Analysing possible pathways towards sustainable development, as well as the current realities of built-up infrastructure and consumption habits, C21 gained understanding of the respective roles of private and public stakeholders, needed for a successful transition.

What will be achieved by technological innovation, what by regulation? Shall governments implement new technology solutions? Is it the job of shareholders to ‘do good’?

When addressing these questions, we think it is crucial to note that every market, no matter how ‘free’, is based on and depends on certain rules that set the framework within which market participants operate. This includes the accounting and legal framework, rules on competition, product and service standards, etc.

One of our key challenges is that currently these rules do not properly incentivise market participants towards sustainability. For example, some 80% of GHG emissions globally are not yet subject to any price (i.e. emissions are treated as an ‘externality’). This means that it is free to pollute despite the fact that pollution comes at a huge cost (which therefore should be ‘internalised’). 

Still in our first year of activity (2008), we have developed the economic policy model of 'sustainable market economy'. For us, this is the best ‘system’ for actually executing and operationalising the transition to sustainable development in time. Key to the approach is a clear division of roles between ‘market’ and ‘regulation’. 

In our view, the government's role is to set policy framework conditions such that all social, ecological, and economic costs of market activities are internalised – properly accounted for, and thus incentivised.

Wherever possible, this should be done by policy measures internalising the cost of negative effects, which can be based on science (e.g., regarding GHG emissions budgets, land use). In our view, this is better than detailed regulations on what type of solutions are considered a positive contribution – mainly because innovation beats regulation in terms of implementation speed. The more detailed regulations are and the more concretely technology is defined through policy, the greater the danger of bureaucracy and market distortion.

Quite certainly, it should not be the government’s job to implement solutions. For this, the private sector’s track record is much better. 

Its role is to execute and implement the needed transition – but within a sustainable framework. If and when the policy framework systematically prices all societal and ecological costs of market/economic transactions, sustainable development will scale, become the mainstream, and thereby allow us to transition in time.

Unfortunately, many discussions on the respective roles of the public and private sector still miss the point. Innovation efforts in policy are still too often regarded as ‘market intervention’, rather than necessary ‘incentive setting’. ‘Free market’ ideology can sometimes still stand in our way, and incumbents still succeed in delaying the transition to sustainability based on policy fear mongering. 

In this context, ‘stakeholder capitalism’ sounds good. But it is not the right approach for us. Yes, businesses can ‘lead’ in sustainability – by example, voluntarily going beyond compliance, demonstrating what is possible today – to inspire other private sector actors, and to raise government ambition for policy innovation. But not even the largest multinational is entitled to define the ‘good’ in ‘good corporate citizen’. That is the government’s job, representing the people, and thus being the stakeholder entitled to define the (‘good’) direction of development.

Furthermore, science-based ‘business leadership’, as remarkable as it is, primarily involves a few hundred global firms, and in most markets, an equally small number of committed local SMEs. For actually transitioning to net zero in time, this is not enough. The entire market has to go through a fast transition. This can be triggered by voluntary efforts but relies first and foremost on policy innovation that reaches all and everyone in time.