Private-sector responses to climate change in the Global South

Advanced Review

Private-sector responses to climatechange in the Global SouthSimone Pulver1,∗ and Tabitha Benney2

What is the private sector response to climate change in the Global South?And what has motivated action? The Carbon Disclosure Project and CleanDevelopment Mechanism registries offer some systematic data in response tothe first question. Despite limitations to both data sources, they show thatprivate sector action on climate change clusters in China, India, Brazil andother large industrializing countries. Four drivers–physical, regulatory, market,and reputational–offer answers to the second question. In the more developedcountries of the Global South, corporate action is driven primarily by the prospectof domestic climate regulation—some large developing countries have pledgedgreenhouse gas emissions reductions by 2020—and by the market opportunitiescreated by the Clean Development Mechanism. In the less developed countries,barriers related to weak regulatory environments, low levels of industrializationand growth, restricted access to capital, and limited technical capacity intersectto limit private-sector action on climate change. Looking to the future, the lack ofdepth and breadth in the push for corporate action on climate change in the GlobalSouth suggests reasons for concern. © 2013 John Wiley & Sons, Ltd.

How to cite this article:WIREs Clim Change 2013, 4:479–496. doi: 10.1002/wcc.240

INTRODUCTION

Corporate awareness of climate change, percep-tions of climate risks and benefits, efforts to

mitigate greenhouse gas (GHG) emissions, and lobby-ing on climate regulation vary significantly acrossdeveloping-country contexts. Some firms in somecountries in the Global South have been publiclyreporting GHG emissions data since the early 2000s,actively invest to reduce carbon emissions from theirfacilities, and consult with their home governmentsto craft climate policy. Others have never heard ofclimate change, understanding neither their contribu-tion to the problem nor the opportunities available tothem through carbon markets. The goals of this revieware to characterize this heterogeneity in corporateresponses, to identify major trends in private-sector

∗Correspondence to: [email protected] Studies, University of California at Santa Barbara,Santa Barbara, CA, USA2Political Science, University of Utah, Salt Lake City, UT, USA

Conflict of interest: The authors have declared no conflicts ofinterest for this article.

behavior, and to analyze the drivers of corporateclimate action across the Global South.

The review contributes to a growing literatureon the role of developing countries in addressingthe global climate challenge.1,2 In the early yearsof the international climate negotiations, the globewas divided into two categories, industrializedand developing countries. This binary distinctionwas formally enshrined in the 1992 UnitedNations Framework Convention on Climate Change(UNFCCC) as Annex 1 (industrialized) and non-Annex 1 (developing) countries.3 It was perpetuated in1997 Kyoto Protocol, which assigned GHG emissionsreduction targets only to Annex-1 countries.4

However, by 2007 the balance of focus betweenAnnex 1 and non-Annex 1 countries began to shift,reflecting changing global GHG emissions trajectories.Experts now estimate that over the next 25 years,95% of the growth in global GHG emissions isexpected to occur in non-Annex 1 economies.5 Thisshift in focus to the Global South has spurredinterest in disaggregating the broad category of ‘non-Annex 1’ and highlighting the specific experiences ofindividual developing countries confronting climate

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change. Initial research on this topic documents thatpopulation dynamics and government policy will playa prominent role in developing countries’ transitionsto low-carbon futures.6 The premise of this article isthat the private sector plays an equally prominent roleas an emitter of GHGs, an investor in new energyinfrastructure, a provider of substitute technologies,and a powerful political actor.7

Our analysis follows a four-part structure. First,we summarize available data on corporate opera-tional practices, political activities, and governanceinitiatives related to climate change across the GlobalSouth. Data collected through the Carbon DisclosureProject and the Clean Development Mechanism offeran overview of corporate climate leaders and lag-gards in the developing world. Second, we examinefour drivers of corporate climate action—physical,regulatory, market, and reputational—and assess thecontribution of each to broad patterns of private-sector responses to climate change. The third sectionprofiles the intersection between the four drivers infour country clusters—large emerging economies, lessdeveloped economies, small island states and the oil-exporting countries of the Middle East. Finally, thearticle concludes with an assessment of the potentialfor private governance in the climate realm in theGlobal South.

PATTERNS IN PRIVATE-SECTORRESPONSES

Characterizing private-sector responses to climatechange in the Global South is a challenge first becauseof the tremendous heterogeneity within the ‘privatesector.’ Private-sector actors include everything fromglobal industrial multinationals to local farmers. TheIndian cement industry offers an example. There areover a hundred cement producers in India. Theyrange from the Indian subsidiaries of the majorcement multinationals, such as Lafarge and Holcim,to leading Indian companies, including Birla Cementand Gujarat Ambuja Cement, to state-run enterprises,to small firms operating mini-kilns.8 Multiplying thiscomplexity both by the number of industries withinan economy and by approximately 150 developingcountries gives a sense of the heterogeneity of private-sector actors across the Global South. Second, thephrase ‘responses to climate change’ also encompassesa wide range of activities.9 For example, protestsby waste pickers whose livelihoods are jeopardizedby methane capture projects at landfills,10 globalchemical multinationals earning millions in the carbonmarket through HFC destruction projects,11 windenergy start-ups,12 and carbon consultants advising

corporations on climate strategy13 are all examples ofprivate-sector responses to climate change.

We manage this complexity by focusing ourreview on large and medium-sized enterprisesheadquartered in developing countries. These actorsare responsible for both the majority of economicproduction and GHG emissions in the Global South.Moreover, we group the range of private-sectorresponses to climate changes into three categories: (1)changes in operational practices; (2) activities in politi-cal arenas; and (3) changes in corporate governance.14

Changes in operational practices range from low-commitment strategies, such as carbon inventoriesand disclosure, to the higher commitment strategies,such as corporate carbon targets and green technologyinvestments. Activities in political arenas include thestrategies companies use to shape the organizational,informational, and regulatory contexts in which theyoperate.14 Finally, changes in corporate governancerelates to the ways in which climate concerns are inte-grated into corporate management and decision mak-ing structures.15 Aggregating across these categoriesof private-sector responses produces a typology ofcorporate action, ranging from indifferent to active.16

Our review also offers a more systematic andcomprehensive assessment of private-sector responsesto climate change in the Global South. Most data oncorporate climate action come from single-country,single-sector, or even single-company case studies. Thefocus of such research is often on controversial cases.Some highlight the windfall profits being earned bylarge corporations in carbon markets17 or the waysin which private-sector responses to climate changefurther impoverish poor communities.18 Otherscharacterize private-sector actors as climate leaders.19

Both perspectives shed light on the range of corporateresponses, but each offers only a partial view. A moresystematic and comprehensive picture is providedby the Carbon Disclosure Project (CDP) and CleanDevelopment Mechanism (CDM) registries. The CDPis a voluntary climate reporting initiative, collectingdata on operational, political, and governanceactivities from over 2000 corporations from aroundthe globe (www.cdproject.net). The CDM registryoffers a comprehensive database of GHG-reducingprojects initiated by firms in developing countriesunder the 1997 Kyoto Protocol. Through the CDM,GHG emissions reductions initiated in non-Annex1 countries can be used by industrialized countriesto meet their targets under the Kyoto Protocol. TheUNEP Risø Centre maintains a global inventory ofCDM projects. To date, over 9000 CDM projectshave been submitted for review from the group ofnon-Annex 1 economies (www.cdmpipeline.org).

