• Stakeholder Capitalism is a series of videos and podcasts that looks at how economies can be transformed to serve people and the planet.
  • In this episode, we ask if a healthy planet can co-exist with the economic growth required to raise living standards, especially in developing countries.
  • The episode features insights from climate activist Risalat Khan, Lord Nicholas Stern from the London School of Economics and Mariana Mazzucato from University College London.

Since the first industrial revolution, economic development has been powered by fossil fuels. But for decades we have known that the greenhouse gases from these fuels are building up in the atmosphere, causing climate change.

The latest UN climate science report says there is no longer any doubt. To prevent climate catastrophe, we need to switch away from fossil fuels fast.

But what about those parts of the world that, while sharing the perils of climate change, have not enjoyed the increased wealth or living standards that come with economic development?

No major economy in history has industrialised without the large scale use of fossil fuels. Is there a way that underdeveloped economies today can pursue economic development without contributing to climate change in the way richer countries have already been doing for decades or centuries? Can vital economic development happen without making the mistakes of the past and without pushing the world further into climate crisis?

In this episode of Stakeholder Capitalism we'll be exploring what is arguably the world's most pressing problem: the climate crisis, and particularly its long and complex relationship with the story of global economic development over the past 200 years.

Planet versus profit: full transcript

Peter Vanham: So let's look at global annual CO2 emissions from the 19th century to today. As the economy developed, CO2 emissions went up. And right now they are at about 35 billion tonnes of CO2 per year. We need to go down to zero by 2050. We know that's the challenge to limit global warming. Very steep decline. So the question is, how are we going to do that? Well, let's break that question up into two parts.

Let's look first at what happened in the West. In the West - Europe, North America, Oceania - you saw that emissions already peaked around 1990 or so. Then they plateaued and have started to come down already. So it looks possible - at least there's a path to zero in 2050. That's because of something called the environmental kuznets curve. It says as you develop, first you emit much more CO2. Then you develop some more. You gain new skills, new knowledge, and you're able to emit less CO2.

Stakeholder Capitalism: Planet v profit
Global greenhouse gas emissions
Image: WEF

But let's now look at what happened in Asia, South America and Africa, the emerging economies of the world. They haven't reached that phase yet of economic development, where they can start to plateau and then go down. In fact, if they were to follow the same logic, they would still go up first and we would never get to net zero by 2050. So that's of course, where we need to go. We need to go down to zero. So this shows us the conundrum that we face when it comes to the climate crisis. If we want to curb our emissions quickly, by 2050 for example, we don't really have a template of how we can continue economic growth. But if inversely, if we follow the template that we do know for economic growth and development, it doesn't look like we can curb CO2 emissions.

Stakeholder Capitalism: Planet v profit
Getting to zero by 2050
Image: WEF

Natalie Pierce: So in summary, the same force that is lifting millions of people out of poverty is the one that is destroying the liveability of our planet for future generations.

Peter Vanham: It appears so because there is a long enduring correlation between economic development and CO2 emissions.

Natalie Pierce: Thanks, Peter. In today's episode, we're going to switch things up, and we have two expert guests who are joining us for part one who come from very different backgrounds. First, we have Risalat Khan, who is a climate activist from one of the fastest growing economies in the world, Bangladesh. He's also a member of the World Economic Forum's Global Shapers community and is leading the climate initiatives of the Davos Lab.

You have mobilised marches and movements and campaigns to advocate for the move away from fossil fuels. What do you see on the ground, especially in your work in Bangladesh?

Risalat Khan: The first thing to consider is that right now, a lot of the world's emissions, like 80%, come from G20 countries. So if we are looking at actually the breakdown between where emissions are coming from, it's the biggest economies in the world. When we're speaking of a country like Bangladesh, it is important to put things into that context. That does not mean that countries like Bangladesh do not have a responsibility to do their fair share and peak as soon as possible and transition and make that same transition to net zero. But it needs to be done in an equitable way. It is important to have that equity lens in mind and really consider what kind of support is needed while everybody should be moving in the direction of net zero.

