Climate Change Firms: Are these Collapsing?

'They don't build 'em like they used to!'
‘They don’t build ’em like they used to!’

Immediately after the emergence of the regime of climate change as a new sector for development during 2005, several institutions and enterprises had been established; starting from carbon finance consultancies to green economy institutions, clean development mechanism consulting firms to validators. This new set of institutions were recognized as innovators and highly influential in low emission policy making. However, after 10 years, majority of these firms are closed down and in the processing closing down. For instance, the record from the CDM Bazaar site of UNFCCC [http://www.cdmbazaar.net/] depicts that there were more than 10919 registered institutions in the carbon finance sector until 2014, and it is estimated on October 2015 that approximately only 2% of these registered firms are still active. Similarly, there was boom to set up institutions around green economy in 2012, immediately after the Earth Summit in Brazil; but after three years, many of those organizations are struggling to maintain its relevance and value propositions.

The burning question: why do these institutions fail? Is it an internal matter – a failure of leadership, poor management, or inadequate resources? If those factors play a part, do they merely reflect structural flaws in systems of regulation and accountability? Or should we be looking more to the external context: a hostile economic or political climate perhaps, or inflated expectations of stakeholders, which mean that the institution operates in an environment in which will inevitably and unfairly be seen to fail?

After working in this sector, since 2005, I am confident to say that this collapse can be reasoned based on three key conditions; (i). Market failure and political differences in the overall climate change market-mainly carbon market collapse (iii). Introducing vague ideas of development without clear value proposition (e.g, green economy) and (iv). Poor organizational design and management which leads to systemic failure within institutions. It is also important to mention that the financial crisis reduced the number of firms, but also led to an increase in the size of the remaining firms, through a series of mergers and acquisitions, and this represents the ‘2% firms’.

Reader’s views on this initial analysis will be highly appreciated and I am sure this will create a healthy debate.

Keshav C Das

October 16, 2015

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