The challenges of ‘now’

Yvo de Boer, KPMG’s special global advisor on Climate Change and Sustainability and former executive secretary to the UN Framework Convention on Climate Change, spoke to Anca Ionita about why sustainability as a business strategy is what will make the difference in the foreseeable future.

 By  Anca Ionita

From your perspective as an outsider, does Romania seem like a country that is planning for the future?

I think it does, but there are many different ways in which you can plan for the future. You can do that by taking the situation you are in as the given to which you need to adapt. In other words you can say: “I have an economy that is at point A, I have a regulatory environment that is changing – including from the EU – that needs to take me to point B. How do I get from point A to point B?” Or you can say, and this goes to the issue of sustainability, that actually point B is not terribly relevant. That point B is just a stepping stone to point C, because what is economically, politically and socially viable – in other words sustainable in twenty years’ time – is not where point B will get us to, but is point C.

What is point C?

It is, I think, recognizing that there are global trends that are fundamentally going to change our future – climate change, energy security, food and water security, population growth – and the challenge I think for Romania and its companies is how to create a business model that not only makes sense in the political and economic realities of today, but also of tomorrow. And a good example of that is Unilever, whose CEO, a couple of years ago, said he wanted to double profits and reduce the company’s environmental footprint by 50 percent, at the same time. Increasing profit is very much in the B context, but reducing the environmental footprint is in the C context. It’s all about defining the products and services that will make sense in the economy of tomorrow. I think that Romania and many economies are currently thinking of how to get from A to B, but are not sufficiently thinking about C. If I look at your economy, you have big challenges in energy, agriculture, healthcare and industry, meaning you have operating models that are not economically, socially and environmentally viable. The question is how to reform these sectors in such a way that you catch up not only with the challenges of today but also with those of tomorrow.

What is the time span for B?

B is, in a way, today. I think many parts of the Romanian economy are still at point A, struggling with a communist era, with an economic structure that was very different, a partially outdated energy sector, a healthcare model that is not very modern either, an agricultural sector struggling to become really economically viable. Point B is the fact that Romania is part of the EU, that it has to meet a number of European guidelines and directives, including in the area of the environment. Europe said we want to reduce greenhouse gas emissions by 20 percent, improve energy efficiency by 20 percent and have 20 percent renewable energy. This policy is part of the challenge Romania faces. That really is point B: the challenge of adapting to European regulations.

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If you were advising the Romanian government on how to get from A to B with C on the horizon, what would your advice be?

I would say: “Don’t take as your frame of reference the world as you see it today, but how you would like to see it in ten or twenty years’ time. Make sure that you check every investment you decide to make against that frame of reference and then you can still decide, for the practical reasons of today, to do something that doesn’t fit with the reference of tomorrow, doesn’t fit with point C. But at least you have made the reality check against where you want to go. Because if you are at point A and the rest of the world is at point B and you take point B as your reference, then by the time you get to point B, the rest of the world will be at point C and you’ll have to catch up again. See how you can use point B as a stepping stone to get there.” So I would think very much about the energy policy, energy infrastructure, agriculture and educational policy that will fit with Romania at point C, with the kind of Romania that people will want in twenty or thirty years’ time, and work towards that.

Where do you place point C in time?

I personally would put point C in different places for different things. In the energy and industrial sectors, you build things that last for 30 to 50 years, so it’s good to take a longer horizon. In other areas, for example in healthcare and education, you probably need to have your horizon significantly shorter, because you need to drive change in other areas.

Maybe this government needs to set up its own think tank to design the long-awaited strategies for each industrial sector?

If I look around the world, then I see a lot of other countries struggling with exactly the same things. If you’re talking about energy policy, in my home country, Holland, we are building coal power plants today, even though we know that they are not economically viable because we have CO2 goals that will make those power plants unfeasible. But we are still building them today because coal is cheap, and there is no public support to pay more for energy. That is part of the struggle that every country is facing today. You were talking about think tanks. What I think is important is to create mechanisms to allow government, the private sector and civil society together to explore what is the right direction to follow. I think the notion of partnership is very important at this moment.

As a consultant that now has moved from the public to the private sector, what message are you trying to convey to the business community?

Everybody is worrying about the economic crisis, the financial crisis, the Eurozone crisis. Many companies don’t recognize what is coming their way in terms of climate change, energy security, water and food shortages, the loss of ecosystems, etc. And that misperception of the policy environment and of what is happening in the natural environment is leading the private sector to ignore massive risks. And those risks will come their way and will become reputational risks, regulatory risks. The challenge, I think, for the business community, is to understand those risks, but more significantly to turn those risks into opportunities. In other words to understand what is happening and use that to leapfrog from point A to point C, instead of taking point B as your horizon. And I see the intelligent companies around the world, such as Unilever, Walmart, Philips, Renault, are investing very heavily to get to point C. At the moment we are in a situation where, generally, companies do not pay for the environmental damage they cause, and if you were to move towards a situation where they do have to pay for that, it would have a very significant impact on their profits. If you adjust your business model in such a way to use less natural capital to produce the same, then you are in a better competitive situation for the future.

But won’t such a policy deter foreign investors from coming to Romania?

If they choose to come to Romania in order to avoid paying for the damage they cause to the environment, those companies are pretty short-sighted, because Romania is part of Europe, and Europe is moving in a direction of adopting very strong environmental regulations. Would you even want that kind of investor here? It’s not all that long ago that Western Europe basically outsourced all of its energy-intensive industries to China, because labor costs were low, and now China is paying the price for making things that we in the West consume.

anca.ionita@business-review.ro