The IEA just came up with a report that said about $850 billion is the funding gap annually that is needed to be met in order to make sure that emerging and developing economies can transition as well. So right now, there is this opportunity that we have to make sure that everyone can make this transition. The technological reality of renewable energy costs falling as much as they have and now being the cheapest source of energy across much of the world now means that there should be no excuse to not move at a rapid pace, but do so equitably.

Peter Vanham: Could you tell us how this conundrum feels on the ground. On the one hand, how does it feel, the climate emergency in Bangladesh? And on the other hand, this economic development that's currently taking place? What where do people follow opportunities?

Risalat Khan: I want to share a story that I actually think of very often. This comes from when I was visiting a village outside my home city of Dhaka with my father, who is an environmental activist that I drew a lot of guidance and inspiration from. As we were in that village I met an old farmer who was working in the field and I asked him about how he has seen the climate change as he has lived his life in that land. And he shared about how when he was a young man he had the bounty of multiple harvests. Bangladesh is a very fertile soil, so he had that. But now he shared really devastating stories of how now it would be lucky to have one good harvest in a year, and that is extremely challenging to provide for his family. And then he said something I probably will never forget. He said 'Allah has turned his back on us baba'. So I feel that that sense of powerlessness, that loss of agency. I find that one of the greatest injustices of the climate crisis. People are having to rebuild - they're being forced to - without having a real contribution to the problem.

There's no part of the world that is untouched by the climate crisis, and the whole world is having to adapt and very quickly. So there is a lot of sharing of knowledge that is needed. And that is possible because people and communities have been adapting to climate change for a long time. But at the same time, we are reaching very rocky seas and some are holding on to a piece of wood while some might have super yachts.

Peter Vanham: Can you also share with us the story of economic development in Bangladesh today, because it's actually a booming economy, isn't it? So what does that look like in Bangladesh? Is it industrialisation as we've known it in many other countries, does it look different? What is the story of Bangladesh's booming economy?

Risalat Khan: Right now it is being seen, as you said, as a booming economy really providing a backbone of the global garments industry, the fashion industry, often based on models of exploitation, I might add. The country is definitely on a track towards economic development and doing well for itself. Human health indicators that Bangladesh has in many ways are examples in the region in terms of how far we have come in terms of human development on things like sanitation and water and so on.

Yet there are challenges, and I do consider climate as one of the biggest ones. And while we do have a responsibility to transition like everyone else, some of the things that will actually determine what will happen to the future of the country in terms of - some estimates of sea level rise suggest that up to a third or even a half of the country in future could go underwater. And when you have a country of more than 160 million people, that means tens of millions displaced, mass migration over a period of a very short time. And that would be incredibly difficult for any government to manage, and it will result in really vast human crisis unless we act very quickly as a world on climate.

Peter Vanham: And of course, also the adverse effects of climate change are not just in the future in Bangladesh, they are also in the present. I think that Dhaka, the capital, is actually one of the worst polluted cities in the world, isn't it? Is that also a consequence of this industrialisation and economic development?

Risalat Khan: One of the reasons that Dhaka is one of the fastest growing cities in the world has to do with climate-induced migration. Every year, there are tens of thousands, potentially hundreds of thousands of people who are displaced due to various climate-induced impacts, such as river erosion and flooding. And what that results in is a lot of unplanned development. For example, low income communities, where people lack basic services, where you might have urban flooding, water logging, etc., which are challenging to manage. The Harvard study that just came out recently estimating that one in five global deaths are actually due to the burning of fossil fuels, that is quite stark and worth pausing on to also imagine how much benefits in terms of public health we will meet by making this transition rapidly.

Natalie Pierce: How do you think the global economic development model for Bangladesh or any other emerging economy needs to change?

