Climate: Who can fix it? Who should fix it?

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Ann-Katrin Kaufhold is Professor of Constitutional and Administrative Law and jointly heads the international research group “The Institutional Architecture for a 1.5°C World” with Professor Rüdiger Veil at LMU’s Center for Advanced Studies. She is interested in the question as to which institutions are suitable for realizing effective climate action.

Once again, there is a heated debate going on about what the right climate actions are and whether we will manage to turn things around in time. What is your take on this? Are things going well?

Ann-Katrin Kaufhold: I’m afraid there’s a very clear answer here: No, things are not going well. If things continue as they have been, we will miss the climate goals we have set ourselves at the national and international level by a country mile. This was reiterated recently by the Council of Experts on Climate Change in Germany.

Who can fix the situation at this stage? To whom should we entrust the task of protecting the climate?

The crucial point, I believe, is that we cannot confer this task on an individual institution, an individual person, or an individual sector. When we’re talking about the transformation of society as a whole – and that is what’s required – then we must work all the levers we have. And this is the responsibility of institutions and individuals alike. We need to break out of routines and get all sectors to pull together in a new way. Of course, the question then arises: Who can accomplish what? But in my view, we must fundamentally change our behavior in all sectors of society – there is simply no way around it.

The wealthiest ten percent of the population make a disproportionate contribution to the climate crisis and are also best placed perhaps to do something about it. Does the future thus lie in the hands of the rich?

In a democracy, the answer to this question has to be no. It’s certainly true that wealthy people are in a position to effect some change and indeed should do so. A lack of climate action will lead to a schism in society, with a few buying their way out and the rest managing as best they can. If we do not prevent this from happening, then we really do have a big problem.

But it’s not just rich people who can fix the situation. By means of various levers, we all have some influence on what “the rich” do. We can ask ourselves: To whom do I provide my labor and my talents? Where do I shop? Who do I vote for at the next election? It’s true that the wealthy are currently behaving in a way that does disproportionate harm to the climate and that they therefore bear a special responsibility. But that’s not carved in stone. It doesn’t have to be that way and shouldn’t be that way.

Which debates do you think we should be having more of?

The debate about what it is we’re aiming for. I don’t mean a carbon budget, but the question: What does a good life look like, one that stays within the planetary boundaries? When done well, climate action generally also brings benefits. These positive visions are largely overlooked. Instead, all the debate centers around renunciation.

Many people are afraid of social change because they are concerned about their living standards. Is prosperity at risk?

Prosperity is endangered above all if we do nothing. In that case, we will take substantial hits to prosperity due to climate change. Yet, if we ask ourselves whether the requisite change – should we be able to bring it about – entails sacrifice and loss of prosperity, it depends on how you define prosperity. Is it about well-being? About living a life you like? In my view, the latter is very much compatible with carbon neutrality. But if prosperity means business as usual – that’s just not tenable.

What are the institutions that can actively shape the future of our climate?

Naturally enough, parliaments and governments spring to mind, but we’ve seen how they fail to move quickly enough. Therefore, we must consider how to expand the range of institutions that can have an impact.

Over the past few years, two further actors have entered the scene: Firstly, we have the courts, which are making clear that there is a human rights dimension to climate action. And secondly, we have central banks, which are trying to varying degrees to create greener monetary policies. In addition, there is a range of institutions that have been founded expressly to combat climate change – such as the Council of Experts on Climate Change and the Sustainable Finance Advisory Committee of the Federal Government in Germany, the Platform on Sustainable Finance at the European level, and the Network for Greening the Financial System at the international level. With so many actors, we can ask ourselves: Who does it the best, the most efficiently, the most effectively? And what should the interplay of institutions look like, so that they mutually reinforce each other as much as possible and do not get in each other’s way?

What are the strengths and weaknesses of parliaments, courts, and central banks when it comes to climate action measures?

A frequently discussed shortcoming of parliaments with regard to climate action is the fact that they have to seek reelection. Consequently, they tend not to support unpopular measures. On the other hand, parliaments have strong political legitimacy, because we reelect them every few years. In principle, therefore, their decisions should meet with particularly broad acceptance.

Courts and central banks by contrast are independent. This makes them better placed in the first instance to make unpopular decisions. But the risk is greater with these institutions that the measures will not be similarly accepted. Furthermore, it is often harder to revise their measures, which can become a problem in an area like climate action, where many things are just beeing tried out.

To what extent is popular approval a condition for the ability of institutions to act?

No institution can act against a majority opinion in the population in the long run. Even the Federal Constitutional Court, for example, relies on other institutions to implement its decisions. It makes its rulings independently, but if implementation meets massive resistance, then it is not tenable in the long run. In saying this, of course, I do not wish to propose that courts should have an eye on what the majority expects from them. But whether their rulings are understood and accepted partly determines how influential they can be.

What has the financial sector got to do with climate change?

It is financial markets where decisions are made as to where private capital is invested. According to the IPCC, we need annual investments of around two-and-a-half billion dollars if we are to reach our climate goals. It’s clear that governments cannot do this alone. We need private capital to be invested in climate action measures.

