Reaping the rewards of climate dividends

At a panel hosted by La French Tech London about how ESG and sustainability can drive value for organisations, a particular question during the Q&A segment immediately gripped the room. “What do you think about climate dividends and companies incorporating this into their sustainability strategy?” It quickly became clear that this was somewhat of a foreign concept to many in the room, but one which was worth delving into.

In the quest for a sustainable future, the concept of climate dividends has slowly begun to emerge. They represent a mechanism that holds the potential to drive meaningful change by addressing both environmental concerns and economic inequality. Surprisingly, this innovative approach remains relatively unknown in the mainstream discourse surrounding sustainability.

Climate dividends involve returning carbon pricing revenues to citizens, linking environmental policy with individual economic well-being. This spurs sustainable consumption, innovation, and circular economy practices, bridging environmental goals with macroeconomic shift.

Climate dividends can be seen as a form of universal basic income derived from the revenues generated by carbon pricing or carbon taxation. The basic premise aims to be straightforward: as society transitions to a low-carbon economy, the carbon emissions of industries and individuals are regulated through pricing mechanisms. The revenues collected from these carbon fees are then distributed equitably to citizens in the form of dividends. This approach seeks to alleviate the disproportionate burdens faced by low-income households during the transition to a greener future.

These climate dividends lack awareness due to the complexity of the topic and its relatively recent emergence. While carbon pricing and carbon taxation have gained some attention, the concept of distributing the revenue back to citizens has yet to gain significant traction in mainstream discourse. Furthermore, it takes a backseat to discussions surrounding other climate policies and initiatives, such as renewable energy investments or emissions reduction targets.

Taking a step back, it’s worth noting the current pushback against the net-zero agenda. Recent events have prompted political and international scepticism around net-zero commitments. Across Europe, the resistance to green policies is fierce. Poland is suing the EU over its plans to the increase in the bloc’s emissions reductions target, Germany has blocked a ban on new combustion engines to protect the industry and the BBB Party in the Netherlands is in opposition to the government’s plans to drastically cut nitrogen pollution on farms, to name but a few.

As the EU aims to implement its Green Deal legislation and achieve net zero emissions, concerns over economic competitiveness and the capacity to absorb new laws have resulted in calls for a “regulatory break”. Ursula von der Leyen, European Commission President has recently stated the EU needs to assess its capacity to absorb multiple new environmental laws.

From a political standpoint, carbon pricing itself can be a controversial issue, as it requires consensus-building and economically, concerns arise regarding the potential impact of carbon pricing and dividends on business competitiveness, job creation, and economic growth.

These factors, combined with lobbying efforts, can hinder their widespread adoption: climate dividends might face similar political and economic hurdles, especially considering their limited recognition.

Climate dividends could be a powerful tool for organisations to demonstrate their commitment to sustainability and drive value creation. By actively supporting their implementation, organisations can showcase their dedication to carbon neutrality and attaining a sustainable future.

The pros of implementing a climate dividend scheme include the funding of renewables, which in turn will generate revenue for green initiatives and renewable projects and addressing inequality for low-income households during the transition to a low-carbon economy.  Designing the dividend distribution system to ensure that these households benefit proportionately and are not adversely affected by the transition is critical. Overall, setting up fair and efficient dividend systems can be complex.

Climate dividends should be viewed within the macroeconomic shift toward sustainable growth. As economies embrace low-carbon strategies, this approach aligns with evolving economic models by directly linking environmental policies to consumer purchasing power. They can incentivise sustainable consumption, stimulate green innovation, and encourage circular business models, fostering economic prosperity.

From an organisational perspective, getting ahead of the curve and incorporating climate dividends in a company’s sustainability strategy can enhance its reputation among stakeholders and the public. Consumers would change their behaviours more if they can see the data and the impact.

Climate dividends offer a unique and holistic approach to addressing both environmental and social challenges as we strive for a more sustainable future. The impact isn’t just financial however, the incentive to change behaviours shouldn’t just be about meeting standards, but rather organisations’ willingness to play a pivotal role in driving positive change, supporting economic growth, and fostering a more equitable and sustainable world. We don’t yet know whether climate dividends will pick up steam in the mainstream, but I believe it is an idea that could eventually become a prominent and integral part of the sustainability landscape.