Risalat Khan: We have introduced growth as a proxy for things that we want, but it's a highly imperfect proxy that does not say anything about the quality of life you want for your people. That does not say anything about the planet that we are literally pushing past the brink in order to strive for that growth. We have created societies where there is so much inequality and that level of inequality creates an extremely polarised society. And what we need to do that is to really renegotiate and update our social contract. To say that enough is enough, we need to create a more humane and just society and keep within the planetary boundaries and provide for people. And in many ways, the pandemic has really disrupted our sense of control, our illusion of control and our sense of invincibility - that we are not going to be affected. So will we learn the lessons from that is the main question.

Natalie Pierce: If you had one key takeaway, you hope our viewers take from this conversation, what would it be?

Risalat Khan: We have this window of really reimagining how things could look like, and so many different forces are converging such that the collective actions that we take as humanity in this decade in these next few years will really determine in very deep ways the future of human civilisation, as well as potentially life itself on our planet for thousands of years to come, maybe even more. And this history is being written before our eyes. Each of us have a choice, whether we will be bystanders or will we find the page of that history book or the sentence, the phrase, the word or even a comma in that book that is ours to write.

Natalie Pierce: Up next, we are going to turn to our second expert guest. He is the chair of the Grantham Research Institute for Climate Change and the Environment at the London School of Economics. He is Lord Nicholas Stern.

Natalie Pierce: In today's episode, we're particularly exploring the correlation between global development and CO2 emissions, and I was wondering if you can tell us more about your research in this area and even potentially the link to the environmental kuznets curve.

Nicholas Stern: Well, the idea of the environmental kuznets curve, which is roughly 30 years or so old, is that as incomes go up, you can either afford to or your preferences are actually to do so, to cut the pollution that your activities are causing. If you plot pollution against income per capita, it first goes up and then goes down as you start to take actions and you can afford to take actions to cut it. To be honest, I don't think the econometrical, statistical foundations for it are that good because people can take choices at any level of income, and they do. But that's the idea of the environmental kuznets curve.

Natalie Pierce: And what do you think about that specific link between emissions and global economic development?

Nicholas Stern: So there's the production side of it, that associates economic activity with energy and energy with carbon. But of course, you can change that. You can change the amount of energy you use, but often actually energy use will go up with output. But what you really can break is the relationship between energy and carbon, and that's a choice. Of course, there's the whole question of what we do with forests and our land use as well, and we can let economic activity encroach on our forests and the environment and our biodiversity, or we can act to control that. So there are those two forces at work: output, energy, carbon; and extra activity encroaching on our natural environment and undermining our natural capital. Those two forces at work are real forces, but of course they can be changed.

Peter Vanham: We saw that in the West, Europe, the United States and so on that in fact, we have seen CO2 emissions and other greenhouse gas emissions already go down. They are going down already since about 20 years or so. Is that something that should make us hopeful about reaching net zero by 2050?

Nicholas Stern: Yes, it tells us that you can grow without increasing your emissions. In my own country, the UK, since 1990, we've probably grown by about 70%, emissions cut by around 40%, just in very round numbers. So that's perfectly possible if you make those investments. And actually, you can get a stronger, more attractive, more inclusive, more resilient form of growth. So it's not simply a decoupling story if you take the right kind of policies to clean up your energy. I think it's actually becoming stronger than that - that the kinds of investments we need to make to change our energy, to invest in our natural capital, are actually investments with very powerful returns beyond simply the very important point of cutting carbon emissions. So I think it should give us hope and it should point to the developing countries new options now. They don't have to go through the dirty phase which we sadly went through as rich countries, because there are different ways of doing things.

Peter Vanham: That's a very positive message. We heard earlier from results Risalat who comes from Bangladesh and who's very concerned that as his country develops, which it is very rapidly doing right now, that in fact it is still leading to a lot more pollution. So do you see indeed that positive future ahead also for countries like Bangladesh, India and China?