So we must ask ourselves: How can we reshape the financial sector so that it supports this societal change? How can we create incentives for investment in sustainable economic activities? In this respect, financial markets are an important and very powerful lever for initiating economic change.

The influence of financial markets on behavior is based on forecasts about climate-related risks and the impact of certain measures. To what extent do assumptions about the future play a role?

For the financial markets, such scenarios are extremely important for evaluating the risk of an investment. A key point for the actors in the financial sector is the question: Will a company in which I invest still be viable in, say, ten years? Or will the expected transformation processes or potential climate damage mean that the company is no longer profitable? By deciding as an investor to whom I give my money, I determine which sector survives.

For example, if investors have confidence in the continued long-term success of the internal combustion engine, then the IC engine will most likely have a future. Or if I believe in wind energy and invest a lot of money there, then I promote the success of this technology. What financial markets predict can thus become self-fulfilling prophecies.

At the moment, these scenarios and the associated investments are mainly controlled by financial institutions and companies. This is a problem, because this decision is not something that can be calculated or inferred from experience – rather, politics must set the direction of travel. It’s therefore important to democratize this process and make it an object of public debate. The financial sector possesses unbelievable power and decides the direction in which we move. The whole of society should actually take part in this decision.

What legal basis do environmental and climate protection currently have internationally, within the EU, and in Germany?

Internationally, the Paris Agreement is the key reference point for the debate. Whatever ensues at the European and national levels comes from attempts to implement the Paris climate goals. Or at least this is what should be happening. At the European level, there is quite a lot going on. We have the key “Fit for 55” legislative package under the European Green Deal, and carbon pricing has recently been further extended to other sectors. At the national level, the Climate Change Act is an important mechanism for future change.

What role does the Constitution play?

In the past the Constitution has not been given much credit in matters of climate protection. This fundamentally changed with the 2021 decision of the Federal Constitutional Court, which places an obligation on Germany to keep to its national carbon budget and to plan ahead. If we wait too long to act, then our climate action would subsequently have to be so massive and drastic that there would be not much left of people’s civil liberties. It is incumbent on the legislator to prevent things from coming to this pass.

Furthermore, Germany is constitutionally impelled to push for climate action at the international level. Why? Because Germany alone cannot save the climate. That’s why the Federal Constitutional Court says that the German state has the obligation to advocate for climate action internationally on top of meeting its own commitments. Only by doing this can we build trust that everyone is doing their fair share and no country is taking advantage of others by free riding.

When such legal principles are violated, is it possible to sue the perpetrators? What is the role of climate lawsuits?

Climate cases have assumed a significance that would have been inconceivable five to ten years ago. Their number is growing exponentially worldwide, although the results thus far are ambivalent. In Germany, we’ve had the groundbreaking climate decision of the Federal Constitutional Court on the one hand, but on the other we’ve seen the dismissal e.g. of a series of constitutional complaints against climate laws passed by federal states.

What’s interesting is that the cases are not just about human rights, but also about liability. One example is the famous lawsuit taken by a Peruvian farmer against the German energy company RWE. The farmer had to build special walls to protect against flooding, for which he is now seeking compensation from RWE. If such lawsuits are successful, that will of course be a powerful lever and will, by the way, also have an effect on financial markets. If RWE investors know that the company can be held liable for climate consequences in the future, this reduces their incentive to invest money in carbon-intensive sectors of the economy.

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What does your research into institutions and their suitability as climate actors look like?

Our new research group at LMU’s Center for Advanced Studies is due to launch in October. We’ll be examining various institutions that are possible candidates for climate action. In the first phase, we’ll be drawing up a catalog of characteristics, which we can use as an analytical instrument to characterize institutions. These characteristics and categories will allow us to ascertain whether and in what way an institution can contribute to climate action. There has been astonishingly little academic research into this matter to date.

In the second step, we will attempt to apply these findings to various institutions. This will include not only familiar institutions – parliaments, governments, courts, central banks, etc. – but also institutions that have been or should be specially created for the purpose of climate action.

We will be doing this at the national, European, and international levels. We will be collaborating with international fellows in the research group, which will give our studies global coverage. Our ultimate goal is to come up with a sound evaluation framework for institutions. Ideally, we will even be able to develop proposals for how to change institutions so as to make them better climate actors.

So we’re seeking answers to the question: How can we create institutions that facilitate effective climate action while also enjoying societal backing?

An expert in public law, Prof. Ann-Katrin Kaufhold is Chair of Constitutional and Administrative Law at LMU’s Faculty of Law. Her main research interests include constitutional law as relating to climate and the regulation of sustainable finance. Together with Prof. Rüdiger Veil, she heads the research group “The Institutional Architecture for a 1.5°C World” at LMU’s Center for Advanced Studies. She is also a contributor to the Munich Climate School and a member of the German Federal Ministry of Finance’s Working Party on Financial Market Legislation.