480 © 2013 John Wiley & Sons, Ltd. Volume 4, November/December 2013

http://www.cdproject.net

http://www.cdmpipeline.org

WIREs Climate Change Private-sector responses to climate change

CDP response rates

FIGURE 1 | CPD survey response rates.

It should be underscored that both the CDP andCDM registries are voluntary initiatives. As such, theydocument action by leading firms, offering a pictureof the private sector vanguard rather than a completepicture including leaders and laggards. The CDM andCDP are also biased towards larger firms. The CDPtargets only large publicly traded corporations listedon national stock exchanges. The CDM is restricted toa limited number of industries for which there are pre-approved CDM project methodologies. Despite theselimitations, both datasets provide the best availablesystematic information on corporate responses toclimate change across countries within the GlobalSouth.

The CDP Global 500 Report 2011The CDP Global 500 Report 2011 offers a globaltrends summary of corporate climate activities,based on voluntary survey data organized bynational/regional stock indices.20 Companies listedon the Global 500, European 200, US S&P 500,Emerging Markets 800, Latin American 50, Turkish100, South African 100, South Korean 200, Brazilian80, Indian 200, and Chinese 100 stock indices weresurveyed. The Global 500 as well as the European 200and the American S&P 500 offer reference points toevaluate the responses of various developing countryindices. The CDP data showcase several trends. First,in terms of carbon disclosure, developing countryfirms tend to lag behind industrialized countries(Figure 1). European countries have the highest CDPresponse rate, at 89%, while China has the lowest,at 8%, meaning that only eight companies in theChina 100 submitted a CDP survey questionnaire.The two exceptional developing country cases areSouth Africa and Brazil, with response rates of 81 and67%, respectively.

In contrast to the clear north–south dividefound in carbon disclosure, a more heterogeneouspicture emerges looking at corporate GHG emissionsreduction initiatives and targets (Figure 2). Withthe exception of South Korea, 80% or more ofall respondents had some active emissions reductioninitiatives in the reporting year. However, across thevarious emerging economy indices, approximately athird or less had absolute emissions targets. Braziland Turkey emerge as exceptional cases because theircompanies with emissions reductions targets tend tohave absolute targets, while the more general trendamong all respondents is that only half of thosewith targets have absolute targets. India representsthe other end of the spectrum. Of the 49 respondentsto the CPD survey from the India 200, only twocompanies had absolute emissions reduction targets.

In the area of corporate climate governance(Figure 3), the majority of respondents from emergingeconomies matches global averages and outpacesthose from the United States in terms of thepercentage of respondents with Board or otherexecutive responsibility for climate change. Board orexecutive level responsibility is particularly high inSouth Africa, at almost 90%. The US S&P companiesscore the lowest with just under 50%. A second metricof corporate climate governance—employee incentivesfor the management of climate issues—reveals adifferent pattern. With the exception of Turkey andChina, management incentives tend to lag behind.Incentive programs are least popular in Latin America.

The CDM Project RegistryThe CDM project registry offers a second source ofsystematic data on corporate responses to climatechange in the Global South. Each individual CDMproject represents an investment by a developingcountry entity in either a clean energy technology,such as a wind farm or a solar array, or in a GHGemissions reducing efficiency upgrade. CDM projectsare restricted to a limited number of project typesfor which the CDM Executive Board has approveda methodology for calculating emissions reductions.There are 21 categories of approved methodologies.21

While any type of organization can invest in a CDMproject, the vast majority of projects have beeninitiated in the private sector. Figure 4 provides anoverview of the amount of CDM activity by country.As mentioned above, CDM is a voluntary initiative,but unlike CDP, there is a direct financial benefitfrom participating in the CDM since the resultingemissions reduction credits, called Certified EmissionsReductions (CERs), can be sold on carbon markets.



Targets and initiatives

FIGURE 2 | Corporate emissions reduction targets and initiatives.

Governance

FIGURE 3 | Corporate climate governance.

CDM project distribution by country points towhich developing country private sectors have takenan active role in generating CERs. The majority ofCDM projects are hosted in China, India, and Brazil.In fact, these countries plus Mexico and South Korea

account for 95% of CDM projects.22 Internationally,the first CDM projects were approved in 2004. Themarket was first populated by projects hosted inBrazil. By late 2005, India overtook Brazil as CDMleader, claiming 53% of projects. India dominated



Growth of total expected accumulated 2012 CERs

FIGURE 4 | Share of total global CDM projects by region, 2003–2012.

Percentage of CDM projects by type

FIGURE 5 | Share of total CDM projects by type, 2012.

the market until 2007, when it was surpassed byChina, which is currently host to the majority ofCDM projects, measured both in numbers of projectsand total emissions projected to be reduced throughthe CDM. Analyzing CDM project types offersfurther insight into the specific industries investingin CDM (Figure 5). Wind energy projects are themost numerous at 2597 projects, followed by hydroat 2317 projects. In contrast, there have only been164 industry energy efficiency projects initiated underthe CDM. Further analysis of these projects revealsthat large, consolidated industries such as chemicals,petrochemicals, paper, building materials, cement andiron and steel account for 75% of industry energyefficiency projects.

Both the CDP reports and CDM registry providean incomplete picture and do not capture the fullrange of private-sector responses to climate change inthe Global South. The CDP is incomplete because of

its limited focus on larger firms and the CDM registrybecause it only tracks emissions reductions activitiesthat qualify as CDM projects. In addition, neitherdatabase tracks political lobbying or adaptationactivities, which are important aspects of corporateresponses to climate change. Thus, efforts by smallhotels in Barbados to protect local mangroves gounnoticed by both databases.23 Nevertheless, the CDPand CDM data reflect a larger truth. Of the 154 non-Annex 1 countries identified in the UNFCCC, onlya handful has active private sectors responding toclimate change, and activity is concentrated in theindustrial sectors of the large emerging economies.

DRIVERS OF PRIVATE-SECTORRESPONSES

Given the patterns in private-sector responses toclimate change across the Global South suggestedby the CDP and CDM data, the next analytictask is to understand the drivers of these patterns.Reviews of corporate climate action point to physical,regulatory, market and stakeholder drivers operatingat both domestic and international levels.24,25

From a firm perspective, such drivers translateinto a risk/opportunity framework.26 The directeffects of climate change create physical risks andopportunities. Indirect effects of climate change,originating from governmental, market and societalinitiatives to mitigate GHG emissions and/or to adaptto climate change, create regulatory, market andreputational risks and opportunities. Regulatory risksand opportunities reflect the likelihood of governmentintervention to control GHG emissions. Market risks



and opportunities stem from rising energy pricesand the need for energy-efficient, emissions-reducing,and adaptive technologies. Reputational risks andopportunities relate to changes in brand value.