Nicholas Stern: Oh, absolutely. The energy sector is the most important from the point of view of the emissions of greenhouse gases. Obviously, burning fossil fuels gives you CO2, and it is now possible to do things in different ways and we do not have to get our electricity from fossil fuels. It's as simple as that. It's actually cheaper to do it without the fossil fuels. Most, in this last year or two, auctions in the Indian power sector have seen round-the-clock solar beat out fossil fuels for the cheap supply of electricity. So that's the kind of activity which should give us hope. It means that the developing world can build its infrastructure in very different ways from the past. We're starting to see coal flatten in China. It has its bumps. It goes up and down. And I think we're going to see Chinese emissions start to fall within the next five or six years.

Natalie Pierce: What are the key changes that we need to see in our current economic model to put us on a better trajectory?

Nicholas Stern: That's absolutely the right question, Natalie. There are two sorts of investments that I would highlight: investments in physical capital and sustainable infrastructure; and investment in natural capital - restoring degraded land, expanding not contracting our forests and so on. And they are actions with wonderful returns - cities where you can move and breathe; more efficiency, greater productivity; ecosystems which are robust and fruitful; and reduced risk of climate change and more resilient economies. But we do have to make those investments.

So then the question is, well, what policy can draw through those investments? One important policy will be a price of carbon, but that's not the only one. We have to invest in R&D. We have to build our networks - good functioning grid systems mean that you can take in electricity from all sorts of different sources, at all sorts of different times, so you have to organise those systems well. Transport - we have to move quickly away from the internal combustion engine. One way of doing that, of course, price of carbon will help, but we can also regulate, saying that you cannot sell, as we will do in the UK after 2030, you cannot sell internal combustion engine cars. You cannot take that kind of car into a city. And those regulations can be very powerful. So you need the right kind of prices, taxes, subsidies, you're going to need the right kind of regulation. And the rich world has to work with the poorer world to help with drawing through those kinds of investments. That includes sharing some knowhow, it includes some help with finance, lowering the cost of capital and increasing the flow of capital. So managing change is a complicated business, but the change itself is extremely attractive and it's urgent and it's perfectly feasible.

Peter Vanham: You've made the point of why it's so important to make these changes, and also that they are rather straightforward. They're not mysterious, you said. Why do you think we have failed to make these changes at a massive scale until just a few years ago? Why did it take so long?

Nicholas Stern: Since the Paris agreement of 2015, that international agreement, I think, provided a great deal of acceleration. That's only half a dozen years ago. I think over the last few years, particularly the last three years or so, we've started to see the new technologies come through still more quickly. The electric car now - all the major manufacturers are making electric cars, and actually most of them are saying we will not make combustion engines after a certain date in the future. You have seen the importance of the idea of net zero. And I think that has changed the way in which people think about it. We've had pressure from young people. They have been taught about climate change. It's clear for them also, they understand the technologies that are available. So if you put the international agreement, the technological change, the understanding of net zero pressures, particularly from young people, you start to see why things are accelerating, but still not fast enough.

Natalie Pierce: Thank you, Professor Stern, for sharing your insights with us.

To demonstrate positive trends and potential solutions, we're joined next by Mariana Mazzucato.

Peter Vanham: Mariana is Professor in the Economics of Innovation and Public Value at University College London and also the director of the Institute for Innovation and Public Purpose at University College London. She also just published her bestselling book, Mission Economy: A moonshot guide to changing capitalism.

Natalie Pierce: You have said 'we need to save capitalism from itself'. What does this mean, especially in the context of climate of the climate crisis?

Mariana Mazzucato: My thesis is that we have the wrong type of capitalism. There's varieties and we need to restructure it if we are going to take climate change seriously. The fact we have so many companies that continue to prefer just increasing their share prices and often the interrelationship between the government and the business sector is often what I would call a parasitic ecosystem, not a symbiotic one, all of those different problems need to be changed if we're going to take climate change seriously. But I don't think we can just keep looking at the symptoms. We have to go to the structural kind of foundations and change how we do policy, how we do business, and especially how we form better types of public-private partnerships.

