Pathway to Cop26: The importance of shifting norms in supporting climate action
The climate emergency will need to be addressed through a wide range of means and by a diverse set of stakeholders. In addition to legal and regulatory measures, it will require shifting norms. That’s one of the lessons from history. When there’s been a paradigm shift in history, it has been driven by broad societal shift in norms. In other words, simply changing laws or imposing taxes are not enough. Change requires social acceptance and a change in behaviour which only comes about when people are persuaded of the cause.
When there’s broad acceptance of the need for change, then that is when formal measures are accepted and adopted. These tend to be facilitated by stakeholders who advocate for shifting the paradigm. Sometimes a regulation or tax will be ahead of public opinion. It means that for a de jure measure to be effective, there has to be de facto acceptance and compliance. The importance of formal and informal institutions in setting the “rules of the game” has been well-known since the great economist Douglass North established New Institutional Economics.
Therefore, any climate measure will require the support and buy-in of stakeholders, not just in the public sphere but also the private sector. The trend towards ESG, which covers environmental, social and governance standards, among companies and investors is a good example of how norms are shifting towards accepting there’s an urgent need to address the climate crisis. Such acceptance and related actions would complement formal measures, such as a carbon tax, regulations to achieve net zero, etc., and enhance their effectiveness.
Lessons from history
The importance of shifting norms to precipitate or accompany change is evident throughout history. The late Victorian period was characterised by a focus on poverty and helping the deserving poor. The period of the late 19th Century was also known as the Gilded Age and the Belle Epoque; both names captured the wealth and inequality of the time. The stark contrast with the growing number of people in poverty poor after the Long Depression or Great Depression of the 19th Century began to change social norms.
Unemployment appeared in the dictionary for the first time, which changed the way that people viewed the capitalist economic system. The system seemed to benefit some while leaving others behind. Some in society rejected capitalism altogether and opted for socialism or communism. Others advocated for changes within the capitalist economic system.
Those changes led to the introduction of a progressive tax system. It meant that the rich paid a greater percentage of their income in tax which could then be redistributed as funds to the poor. It was also during the late 19th and the early 20th Century that social welfare programmes were introduced, e.g., the National Health Service (NHS), social security systems.
We take these redistributive and social safety net policies for granted as part of welfare state capitalism. But their introduction, which changed the existing capitalist paradigm, was not without challenge even in the face of huge inequality, poverty and unemployment.
For instance, the great economist Alfred Marshall, the father of neoclassical economics, was initially opposed to redistribution. He feared that it would weaken the incentive to work. But when he examined the evidence that showed a lack of disincentivising effects, his views changed. It wasn’t just economists who were engaged. Social activists created programmes to support the poor, such as Baroness Angela Burdett-Coutts who became the first female peer on account of her charitable work with Coutts clients, notably Charles Dickens.
The late Victorian attitude towards helping the poor were formed in such ways. This shift in social norms shored up support for welfare state capitalism and holds lessons for how to address the climate emergency.
Applying those lessons to the climate crisis
The focus on ESG is one of the ways in which norms are changing. The increase in interest in how companies’ activities impact the environment is a reflection of the shifting norms around what is acceptable. In a mutually reinforcing process, investors and businesses have also increasingly stressed the importance of protecting the environment. For instance, there are now ESG ratings of companies by specialist and financial firms. This analysis helps investors select well-rated companies and screen out those which do not abide by environmental as well as social and governance standards.
Companies are also incorporating ESG and particularly environmental goals into their own strategies. Firms are signing up to support the 2030 Sustainable Development Goals through the UN Global Compact and setting their own net zero targets which might even be more ambitious than their governments.
This reflects a social shift in preferences for environmentally-friendly businesses. Some may view these efforts as just a new version of CSR which has been criticised for paying lip service on corporate social responsibility. But, the change in social norms around the climate crisis is noteworthy. These initiatives are not forced by regulations. They reflect what customers and clients increasingly demand. But many of those who are running or investing in companies are themselves people who want to address the environmental crisis.
This is the crux of how a paradigm shift occurs: the consensus as to what is acceptable changes. A century ago, it was the unacceptable levels of poverty and inequality. Today, it is the destruction of our planet.
A change in norms will enable ambitious legislation to be effective. ESG reflects the private, voluntary action that has the potential to help support a new holistic approach to address the climate crisis.
MSCI, ESG Ratings (2020) https://www.msci.com/esg-ratings
United Nations, Global Compact (2020) https://www.unglobalcompact.org/what-is-gc
Yueh, Linda, 100 Women: Business and Economics (2018) https://www.historyextra.com/100- women/100-women-business-and-economics/
Yueh, Linda, The Great Economists: How Their Ideas Can Help Us Today (2018) https://www.amazon.co.uk/Great-Economists-Their-Ideas-Today/dp/024197447X/