The climate risk/opportunity framework hasbeen used in several global assessments of private-sector responses to climate change. A 2008meta-analysis of 50 reports on climate risksand opportunities, primarily from the US andEurope, conducted by the consulting group KPMGdocumented that firms identified regulatory andphysical risks as priorities, compared to risk ofreputation and risk of litigation.26 In contrast, a2007 McKinsey survey of over 2000 global executivessuggested that climate change was primarily a brandissue. Almost 70% of respondents said it was eithervery or somewhat important to consider climatechange issues when managing corporate reputation.In contrast, only 48% rated climate change as veryor somewhat important when developing a regulatorystrategy. Likewise, 54% of respondents pointed tocorporate reputation among their top three factorsspurring action on climate change, compared to 25%for regulation and 21% for investment opportunities.In the McKinsey survey, concern about physicalthreats to assets rated lowest at 7%.27

The risk/opportunity framework is also particu-larly relevant to the regional focus of this review. Thephysical, regulatory, market, and reputational risksand opportunities of climate change are the result ofthe historical evolution of international and nationalclimate policies, of stakeholder concern, and of phys-ical changes in regional, national and local climatesystems. These vary both across the broad categoriesof Global North versus Global South and across thenations grouped as the developing countries of theGlobal South. A closer analysis of the experience ofclimate impacts and efforts at climate mitigation andadaption across the Global South helps to explain thevariety of corporate responses and the clustering ofaction in the large emerging economies.

Before proceeding it should be noted thatcorporate responses to each type of climate-relatedrisk and opportunity are further influenced by specificorganizational characteristics and by the degree ofuncertainty of the risk/opportunity. Organizationalcharacteristics influence how firms experience,interpret and respond to external drivers.28 Forexample, physical risks vary by sector and particulargeographies of infrastructure.26 More generally,foreign ownership, firm size, export orientation, andfinancial performance all correlate with environmentalperformance and are likely organizational predictorsof corporate engagement on climate change.25 Finally,

all four sources of climate-related risk and opportunityare characterized by uncertainty,29 and in the face ofuncertainty, inaction becomes an attractive strategy.30

Physical Risks and OpportunitiesThe physical impacts of climate change, effectiveadaptation strategies and the need for adaptationfinance have long been prominent issues inclimate change policy in the Global South.3

Impact and adaptation research shows developingcountries to be more vulnerable to climate change(http://index.gain.org/), with the most dramatic andtragic examples being small, low-lying islands andcoastal nations.31 Disproportional vulnerabilities stemfrom the greater reliance on agriculture and otherclimate-sensitive economic sectors for livelihoods andfrom the absence of adaptive infrastructure.32 Moregenerally, many developing countries are simplyvulnerable because of their location. Countries inthe low latitudes start with higher temperatures.Additional warming pushes these countries everfurther away from optimal temperatures for climatesensitive economic sectors.33

Despite concerns about vulnerability, corporateaction motivated by the physical risks of climatechange in the Global South has been limited.The lack of action has several explanations. First,physical threats to private-sector assets—such as theimpact of weather-related events on infrastructureand associated increases in insurance premiums,variation in water availability, and changes incommodity prices—tend to be underestimated. Thisis true of companies in both the Global North andSouth.26 Second, of the industries most concernedabout physical risks—agriculture, forestry, healthcare, insurance, pharmaceutical, and tourism26—onlya few are sufficiently resourced to organize acoordinated corporate response. For example, mostagricultural enterprises in the Global South are small,under-resourced and disaggregated. The majorityof dairy farms in India raise between one andfive cows, and organizing a coordinated responseamong such dispersed actors is a social and logisticalchallenge.34 Third, certain adaptive responses—suchas the coping strategies of agricultural smallholdersto deal with climate variability and change35—aresimply not recognized in the literature on private-sector responses.

The tourism industry is a partial exception to thisbroader pattern of inaction. Tourism is a significantcontributor to gross domestic product (GDP) in manydeveloping countries,36 and some tourism operatorsare pioneering coordinated response strategies. For


http://index.gain.org/


example, Belle and Bramwell23 find that tourism man-agers in Barbados are concerned about damages tocoastal tourism facilities, beach changes, and adverseimpacts on marine environments. Their primaryresponse to these anticipated physical threats has beento call for more public awareness campaigns. Otherresorts have invested in large-scale modular mangroveplanting for coastal protection and sand barriers toprotect developed tourism areas from increasingly vio-lent weather patterns.37 However, even in the tourismsector there has been little coordinated action acrossnational borders, particularly in the Global South.For example, the World Tourism Organization’s 2008report on ‘Climate Change and Tourism: Respondingto global challenges’ dedicates only two of 269 pagesto the role of tour operators and other organizationsin climate mitigation and adaptation.38

A second emerging arena of corporate responsesto the physical risks of climate change is themarketplace for adaptation technologies.39 Forexample, there has been some action by insurancecompanies to develop new micro-insurance productsfor adaptation to climate change. Both Swiss Reand Munich Re have experimented with index-based insurance for small farmers. Companies likeUnilever and Siemens are investing in technologiesto increase clean water availability. Informationtechnology companies like Google and IBM areusing sensor and mapping data to improve predictionof climate vulnerabilities.40 It should be notedthat these initiatives have all been pioneered bymultinational corporations headquartered in theGlobal North, although they work through theirsouthern subsidiaries.

Regulatory Risks and OpportunitiesIn contrast to ongoing concern about the physicalrisks of climate change, concern about regulatory riskis a more recent phenomenon in the Global South.Since climate change was first identified as a globalissue in the late 1980s, efforts at international GHGregulation have assigned responsibility for emissionsreductions to industrialized countries. As a result,corporations operating in the Global North have beenconcerned about GHG legislation for the past 20years, while it has been mostly absent from the agendaof the private sector in the Global South.3 Countrycase studies are consistent with this global picture.Jeswani et al.’s16 research compares corporateresponses to climate change in the U.K. and Pakistan.Based on a survey of 1028 companies in the UK and450 companies in Pakistan, the authors document thatthe majority of UK firms are ‘active’ or ‘emerging’in their response to climate change. In contrast, the

majority of Pakistani firms cluster in the ‘indifferent’and ‘beginner’ categories. The authors ascribe thispattern to the difference in pressure from regulatoryagencies. They argue that regulatory action in Pakistanhas been limited by ‘political instability, lack ofprogress in institution building, lack of awareness inthe government administration, lack of political willand underpaid environmental agency staff’ (Ref 16,p. 55). Such regulatory barriers to corporate actionare widespread across the Global South.41

However, the regulatory risk picture for the pri-vate sector is changing in some developing countries.As total annual national GHG emissions in largedeveloping countries begin to rival those in industrial-ized countries, international efforts to mitigate climatechange are expanding to include the Global South.42

While there is not yet an international agreement onGHG reduction targets for developing countries, somedeveloping countries are taking unilateral action toreduce their carbon emissions. Table 1 provides a sum-mary of voluntary mitigation commitments by non-Annex 1 countries submitted under the provisions ofthe 2009 Copenhagen Accord; 15 of 154 non-Annex1 countries have pledged a voluntary commitment.