Peter Vanham: You do believe, of course, that it is possible. You also write about this in your book - we can change the world. You give the example of how in 1960, nobody thought we could ever reach the Moon yet with the right policies in place we did achieve that by 1970. If we apply that now to the climate crisis, what do we need to do to get to a similar outcome, which in this case is net zero by 2050?

Mariana Mazzucato: Well, first of all, we need to treat it with the same level of urgency. With the Apollo mission that I write about in my book, Kennedy was really, really clear that it was going to require lots of experimentation. He said: We're going to do this because it's hard, not because it's easy. But also that it was going to be quite expensive and that there would be failures along the way. I think what this requires is an admission that it's going to be hard. But if we actually do it properly, in other words form healthy public-private partnerships base it around also a system of innovation that looks both at the kind of R&D that people like Bill Gates talk about, but also the demand side policies that are really crucial in terms of actually making sure that we fully deploy and diffuse these new technologies that are so central also for fighting global warming, that just requires a very different type of public policy, one that I call 'market creating and shaping' not just 'market fixing'. But also what I found so interesting when I was doing the research for the book is how NASA at the time really cared to actually redesign their policies. And in fact, that led to huge amounts of innovations across so many different sectors. This is really important with global warming. We need every sector to innovate. And what they also really cared about was that their own organisation, NASA, had to continue to invest within their own capabilities. They were aware that they needed that public-private partnership, but they wouldn't even know who to partner with or how to write the terms of reference if they didn't have their own kind of brains and capacity, what I call the 'dynamic capabilities' of the public sector. And I think we've actually lost that. We have so many governments that have lost their capacity, their capabilities, because they have overly outsourced that capacity, whether it's to consulting companies or different types of project management companies inside the private sector. And one other thing I found fascinating in terms of the public-private partnership side is that NASA also had a clause or clauses inside their contracts that had to do with no excess profits. In other words, of course, companies should make profits - this is not about charity, it's not about philanthropy, But it's not about turning this into a gambling casino. The profits should be fair, given that it's an outcome of a collective value creation, and that means admitting that the public sector has taken risks is investing often in the early stage, much more difficult stage, of innovation. So the way I sometimes put it as a one-liner is that with the Green Deal, we don't just need the green bit to be thought about, but also the deal. What's the right contract with the right way to share the rewards and not just the risks?

There should be conditionality attached to any sort of government subsidy guarantee or investment. And what's interesting was that recently in Germany, for example, when the steel sector asked for a large loan from the government, they did something that many countries haven't done. The loan was conditional on steel reducing its material content. And they did it through repurpose, reuse, recycle technologies throughout the whole value chain. Today they have one of the most sustainable and innovative steel manufacturing processes. And so really what we need in order to get carbon-neutral manufacturing across all our different sectors, but also distribution, is to put this at the centre of the contracts in that way, with conditionality. But unless it's actually embedded as a mandatory change that has to happen, as opposed to relying on kind of voluntary actions, I just don't think we're going to get there on time.

Peter Vanham: We also saw how the challenge of getting to zero may be harder in emerging economies because they're still on a development path where they naturally would emit more CO2, more greenhouse gases. What are some of the solutions that you foresee in such economies and for such governments and companies?

Mariana Mazzucato: There's many different points that I would raise on that, but the first is that the developed world has to definitely take on the greatest burden, which doesn't mean that developing countries shouldn't change. Of course they must, but it has to be facilitated by those countries that have historically, in the last 200 years, led the problem.

