presenting solutions to us as consumers in words we can all understand, empowering us to “make a difference” and financially incentivising us to do so (so we are no worse off and possibly better off financially) is key to changing behaviour. Using emotional words like Earth or “planet” (because they relate to our “home” which has huge personal resonance) is far more powerful in empowering people than “carbon” or “climate” (which are so massive and nebulous that we cannot relate to them). Similarly, enabling people to financially benefit through choices that we can make, gives us as people financial incentives to change our ways – so it is not just seen negatively as another tax.

This “Earthcard” idea is not instead of all the government actions, pledges and policies to tackle climate change. It is a means to stimulate a demand-side response bottom-up, in addition to all these top-down policies and programmes. The “EarthCard” clearly requires lots more work and better minds than me to make it – or something like it – viable. Structuring it to be fair and effective would be complex and challenging. Maybe implementing a prototype version through small trials based on a limited list of purchase types and accrued points to see how much it makes consumer behaviour more sustainable would make sense, before major investment in wider roll-out.

Finding a way to incentivise sustainable demand – alongside and in addition to more sustainable supply of services and products driven already by governments, regulators and financial markets – is better and more achievable than waiting for a single ‘perfect’ solution that may not exist and frankly, we as a world crucially don’t have the time to wait.

Alternatively, if you’re a business tackling climate change and want our support finding the right capital for your next funding round, find out if we could help by clicking here.