In some cases, such pledges are the internationalexpression of pre-existing national initiatives, and inother cases, international pledges precede domesticaction (http://www.climateactiontracker.org/). Forexample, India has made substantial efforts to developits carbon governance capacity at home through the‘Perform, Achieve and Trade’ (PAT) scheme, whichsets sectoral energy efficiency targets and allowstrading in energy efficiency certificates.43 Likewise,firms in Brazil now face a regulatory obligation toreduce their emissions. In 2009, Brazil mandateda unilateral commitment to reduce emissions by36.1–38.9% from business as usual by 2020. Inaddition to the national policy, nine of 26 Brazilianstates have already established climate policies andsix others have bills in progress.44 The Mexicangovernment has pledged a 50% reduction in GHGemissions by 2050, but critics of Mexico’s programpoint to the absence of tangible domestic policiesthat will generate the emissions reductions neededto meet the country’s commitment.45 Nevertheless,in each of these countries domestic political debateabout climate change has sent a regulatory signal tothe private sector. In some cases, the corporate sectorhas been waiting on government action.46 In others,regulatory initiatives have faced corporate opposition.Industry associations in Brazil, India, and Mexico alllobbied against GHG reduction targets.44,47,48

The 2011 CDP Global 500 report providesadditional evidence of convergence in perceptions


http://www.climateactiontracker.org/


TABLE 1 Non-Annex 1 Countries with Quantitative GHG Reduction Pledges

Country GHG Emissions Reductions Pledge

Africa

South Africa With international finance: −34% compared to BAU in 2020

Asia Pacific

China Own effort: −8.5% compared to BAU in 2020

India Own effort: India will endeavor to reduce the emissions intensity of its GDP by 20–25% by 2020 incomparison to the 2005 level

Indonesia Own effort: −26% in 2020 based on a deviation from BAU scenario in 2020

With international finance: −41% in 2020 based on a deviation from BAU scenario in 2020

Kazakhstan Own effort: −15% in 2020; −25% in 2050 based on 1992 levels

Malaysia With international finance: reduce the intensity of carbon dioxide emissions per unit of GDP in2020 by up to 40% compared with the level of 2005

Maldives Own effort: carbon neutrality by 2019

Marshall Islands With international finance: 40% reduction of CO2 emissions below 2009 levels by 2020

Samoa Own effort: Carbon neutrality by 2020

Singapore Own effort: −16% in 2020 based on a deviation from BAU scenario in 2020

South Korea Own effort: −30% in 2020 based on a deviation from BAU scenario in 2020

Latin America

Brazil Own effort: −36.1%/−38.9% compared to BAU in 2020

Antigua and Barbuda Own effort: 25% below 1990 levels in 2020

Mexico Own effort: −30% in 2020 and −50% in 2050 based on a deviation from BAU scenario in 2020

Middle East

Israel Own effort: −20% in 2020 based on a deviation from BAU scenario in 2020

Source: http://unfccc.int/meetings/cop_15/copenhagen_accord/items/5265.php. BAU stands for ‘business as usual.’

of regulatory risk and opportunity across thenorth–south divide (Figure 6). Companies from therange of indices analyzed by the CDP reported highlevels of regulatory risks and opportunities. Somewhatominously, firms in China and the United States, thetwo largest global emitters measured by total annualGHG emissions, seem least concerned with regulation.On average, respondents also saw more opportunitiesthan risks, with the exception of the South Africa 100and the Korea 200.

Market Risks and OpportunitiesA third driver of corporate climate action comesfrom market risks and opportunities. In particular,direct and indirect market drivers have motivatedprivate-sector investments in GHG reductions. Car-bon markets are a direct driver of corporate climateaction. The opportunity to sell carbon emissionsreductions though carbon markets changes the finan-cial feasibility of certain GHG reducing projects—forexample methane capture from landfills—andamplifies interest in renewable and energy efficiencyprojects by offering an added revenue stream.49

Moreover, the CDM in particular has diffused aware-ness of and access to GHG reducing technologiesacross firms in the Global South.50 Rising energy costsact as an indirect driver of corporate climate action. Inmany emerging economies, energy demand outpacessupply, leading to energy shortages and increasedcosts. Firms respond by investing in new energysupplies (both conventional and renewable) and inenergy efficiency improvements to seek relief fromrising costs.51 The renewable and energy efficiencyinvestments, though motivated by financial concerns,have the side-benefit of reducing GHG emissions.

Market drivers, both direct and indirect, havethe greatest impact in developing countries withlarger private sectors and higher levels of economicdevelopment (Table 2). Those countries with a largernumber of firms operating in the private sector havea greater potential to respond to market signals.For example, World Bank data on new businessesregistered in 2009 ranges from 24 in Niger toover 315000 in Brazil.52 These data suggest thatthe potential for Brazil’s private sector to respondto climate change is much larger than Niger’s,simply because there are more active firms in Brazil.


http://unfccc.int/meetings/cop&uscore;15/copenhagen&uscore;accord/items/5265.php


Regulatory opportunities and risks

FIGURE 6 | Corporate perceptions of regulatory opportunities and risks related to climate change.

Likewise, economies with higher throughput offermore potential for investment in GHG reductions.The most common economic classifications within theGlobal South are the emerging market economies(EMEs), describing the economic leaders of thedeveloping world, and the least developed countries(LDCs), describing development laggards. Bothmetrics are ambiguous and controversial, withdifferent international organizations establishingdifferent classification systems.53 Among EMEs, theBRIC countries (Brazil, Russia, India, and China)are an oft cited subgroup. Within the climate policyliterature, the BASICs (Brazil, South Africa, India,and China) are a more commonly used subcategory,since Russia is an industrialized country under theUNFCCC.4

The broad classifications of EME versus LDCpoint to where market drivers of corporate climateaction are most relevant. CDM investment clusters inthe EMEs. China is host to the greatest number ofCDM projects and the largest amount of projectedemissions reductions, mirroring broader patterns ininvestment flows.54 China and India alone accountfor approximately 70% of projected GHG emissionsreductions via CDM. In contrast, LCDs are host toonly 98 CDM projects, 1% of total CDM projectsunder review.22 The EMEs are also home to themost dynamic energy sectors. For example, China is aworld leader in both the construction of wind farmsand coal-fired power plants.55 Such countries see thehighest rates of investments in renewable energy inpart because they see the highest investment in thewhole portfolio of energy sources. In contrast, energy

sectors are stagnant in the LDCs, with little investmentin either traditional or renewable sources.51

