If you spend your time thinking about the intersection of the private sector and climate change, here at year end things may not look so good at first glance.
For the past year and change, companies have faced an onslaught from conservative activists, leading many businesses to go silent about their climate efforts. And as companies have grappled with the difficulty of actually aligning with net-zero emissions goals, many have backtracked their ambitions. Public sentiment—which helped propel a lot of these efforts in the first place—hasn’t been much help as of late either as consumer focus shifted amid rampant inflation.
Many investors, another driver of corporate decarbonization, have also seemed to waffle. Research from Morningstar found that climate funds will have their first year of net outflows as investors pull money out for the first time. Throw in a newly elected U.S. president who doesn’t care for climate change and things look bleak.
If your primary concern is quarterly earnings and only quarterly earnings, it would be easy—maybe even wise—to take a seat on the sidelines of the decarbonization agenda for the next couple of years. But to do so would not only be myopic, it also risks placing your company at a competitive disadvantage. The role of climate change for the private sector just got a lot more complicated in 2024, but decarbonization and climate resilience will continue to be key themes for companies and investors over the next year.
Below are a few reasons why. This list isn’t meant to be comprehensive, but for the fatalistic among us it should spark at least some optimism that a path forward remains next year.
Deployed capital
The U.S. has seen hundreds of billions of dollars in clean technology investments since the 2022 passage of the Inflation Reduction Act (IRA)—from solar installations to electric vehicle manufacturing. Companies rarely want to cancel projects where they have spent significant sums of money, and it’s safe to say that in most cases businesses are going to want those investments to pay off no matter what happens in Washington. That means new opportunities for entire supply chains and surrounding ecosystems.
Innovation: financial, technological, and otherwise
The world has changed dramatically over the last decade. Technologies like solar power can seem almost quaint in how established they have become as the cost has come down. We’re now on the verge of seeing a range of other technologies—including EVs—similarly come down in cost such that the case for a consumer buying them becomes primarily economic.
And then there are financial innovations. For years, investment professionals have been experimenting with ways to accelerate capital flows to clean technologies with new financing mechanisms and innovations in the capital stack. Many of these funds and other programs are now completing small-scale pilot phases. Applying the learnings at scale could mean a lot more opportunity to finance emissions-reducing technologies and projects.
Continued policy support
As I wrote about last week, it’s hard to discern what level of policy support for climate change will come out of Washington next year. But the truth is that much of the Biden climate policy agenda—particularly with regard to taxes and incentives—is likely to remain. That’s at least in part because companies are demanding as much.
Climate disclosure globally
With former President Donald Trump taking office again in January, the proposed Securities and Exchange Commission rule that would have made companies disclose their climate risk is now all but dead. Nonetheless, the disclosure regime is continuing globally as climate reporting requirements proceed in other jurisdictions around the globe, including Australia, India, Singapore, and the United Kingdom, to name a few. The European Union has announced especially stringent requirements that will apply to companies outside its borders if they do business in the bloc. (The rules kick in at different points for different firms over the next five years depending on factors like the size of the firm and revenue generated in Europe, but many large companies will need to begin compliance next year).
Academics have a robust debate on how much disclosure alone moves the needle on climate action. Still, information is power. In some cases, companies will find low-hanging fruit—opportunties for decarbonization with minimal cost or that even generate a return—as they engage in the disclosure work. And markets may ding companies that lag significantly behind their competitors, a dynamic that will be revealed when public companies around the globe disclose their climate information.
The persistence of extreme weather
How much do you know about your business’s exposure to extreme weather? For most employees at most companies, the answer is going to be “not much.” But as the costs stack up—and they will—companies will be forced to take a harder look at how they approach adaptation for climate change. The growing cost of insurance will also play a role in forcing their hands.
It’s hard to know exactly when any of these trends will become top concerns. And timing the market is always challenging. But, thinking over the course of the next year, opportunities—if not imperatives—remain for businesses to continue plowing ahead with efforts to address climate change.