What's interesting is for countries that are developing, sometimes this need to build infrastructure, for example, especially in countries with very weak infrastructure, that seems like that's the priority - let's do that first and then we can worry about global warming later. I think that's a mistake. I think in developing countries where there's both an urgency to develop and to build that infrastructure, having a green lens and a green design lens to building the infrastructure is absolutely crucial. So many cities globally are finding themselves fighting against climate change, but just haven't actually thought at the city level how to change the current way that we think about development. And so I think especially in countries that are on the developmental pathway and that have very urgent problems, using a green lens to fight those problems is not only very smart, but is a way to actually innovate with those public sector tools that I talked about before. So if you have a carbon neutral city agenda, for example, that should be informing the public procurement structure for a city or region or a nation. And I think that need to innovate with the tools, grants, loans, procurement or if you have a public bank, a development bank, as many developing countries have, it's really important to get out of the kind of mentality of just giving out money and handouts to different organisations, away from that and actually have a mission-oriented, outcomes-oriented goal, and using climate targets for those goals, and using that to then cause investment in innovation in the business sector, of which we often have too little in developing countries, by putting those conditionalities that I talked about earlier at the centre. This is, I think, a way to really catalyse investment in countries that actually have low business investment.

Natalie Pierce: Mariana, as we close this episode, do you have a clear call to action?

Mariana Mazzucato: Yes. Well, we need to remember, as I said, there's different ways to do capitalism and we're doing it wrong and we have to stop sticking with the ideology of government or private sector. We need to change the governance models of both government and the private sector, but especially build that healthy partnership. And anyone who's interested in stakeholder value in the business community or talks about purpose-led change - iIt has to go not just within corporate governance, but in the relationship. Just like in a marriage - there can be healthy marriages and dysfunctional marriages. I really think we have a dysfunctional relationship right now between the public and private sector. And so that's my call for action, get symbiotic partnerships, and let's use that in order to bring purpose at the centre of the system.

Peter Vanham: So to fight climate change, we need a mission-oriented economy not just focussing on technologies, but also on the right public policies and public-private cooperation. Thank you so much, Mariana, for joining us.

Natalie Pierce: In this episode, we've been exploring how we can pursue economic growth without harming the planet for future generations. Peter, what did you hear in today's episode that you think presents a better way forward?

Peter Vanham: Well, first of all, we heard from Risalat about how not to do it. He joined us, talking about his country, Bangladesh, which is clearly on the road to economic development. And you would expect they would follow the template that has been set before them by all other industrialised nations, which is to built factories, to build energy plants and therefore also continue to or start to emit more CO2 and other greenhouse gas emissions. But he said, I don't want that - if this is the price we have to pay for economic development, I don't I don't like that option. And so that's the first thing I think we have to remember is that that way forward is not one we can continue to follow.

Natalie Pierce: Lord Nicholas Stern agreed with Risalat. But he said climate action is possible. We can revert this crisis. It's not going to be easy, but we do have options. What were the options that stood out to you?

Peter Vanham: What was very surprising, I think, - and he's been looking at this issue for decades - he said the solutions are there and many of them come from the last two to three years - technological solutions to make sure you can decouple economic development from CO2 emissions. And I think that's very striking to note that this option is now there. It wasn't there before. It is now here, but it's very recent.

Natalie Pierce: He also highlighted, though, that industrialised nations need to have a disproportionate impact on finding solutions and scaling those solutions around the world. What did you think about what he said around international responses and working together across countries to find solutions and scale them?

Peter Vanham: Well, it makes a lot of sense, doesn't it? Because if you look at how much greenhouse gases we have historically emitted, which is the right way to look at it, of course, because they remain in the atmosphere for a very long time, it's only right that those countries that have admitted the most over the life ordered the lifetime, let's say, would bear the biggest burden. So that implies that if the edge is there, if new technological solutions are there, that those countries would implement them first straight away and would also try to help in implementing them elsewhere as well as soon as possible. And I think that brings us to what Mariana said at the end - that change has to happen now.

Natalie Pierce: I think Mariana was one of the most inspiring guests we've had on the show so far. And when she says we need a moonshot approach to solving the climate crisis, it's now it's not in decades in the future, it's this decade. And she also said all stakeholders, government, society, business, they all have a role to play in challenging the climate crisis, taking climate action, but also rethinking capitalism. And what a powerful message to end on.

That brings us to the end of this episode. The next episode will focus on the role of technology and our ever growing dependence on it. And we'll particularly ask the question: Is Big Tech too big?

For the full series, visit the Stakeholder Capitalism homepage.

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