In addition to general levels of economicdevelopment, a second predictor of the scope ofmarket opportunities for GHG reductions is acountry’s reliance on fossil fuels to meet heat,electricity and transportation needs, which can bemeasured via its Grid Emissions Factor (GEF). AGEF measures the carbon dioxide emitted per eachunit of electricity provided by an electricity system.56

See Table 2 for a list of average combined marginGEFs for select developing countries. South Africahas the most carbon intensive electricity grid, whileCosta Rica’s national grid is least reliant on fossilfuels. Among EMEs, Brazil has the lowest GEF.GEFs are particularly relevant to CDM investmentbecause equivalent projects that offset grid electricitywill result in different GHG emissions reductions,depending the regional GEF. For example, a CDMproject in India, with an electric grid relyingprimarily on coal, will yield more GHG emissionsreductions than the equivalent project in Brazil,where a large fraction of electricity is generated fromhydropower. Such differences in GEFs help to explainthe distribution of CDM projects across developingcountries. While some CDM projects are developedin-house by corporations in the Global South, manyare the result of project development by globalconsulting companies, such as Ernst & Young andPriceWaterhouseCoopers.13 When deciding where totarget their efforts, these consultancies reap greatestrewards per project in countries with high GEFs.Overall, countries with higher GEFs tend to be more



TABLE 2 Indicators of Market Drivers

Country

No. of

CDM GEF

2011 GDP

(US$b)

2011 GDP/

capita (US$k) Country

No. of

CDM GEF

2011 GDP

(US$b)

2011 GDP/

capita (US$k)

China (EME) 4028 0.93 7318.5 5.5 Guatemala 28 0.68 46.9 3

India (EME) 2159 0.87 1848.0 1.5 Sri Lanka 28 0.73 59.2 2.8

Brazil (EME) 429 0.31 2476.7 12.6 Egypt 26 0.54 229.5 2.8

Viet Nam 262 0.56 123.6 11.4 Dominican Republic 20 0.62 55.6 5.5

Mexico (EME) 220 0.55 1153.3 10.0 United Arab Emirates 19 1.02 360.2 45.7

Thailand (EME) 191 0.52 345.7 5.0 Morocco 18 0.75 100.2 3.1

Indonesia (EME) 174 0.76 846.8 3.5 Nigeria 17 0.63 244.0 1.5

Malaysia (EME) 168 0.69 287.9 10.0 Costa Rica 16 0.25 40.9 8.6

Chile (EME) 122 0.52 248.6 14.4 Uganda (LDC) 15 0.62 16.8 4.9

South Korea (EME) 104 0.61 1116.2 22.4 Nicaragua 12 0.72 9.3 1.6

Colombia 94 0.37 333.4 7.1 Papua New Guinea 11 0.68 12.9 1.8

Philippines (EME) 93 0.50 224.8 2.4 El Salvador 7 0.69 23.1 3.7

South Africa (EME) 82 1.04 408.2 8.0 Bangladesh (LDC) 5 0.66 111.9 0.7

Peru (EME) 66 0.53 176.9 6.0 Cote d‘Ivoire 5 0.71 24.1 1.2

Argentina (EME) 56 0.47 446.0 11.0 Senegal (LDC) 5 0.68 14.3 1.1

Pakistan (EME) 55 0.48 210.2 1.2 Bolivia 4 0.58 23.9 2.4

Ecuador 44 0.65 65.9 4.5 Jordan 4 0.61 28.8 4.7

Honduras 37 0.70 17.4 2.2 Madagascar (LDC) 4 0.55 9.9 0.5

Israel 33 0.79 242.9 31.3 Rwanda (LDC) 4 0.65 6.4 0.6

Panama 32 0.68 26.8 7.5 Bhutan (LDC) 3 1.00 1.7 2.3

Uruguay 32 0.61 46.7 14.0 Guyana 1 0.95 2.6 3.4

Kenya 30 0.62 33.6 0.8 Mali (LDC) 1 0.58 10.6 0.7

Sources: EME and LDC categorizations based on IMF (http://www.imf.org/external/data.htm) and UN (http://www.un.org/special-rep/ohrlls/ldc/list.htm).Number of CDM projects and GEF (average combined margin grid emissions factor) from www.cdmpipeline.org; GDP data from http://data.worldbank.org/.

attractive for CDM investment than countries withlower GEFs, although this pattern is not absolute. Forexample, South Africa and the Arab United Emiratesboth have high GEFs, but the CDM market in bothcountries has stalled due to a range of contractualissues.57

The elements that combine to create market ofopportunities for GHG reductions, such a country’slevel of economic development, infrastructure, andfossil fuel dependence, can be summarized intoa GHG abatement cost estimate. The consultinggroup McKinsey & Company has estimated GHGabatement cost curves for various industrialized anddeveloping countries (Table 3). Their data show thatnegative or zero-cost GHG abatement opportunitiesin large emerging economies exceed those insmaller developing countries and many industrializedcountries. For example, India is projected to havea yearly zero-cost GHG abatement potential of 820MtCO2e per year to 2030, compared to only 180MtCO2e for Brazil and 95 MtCO2e for Germany.

The GHG abatement potential in China is larger thanthat of India by at least an order of magnitude. Thepotential for zero-cost GHG emissions reductionsin China’s industry and waste sectors only isestimated to yield 800 MtCO2e per year, almostequivalent to the abatement potential of India’s entireeconomy.

It is worth noting that market opportunitiesand risks do not automatically translate into marketaction. A range of factors can constrain the realizationof market opportunities. For example, limited accessto financing can stymie investment. Barnes andToman58 argue that access to capital is critical to greenenergy investment. In the Global South, high inflationrates, subsidized energy prices, and weak rule of lawincrease risks for investors, limiting the availabilityof capital. Likewise, access to clean technologies isnot easy. Older and less environmentally friendlytechnologies are often more affordable and require lessexpertise.59 It is not surprising that ‘nonavailabilityof technology’ and ‘lack of expertise’ were seen as


http://www.imf.org/external/data.htm

http://www.un.org/special-rep/ohrlls/ldc/list.htm

http://www.cdmpipeline.org;

http://data.worldbank.org/


TABLE 3 McKinsey & Co. GHG Abatement Cost Estimates

Country

Abatement Potential at Negative

or Zero Cost (MtCO2e/year)

USA 1400 (projecting to 2030)

India 820 (projecting to 2030)

China 800 for industry and waste sector only(projecting to 2030)

China 750 for buildings and appliances only (projectingto 2030)

Brazil 180 (projecting to 2030)

Germany 95 (projecting to 2020)

Greece 12 (projecting to 2020)

Source: http://www.mckinsey.com/.

important barriers to GHG mitigation in Pakistan.16

The challenges of finance and technology also intersectas ‘new and more efficient machinery is more costly,compelling industries in developing countries to eitherbuy used equipment or compromise on efficiency byopting for cheaper machinery to overcome the barrierof high costs. The result is higher energy usage andhigher GHG emissions’ (Ref 16, p. 55).

