Climate change: the big test for public and private regulation?

By Bastiaan van der Linden, Associate Professor – CSR, EDHEC Business School

Growing concerns about anthropogenic climate change have led to the rapid development of greenhouse gas regulations. A striking feature of these regulations is that they are often promulgated by companies and NGOs, rather than by states. Private regulation is quite common nowadays, but in the case of climate change the stakes are more important than ever, and particular dynamics between private regulation and public regulation have appeared. Here is a brief overview of the regulation of greenhouse gases, as well as a forward-looking view of its evolution.
In 2012, an academic overview already identified no less than 68 (public-) private initiatives to fight against climate change. A notable example is the Science Objectives Initiative (SBTi) which helps companies set targets for reducing greenhouse gas emissions that represent a “fair share” of the total reduction in emissions needed globally.
Another interesting example, which can be applied in combination with the Science-Based Targets Initiative, is the Carbon Disclosure Project, one of the largest private standards for reporting greenhouse gas emissions. Thousands of companies now use these standards to communicate this topic to investors, governments and other stakeholders.
The field of greenhouse gas regulation is further complicated by a plethora of public regulations created by nation states and their joint institutions such as the European Union. A typical example can be found in the many carbon emissions trading mechanisms that exist today, such as the EU Emissions Trading Scheme. Add to that a host of local, national and international regulations focused on subsidies, taxes and other instruments to reduce greenhouse gas emissions, and the public and private kaleidoscope of climate change regulation is complete.

Pluralist and decentralized governance of climate change?

This global “patchwork” of public and private regulations arouses mixed feelings. Optimists point out that a decentralized and pluralistic system of governance can serve many different interests and offer unprecedented opportunities to experiment with new forms of governance. Pessimists fear that this plurality offers the biggest emitters of greenhouse gases plenty of opportunities to “search” for the most practical regulation, and that private rules are likely not to be monitored and enforced tightly enough.
At the same time, the majority agree that economic globalization has sidelined national regulators and that the prospects for effective global public regulation are dim. In this context, private regulation on climate change may start to look promising.
Private regulation for sustainability – climate change and other issues – isn’t really new. Over the past decades, many private regulatory initiatives have sprung up in areas where states seemed incapable of creating international regulation. The typical example is the Forest Stewardship Council. Composed of NGOs and companies from the wood production and processing industry, this private regulation initiative fills the “governance gaps” in international public regulations in order to protect forests (especially tropical forests).
This is just one of the thousands of private regulatory initiatives that have emerged over the past decades. The usual explanation for these burgeoning “soft law” initiatives is that the lack of public regulation is problematic for businesses, as their legitimacy in the eyes of consumers and others depends on their compliance with a law. appropriate. In the absence of laws, both businesses and NGOs fill these “governance gaps” with private regulation, and thus create frameworks that can give legitimacy to businesses.

The dynamics of public and private regulation for climate change

In the case of climate change, the story seems somewhat different: here, the absence of public regulation is not necessarily what motivates private regulation. On the contrary, the two categories of regulation seem to develop simultaneously. Reasons why companies engage in private regulation include:
a) where stricter public regulation is expected, private regulation can help companies prepare for its introduction,
b) by developing private regulation, companies have an instrument to influence the process of public rule making, and
c) successful private regulation can convince public regulators to leave certain regulatory aspects to the discretion of private parties.
Indeed, since its creation in 1995, the United Nations COP conference has brought together more and more companies wishing to participate in discussions on the regulation of climate change (the 2015 edition which gave rise to the Paris Agreement on the climate being the most famous). For example, the Carbon Pricing Leadership Coalition emerged on the sidelines of COP conferences.
This initiative of States, companies and NGOs aimed at jointly supporting the development of effective solutions for trading in emission rights and / or carbon taxation, is an attempt to “orchestrate” the cacophony of rules. existing. Orchestration consists, on the one hand, in accepting a plurality of public and private regulatory initiatives, and, on the other hand, in combining these regulations in order to achieve results that public or private regulation alone cannot provide.
The (short) history of public and private regulation shows that these two categories of rules have qualities which can in principle serve to reinforce each other. Private regulations can be fairly easy to adapt, are enacted by voters with in-depth knowledge of the industry, and can more easily gain support from private parties. Public regulation can stimulate the implementation of private regulation (public tenders often refer to private tenders for sustainable development, for example), set targets to be achieved for private regulation, make private rules mandatory and enforce the implementation of private regulation.

The future of public and private regulation of climate change?

As this brief overview shows, many of the elements necessary for effective climate change regulation are under development. Orchestrating them will depend on a complex interaction that requires ongoing international public negotiations, NGOs playing an active role, and efforts to leverage corporate knowledge and influence in their industries. Nonetheless, given the current fragmented state of climate change regulation, the limited capacities of states to create a global framework, and the disparate interests involved, this approach is worth considering.
As utopian as it may sound, successful examples of such public-private interaction can be found in other regulatory contexts. A good example is the set of IFRS standards which now define the financial information that companies are required to disclose in their annual reports.
IFRS regulations were originally developed by the International Accounting Standards Board, a private body, before being imposed by public entities in EU member states and many other countries around the world. In fact, this interaction made it possible to harmonize the different accounting regimes.
It is obviously difficult to predict the future of climate regulation. Strong public initiatives will surely be essential, but an intelligent orchestration of public and private regulations could be used to achieve the best of both worlds.

The opinions of the author are personal and do not necessarily represent the opinions of the website.

Bastiaan van der Linden - EDHECThe author Bastiaan van der Linden is Associate Professor of Corporate Social Responsibility at EDHEC Business School and Director of the MSc in Global and Sustainable Business. Bastiaan has experience in consulting, academic research and business training. He holds a PhD from Radboud University and was a visiting scholar at Darden Business School. He is co-editor of the Business and Professional Ethics Journal.
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