25 Feb

The World Traders’ 34th Tacitus Lecture, Too Hot to Trade?: World Trade and Climate Action kindly sponsored by London Chamber of Commerce and Industry, was given by Dr Kirsten Dunlop, Chief Executive Officer at EIT Climate-KIC.   

Dr Dunlop is one of 16 experts at the Economic and Societal Impact of Research and Innovation (ESIR) expert group, providing independent advice on future EU research and how innovation policy can best support sustainable development. Her career spans academia, consulting, banking, insurance, strategy, design, innovation and leadership and she holds a PhD in cultural history. She is committed to shaping innovation to catalyse profound systemic change and has pioneered proprietary thinking in the areas of strategic risk management, strategic innovation, strategic leadership development and cultural change. 

In a thought-provoking speech, Dr Dunlop asked the Tacitus online audience: “How could world trade be part of the solution and not the problem – indeed take a leadership position in the field of climate action?” She set out the scale of the challenge, stating it is now too late to avoid climate change disruption, highlighted areas of strategic risk to world trade from climate change and encouraged world traders to innovate and transform themselves and their businesses with a new paradigm that allocates resources to resilience and renewal. 

Dr Dunlop sought to demonstrate to the audience that businesses can scale responsibly by leveraging a relevant smart innovation portfolio that will help to mitigate their climate change associated strategic risks. The “climate emergency, for world trade,” she said: “spells disruption and transformation. The key question being: which will come first and how will our individual and our collective decisions determine that?”

A Global Emergency

In her introduction, Dr Dunlop pointed out that: “Climate change is fundamental to the economic prosperity of humanity, let alone nations and to world trade in every dimension.” “Cities and urban civilisation flourish where trade possibilities accumulate; trade connects and relates, enacts our interdependencies, traces human lines and marks across the skin of the planet,” she said acknowledging the role trade plays in the world we live in. Yet she pointed out the disconnect between trade and climate action: “Climate change is rarely mentioned in trade discussions and agreements.”

“We have badly underestimated both the speed and extent of climate change, in particular our analysis has failed to pay sufficient attention to the so-called tipping points of the climate system”. These are points at which the climate system may change abruptly from one relatively stable state to another which is far less conducive to human development, possibly triggering irreversible, self-sustaining warming, she reminded the audience. “Our collective action still amounts to denial. We are not yet acting as if we are facing an urgent, life-threatening emergency.”  

The Objective of the 2015 Paris Climate Agreement was to: “hold the increase in global average temperature to well below 2oC above pre-industrial levels, and to pursue efforts to limit the increase to 1.5oC… Unfortunately, it looks as if 1.5°C will occur c.2030, irrespective of any action in the interim. The upper 2°C is likely before 2050, even with actions better than the Paris commitments. 3°C is likely early-midway through the second half of the 21st Century.” 

She illustrated the scale of the challenge by stating: “Global emissions reduced unexpectedly by 2020 as a result of COVID lockdown by about 6-7%.  For us to get to net zero by 2030 globally, we would have to commit to 2020 scale emission reductions each year for the next 10 years at least.”

“We have created a narrative of collective abdication of responsibility to market forces ‘beyond our control and agency’ – as John Ralston Saul pointed out in 2005… We need to move from a globalisation of self-interest to a shared narrative of shared interest…. At the core of the self-transformation we need, is a fundamental reframe of our sense of collective identity as a species.”

Systemic and Complex

Dr Dunlop stated climate change will disrupt economic patterns as we know them today. In a 2oC of global warming future, the business models that rely on today’s conditions and assumptions won’t be sustainable. She identified six areas of strategic business risk as a result of the physical and transition risks associated with climate change: demand and supply, the transportation of goods, storage, information architecture, regulatory frameworks governing trade and business resilience. To these she added a seventh: the ‘moral hazard’ or ‘legacy risk’ in assuming you could not be held accountable for actions negatively impacting on climate change today by future generations. “Businesses currently act with a present tense, self-interested, short term profit maximisation logic, where the problems of future generations are out of sight and therefore out of mind.” 

There is an urgency for the world trade to adapt, to change the way it operates. But incremental improvements and investment in renewable energy will be far from sufficient. For Dr Dunlop, what we need is “to transform our paradigm for life and for human society to find a manageable way of living…. It comes down to changing our assumption that we can continue to aspire to growth and prosperity in material terms: to consume, to design for obsolescence, to waste… rather than contemplate and act on the alternative – something closer to what is currently called ‘degrowth’.” 

In her lecture, Dr Dunlop emphasised the importance of innovating today to make businesses resilient before the disruption happens. This would not only contribute to avoiding the worst climate effects, but also help regenerate our environment, thereby reducing risks and protecting or renewing the supply of resources and value of business assets. “Most importantly it offers the opportunity to shape the architecture and the conditions of an alternative global system of human economic activity capable of living within planetary boundaries. 

What we face, whether we like it or not, is systemic and complex. To act – to manage, to design, to decide, to regulate – in a context of such uncertainty, to turn complexity into advantage and opportunity, requires appropriate mindsets and design tools. We need education, research and innovation to equip us to deal effectively with the emergency we face, with a common language and understanding, together.”

A Crucial Need to Deeply Transform World Trade

How does one transform an existing business, successful in the current market but with little spare resource, to handle an unquantifiable possibility of catastrophe? Dr Dunlop suggested it’s all about “taking a strategic and a systemic approach to innovation. She explained what this meant in practice by breaking it down into: optimal capital allocation, a portfolio approach, and systematic learning.

She highlighted recommendations of the 2019 Economist Intelligence Unit report which identified seven opportunities for boosting climate friendly trade flows through trade policy: removal of tariff and non-tariff barriers on environmental goods and services, explicit limits on fossil fuel subsidies, border adjustment carbon taxes, green procurement, approval of non-discriminatory renewable energy subsidies, as well as international cooperation on climate change goals. She stated: “Transformation can and must be achieved through radical collaborations to maximise the value and effectiveness of innovation, encourage progressively bolder ambitions for emissions reductions and create a new paradigm for trade and the global economy.”

Dr Dunlop encouraged the audience to start allocating resources dedicated to business model resilience and renewal, to compose a portfolio of strategic innovation options, and to engage in a deliberate process of “learning from the experience that each innovation option can provide and working with that insight to generate knowledge and partnerships to enable business transformation.” 

A strategic innovation portfolio for world traders should: “invest in innovation that responds to our collective need for world trade practices and expectations to change the paradigm we live by, thereby contributing to the regeneration of the planet”.

She concluded: “World trade profits enormously from the mechanics of a high carbon emissions world. In the immediate future, however, that may become less acceptable globally. The expectation of human society is changing and with it the risk and the opportunity, the regulation and the pricing and a gathering geopolitical will. Today businesses still have capital available. They should use it to invest in innovations to bring to life a world of trade that expresses the best of human solidarity and community.”

The scale of the challenge is enormous, and Dr Dunlop highlighted the words of Robert Schuman in 1950: “World peace cannot be safeguarded without the making of creative efforts proportionate to the dangers which threaten it”. She stated: “The world needs bold acts of leadership and global-mindedness… worldliness repurposed to collective good… to purpose collective transnational solutions for transnational problems.”

Now is the time to act to demonstrate the power of world trade to make a difference. 

Dr Dunlop’s speech can be read in full here with the video available here.

Now in its 34th year, The World Traders’ Tacitus Lecture, is considered the most high profile event of its kind in the City of London, and ranks among its previous speakers secretary-generals of UN organisations, industry heavyweights, ambassadors, silicon valley entrepreneurs, high ranking civil servants and political leaders.

Ian Aitchison