Reputational Risks and OpportunitiesReputational concerns are a fourth driver ofcorporate action on climate change. Companies seebenefits in maintaining a good reputation with arange of stakeholders, including customers, investors,and regulators.60 While regulatory and marketdrivers are designed to lead to concrete changesin operational practices, reputational concerns aresometimes addressed with superficial changes that are‘neither strategic nor operational but cosmetic’ (Ref60, p. 6). Evidence of this disconnect is seen in the gapbetween emissions accounting and actual investmentin emissions reductions. CDP data more companieslaunch emissions reduction initiatives than commit toemissions reduction targets (Figure 2), although theboundaries between meaningful and cosmetic actionare blurry. For example, while collecting carbonemissions data can be useful to strategic planningand assessing liability, disclosure of such data isoften motivated by stakeholder management andreputational concerns.61

Empirical evidence on the importance of repu-tational drivers to corporations in the climate arena ismixed. In some global surveys reputational risks areranked of lowest concern, and in others they are thedominant motive for action.26,27 Data from the CDPalso present a mixed picture. In 2011, only eight firmsin the China 100 provided data to the CDP while

over 80 firms in the South Africa 100 responded tothe survey (Figure 1, suggesting much higher levels ofcorporate reputational concern in South Africa thanin China). A CDP report on the high rates of carbondisclosure by major South African corporationsargues that such transparency is in line with a broadercommitment to sustainability reporting and corporatesocial responsibility.62 Finally, case study data alsosuggest variation across industries and companies.Hultman et al.’s49 analysis of the motivationsof Indian and Brazilian sugar and cement firmsregarding CDM investments reveal that reputationalconsiderations played a significant role for the Indiancement industry but not for the sugar industry. Insome industries but not in others. In the Indiancement industry, reputational benefits were rated onpar with financial benefits, which among sugar millsfinancial concerns outweighed reputational concerns.

Overall, there are several reasons to expectless concern regarding corporate reputation in theGlobal South than in the Global North. First, levelsof public awareness and understanding of climatechange are lower in the Global South Brechin andBhandari find that publics in developing countriesare less likely to view climate change as a threat,with the exception of Latin American countries.63

Second, media studies in various emerging economiesdocument that responsibility for action on climatechange is ascribed to industrialized countries.64

Coverage in the Global South tends to focuson domestic vulnerability to climate impacts andinternational responsibility for mitigation.65 Publicsin developing countries are not looking to localcorporations to mitigate their GHG emissions. Even inindustrialized countries, media coverage rarely singlesout individual industries or companies as responsiblefor climate change. Coverage is structured by debatesover climate science and national and internationalclimate politics.66

Third, climate advocacy focused on domestictargets is a relatively recent phenomenon in the GlobalSouth. Historically, environmental NGOs based in theGlobal South have focused their climate campaignson the international arena, on the mitigationresponsibilities of the Global North and on the needfor adaptation financing for the Global South.67

Environmental issues other than climate changedominated domestic agendas. For example, Pulver’s68

analysis of climate politics in Mexico documentsthat environmental groups were more concerned withlocal issues, such as air pollution in Mexico Cityand deforestation in southern Mexico than withclimate change. While these issues could have beenlinked to climate change, local NGOs did not make


http://www.mckinsey.com/


the connection. Finally, it is rare for environmentalgroups in the Global South to directly target localcorporations based on their climate policies andpractices. Labor rights and industrial pollution aremuch more common concerns.69 Advocates in theclimate justice movement are beginning to link equityto environmental concerns and to target both statesand corporations as perpetrators of climate injustices.However, the early corporate targets of climatejustice campaigns were global multinationals.70 Onlyas the climate justice movement expands are, localcorporations in the Global South becoming morefrequent targets.18

COUNTRY PROFILES:PRIVATE-SECTOR RESPONSES INLARGE EMES, LESS DEVELOPEDCOUNTRIES, SMALL ISLANDS AND OILPRODUCERS

The physical, regulatory, market, and reputationalrisks and opportunities created by climate changedo not operate independently but overlap to createparticular national and regional patterns in corporateresponses. For example, firms in large, rapidlydeveloping countries tend to face higher levels ofregulatory risk, greater market opportunities andsome reputational risks, creating a complex terrainof climate-related risk and opportunity. In contrast, inless developed countries, physical risks are prominent,and regulatory, market and reputational risks aremostly absent. In this section, we describe patternsin corporate responses to climate change in fourcountry clusters. We examine the concentration ofcorporate climate activity in the large, emergingeconomies of Brazil, China, India, Mexico, and SouthAfrica. We then illustrate and explain the private-sector inaction on climate change that is characteristicof the less developed countries, using Kenya andPakistan as examples. Finally, we compare private-sector responses in two regions at extreme ends ofclimate vulnerability, the Small Island DevelopingStates (SIDS) and the Organization of PetroleumExporting Countries (OPEC) of the Middle East. Wefocus on these four country groupings for two reasons.First, they have been vocal constituencies in theinternational climate debates and thus their domesticpolitics, including the activities of domestic economicinterests, merit attention. Second, they represent verydifferent political and economic systems and thususefully highlight the variation in corporate responsesacross the Global South.

Large EMEs: Brazil, China, India, Mexico,and South AfricaRegulatory, market, reputational, and physical driversintersect to spur corporate action on climate changein the large emerging economies. Most EMEs haveenacted legislation to reduce domestic GHG emissionsover the next decades at federal and/or state levels.Their economies and energy sectors are growing,providing extensive opportunities for investment inclimate-friendly technology and for profiting fromcarbon markets. The climate issue generates somemedia and NGO attention. Finally, these countriesface a complex physical risk picture. Despite economicgrowth, they are home to large populations vulnerableto climate and have some domestic resources tomitigate vulnerability. Leading firms in Brazil, China,India, Mexico and South Africa have respondedto these intersecting drivers with action on climatechange. They tend to be aware of climate changeand are leaders in carbon disclosure. EME’s accountfor the bulk of private-sector low carbon investmentunder the CDM. Firms in EMEs are also like to lobbytheir home governments on climate policy.44

Within this broad framework of common action,differences persist. EMEs differ in the focus ofstate involvement in carbon governance.71 In China,corporate responses reflect the government’s emphasison climate change-related market opportunities ratherthan GHG regulation. China is the leading CDMhost country worldwide, and the government hasbeen highly successful in using the CDM toaccomplish its own domestic environmental prioritiesby adding additional national requirements to CDMinvestment. However, the Chinese government’s activeinvolvement in CDM markets is not matched bya national commitment to reduce GHG emissions.Among emerging economies, it has the least aggressiveGHG reduction target. This produces a form ofChinese carbon governance dominated by regulatedmarkets, where the state is closely involved withprivate actors from business.72 In India, the privatesector has been the climate leader. Benecke73

describes India as ‘a case of market-dominated carbongovernance taking place under a weak shadow ofhierarchy and with little civil society involvement’(Ref 73, p. 346). Indian companies have prioritizedGHG accounting and reduction in the absence ofgovernment support for CDM and government GHGregulation, at least until recently. The corporate focuson energy efficiency and clean energy alternatives inIndia has been driven by concerns about fossil energysupplies and rising energy costs.47,74

In Brazil, Mexico, and South Africa, govern-ments have been more active GHG regulators but



have done relatively little to support private sec-tor CDM activities. All three countries have pledgedambitious GHG reduction targets. Mexico made inter-national headlines by passing a domestic law that seta long-term GHG emissions reductions target (a 50%reduction by 2050) for the country.48 Some argue thatthe Mexican government’s focus on target setting hascome at the expense of a plan for implementation anddoubt the effectiveness of the law and the country’sability to meet its target. This approach is reflected inthe activities of Mexico’s private sector. Corporationsare actively involved in GHG accounting but havelagged in investing in GHG reductions.68 Similarly,South Africa has set an ambitious GHG reductiontarget but private sector CDM activity is quite lim-ited. A CDP report focused on South Africa pointsto a gap between companies’ disclosure strategiesand their emission management processes, resultingin an unstructured system of carbon management.75

Finally, Brazil was considered an early mover andinstrumental to the design and implementation of theCDM.76 However, the Brazilian government saw itsrole as regulatory, focused on insuring the environ-mental integrity of proposed CDM projects. Businessexperienced the Brazilian government’s involvementin climate change activities as a hindrance rather thanas an advantage.49

EMEs also vary in terms of market opportuni-ties. Dechezlepretre et al.’s77 analysis of technologytransfer under the CDM offers comparative insighton how regulatory focus, technological infrastructureand foreign investment intersect to create differentclimate-related market opportunities across the EMEs.They find that Brazil, China and Mexico are allcharacterized by higher levels of technology trans-fer under CDM; 40, 59, and 68%, respectively, ofCDM projects have a technology transfer compo-nent. In contrast, only 12% of Indian CDM projectsinclude a technology transfer component. The higherrates in Mexico and Brazil are reflective of the coun-tries’ abilities to promote foreign partnerships andto secure foreign buyers for carbon credits. Bothcountries actively supporte mechanisms for interna-tional financing and technology transfer related toclimate change. In China, the government’s mandatefor foreign partners on CDM and domestic firms’technology capabilities foster technology exchange.India’s CDM projects are mostly self-financed byIndian firms and rely on installation of domestictechnology.

Less Developed CountriesIn contrast to the higher levels of corporate activityin EMEs in less developed economies private-sector

responses to climate change are limited. Corporateclimate action is discouraged by a combinationof weak regulatory environments, limited economicactivity, little or no domestic or foreign investment,and limited awareness of climate change. Africa, hometo 30 of the 48 LDCs, provides an illustrative example.Of the 54 countries in Africa, only South Africa hassubmitted a GHG reduction pledge and developeddomestic climate legislation.78 Likewise, the continentbarely participates in the CDM. Of the over 9000projects in the CDM pipeline, only 261 are hosted byAfrican countries, and 83 of those are in South Africa.Africa’s 30 LDCs account for only 60 projects, lessthan 1% of the global total.22

Kapfudzaruwa’s41 study of corporate responsesin Kenya versus South Africa offers some insight onthe experience of less developed countries. Of the45 Kenyan companies included in Kapfudzaruwa’sstudy, 38 were nonperformers on climate change.There was only one climate champion and anothersix companies whose climate activities were in anemergent or exploratory stage. Kapfudzaruwa arguesthat Kenyan companies do not face any threats ofsanctions or pressures to respond to climate change,due to a weak regulatory environment and the absenceof normative pressure from civil society. Focusingmore broadly on sub-Saharan Africa and the EastAfrican Community countries, Byigero et al.79 point toa range of barriers to explain the relatively low CDMpenetration in the two regions. Particulars includean inadequate general investment climate, low levelsof industrialization and a lack of CDM capacity,especially with regard to institutional infrastructure.One example of this incapacity is the inabilityto prepare or implement credible CDM proposals.Such proposals require detailed and complex projectdocuments, construction of baselines and projectrecord keeping.80 Another reason for limited CDMactivity in Africa is that ‘the approved methodologiesfor project selection are heavily biased towards energy,industrial, and synthetic gas sectors, all areas inwhich Africa has relatively little presence’81 (Ref 81,p. 350).

Jeswani et al.16 come to a similar conclusionin their analysis of corporate responses to climatechange in Pakistan. They point to high costs, lack offinancial resources, lack of awareness, nonavailabilityof technology and absence of government policiesas the main barriers to corporate climate action. Ofthe 72 Pakistani firms in their study, only four hadan active climate program. Jeswani et al.’s researchalso highlights the role of international linkages.Examples of corporate action on climate change inLDCs usually have an international connection. Of



the companies active on climate in Pakistan, all weresubsidiaries of multinational corporations. Likewise,in Kapfudzaruwa’s study, South Africa’s climatechampions were mostly subsidiaries of multinationalcorporations. Exceptionally, Kenya’s single climatechampion was a local sugar mill.41

Small Island Developing States and OilProducers in the Middle EastIn emerging economies and less developed countries,the presence or absence of regulatory and marketdrivers most directly shapes corporate responses toclimate change. In our third and fourth countryclusters, we assess how high versus low vulnerabilityto the physical risks of climate change combinedwith low versus high mitigation costs have shapedcorporate responses. For the 52 small islanddeveloping nations, the physical risks of climatechange dominate, and global mitigation efforts arenecessary for national survival. In contrast, theoil producing countries of the Middle East havebeen less concerned with physical adaptation andhave actively sought to hinder the developmentof an international climate regime, seeing globalmitigation as a threat to their core source of nationalincome.4

The private-sector response to climate change inSIDS has been limited and has focused primarily onadaptation, reflecting a risk/opportunity frameworkdominate by extensive physical risks. SIDS extremevulnerability to sea level rise and intensifying weatherpatterns have lead to active political mobilizationin the UN climate negotiations. The Alliance ofSmall Island States (AOSIS) leads calls for limitingglobal temperature increases to 1.5 ◦C and foradaption financing.4 Firms in SIDS have benefitedfrom this mobilization. AOSIS has asked for anadaption fund on behalf of its tourism and fishingindustries to cover the costs of loss and damagefrom climate impacts.82 The physical risks of climatechange have also motivated individual companiesto track the local impacts of climate change onrevenue and to channel some investment towardsreducing the impact of rising sea levels, although thetourism industry has not coordinated the industry-wide response.23,37

In addition to facing physical risks, private-sector actors in some SIDS also face a strong regulatorysignal. Several SIDS are among the countries thathave pledged to reduce national GHG emissions. TheMaldives and Samoa set the most stringent targetof carbon neutrality by 2019 and 2020, respectively(Table 1). The aggregate impact of these pledges is

minimal since SIDS are not major GHG emitters.Nevertheless, private-sector actors operating in SIDSmust meet these reduction goals. Surprisingly, neitherphysical nor regulatory drivers have produced muchcorporate activity. The majority of SIDS have noCDM projects. Nine SIDS are host to a total of44 projects. Twenty of these are located in theDominican Republic and 11 in Papua New Guinea(www.cdmpipeline.org). Several are renewable energyprojects, since access to energy is a key challengefacing all SIDS.83

There has been equally limited private-sectoraction in the oil-producing countries of the MiddleEast, albeit for different reasons. First, regulatorydrivers of corporate climate action are absent inthe oil-producing states. Quite to the contrary,OPEC asked for special consideration for their state-owned oil companies under the UNFCCC and theKyoto Protocol, in order to extend the status quoand prevent global carbon mitigation efforts fromadversely impacting oil revenues.4,84 Second, marketbarriers have stymied CDM investment. Accordingto Karakosta et al.85, ‘the majority of the MiddleEast and North Africa (MENA) countries possesssubstantial potential for the implementation of CDMprojects. However, most of the MENA countrieshave a limited track record in regards to CDMprojects in comparison with the major CDM-playersin the Asia-Pacific regions and Latin America’ (Ref85, p. 2455). Market and technology barriers,including ‘outdated power sector infrastructures,investment and technological constraints, minimalregional coordination of energy policies and tradingrestrictions on renewable energy exchanges’ (Ref85, p. 4409), have stalled efforts to develop NorthAfrica’s renewable energy resources. In addition, alack of trust in surrounding governments and growingpolitical instability has made cooperation in the regiondifficult.86

Only recently have OPEC countries begunexploring a wider range of options in their responsesto climate change, recognizing the potential ofcarbon capture and storage (CCS) and renewabletechnologies.87 OPEC nations are emerging as sitesfor large-scale CCS projects88 and for solar energyinvestment due to their location along the African sunbelt.86 A growing awareness of the region’s physicalvulnerability to climate change may be partial driverof this shift. The Middle East faces one of the mostimportant water crises in the world. Eight out of the11 countries in the region are water scarce and severalstudies predict that climate change will worsen thesituation.89


http://www.cdmpipeline.org


PRIVATE GOVERNANCE OF CLIMATECHANGE IN THE GLOBAL SOUTH?Our analysis of private-sector responses to climatechange in emerging economies, less developedcountries, and small-island and oil-producing statesunderscores both the range in corporate actionand the complex interplay of drivers and barriersthat results in private-sector efforts to reduce GHGemissions and invest in climate-friendly energysources. Most corporate engagement with climatechange clusters in the rapidly emerging economies.Corporate climate action in Brazil, China, Indiaand other emerging economies is driven by theprospect of domestic climate regulation and bythe market opportunities created by the CDM. Inresponse to both pressures, companies are trackingtheir carbon emissions and investing in low-carbontechnologies. In the rest of the developing world,barriers related to weak regulatory environments,low levels of industrialization and growth, restrictedaccess to capital and limited technical capacityintersect to limit private-sector action on climatechange.

Assessing the patterns and drivers of private-sector responses suggests that the prospects forexpanding private governance of climate change inthe Global South are limited. Unlike in industrializedcountries, where climate change governance ismultilevel90 and crosses public-private divides,91 mostimpetus for climate action in developing countriestraces back to the international arena. Corporateresponses reflect opportunities created by the CDMand the likelihood of GHG domestic regulation. Wecontend that both these drivers are limited in theircurrent reach and that their future prospects are inquestion.

The history of the CDM offers a cautionarytale. Initially, expectations regarding the CDM werehigh. Most companies in the Global South were firstexposed to the climate issue via the CDM. Precursorsof the current CDM framework were pioneered in themid 1990s, more than a decade prior to any discussionof GHG reduction targets by developing countries.92

As the mechanism unfolded, expectations declined.While the CDM has motivated some action across theGlobal South, 95% of CDM activity is concentratedin five countries. Projecting into the future, it is likelythat CDM will continue to diminish as a driver ofcorporate action on climate change. The uncertainfuture of the Kyoto Protocol has undermined the CDMmarket.21 Moreover, restrictions on the purchaseof CDM credits to projects originating in LDCsthat meet strict sustainability criteria reduce marketliquidity. As a result, the impact of the CDM on

corporate responses has declined as it becomes morelike an environmental aid mechanism and less like aninvestment market.93

It is also unlikely that national GHG targetsin developing countries will replace the diminishingmarket impetus of the CDM. Only 15 of 154non-Annex 1 countries have pledged voluntaryquantitative targets for GHG emissions reductions.On a positive note, the biggest GHG emitters havepledged action, unlike in the Global North, whereregulatory action is weakest in the major emitter,i.e. the US. However, the voluntary targets pledgedby China, India, South Africa, Mexico and Brazil allextend to 2020 and 2050. Pledges were thus madeby national administrations that will no longer bein office when the deadlines to meet targets comedue, and in many cases pledges were not linked toconcrete legislative initiatives. Ongoing commitmentto such pledges will depend on action in the GlobalNorth. Continuing efforts to regulate GHG emissionsin developing countries are contingent on parallelefforts in the Global North.

The prospects for private governance of climatechange in the Global South based on physicaland reputational drivers are equally limited. Bothdrivers have been most relevant to multinationalcorporations operating in developing countries.Their subsidiaries have been active in providingadaptation technologies and in showcasing theirclimate commitments. However, these are theexceptions. Most of the private sector in the GlobalSouth is not concerned about climate change, focusinginstead on other priorities. Some argue that increasedexposure to the physical risks of climate changewill change this picture and motivate action,94 butto date, physical vulnerability to climate changehas not motivated a coordinated private-sectorresponse in any sector in the Global South. Thecurrent and likely future importance of reputationaldrivers is more difficult to assess, with empiricalevidence pointing to both limited and extensiveeffects.

In conclusion, efforts to promote low-carbongrowth in the Global South must go hand-in-hand with parallel efforts in the Global NorthThe necessary task of engaging corporate actors indeveloping countries in the shared global projectof climate protection will take leadership byindustrialized countries and companies. Corporationsin the Global South look to their industry peersin the international arena for leadership. Moreover,the regulatory pressures and market opportunitiesthat have motivated most corporate action onclimate change in the Global South will only



continue to be effective drivers if industrializedcountries continue to regulate GHG emissions athome. Unfortunately, the continued stalemate in theinternational climate negotiations over responsibilityfor climate change, pitting industrialized againstdeveloping countries, undermines any push forprivate-sector action in the Global South. Recasting

the international negotiations as a multipolar dialogbetween country groupings based on economicgrowth trajectories, fossil fuel resources, technologicalcapabilities and vulnerability to climate changemay reanimate a blocked debate and moresuccessfully engage the private sector in the GlobalSouth.

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Private-sector responses to climate change in the Global South

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