A Look Back at 2023: The Good and The Bad
Everything you need to know about the key climate transition trends
The good…
1) Net zero is mainstream. Net zero refers to cutting greenhouse gas emissions (GHG) as close to zero as possible and offsetting any remaining, unavoidable emissions.
a. The number of companies committed to net zero targets is increasing. According to Net Zero Tracker 929 companies within the Forbes 2000 list have net zero targets.
b. Net zero is mainstream among countries; according to the United Nations over 140 countries have national net zero targets. This list includes the largest polluters – China, the United States, the European Union, and India – covering 88% of global emissions.
2) Climate reporting is fast becoming mandatory in key geographies and jurisdictions such as the EU, UK, and the US. About a dozen countries have already adopted these measures with many more putting them in-place. While earlier frameworks like Science Based Targets Initiatives (SBTi) and Task Force on Climate-Related Financial Disclosures (TFCD) focused centrally on climate, newer guidelines have an expanded scope to include aspects tied to nature and biodiversity.
3) The technology innovation landscape has never been more exciting, with participation from small-, medium-, and large-scale companies. From the more mainstream renewable energy technologies to virtual power plants (VPPs), to new types of carbon capture solutions and hydrogen, the list is long. According to PwC, despite a drop, the venture and private equity investment reached $638 billion in 2023.
4) You no longer need to be a climate specialist (if there is such a thing) to have a job in this industry. Virtually every role within an organization that has climate goals can influence these outcomes. Be it in product management, supply chain, purchasing, operations, customer service, marketing, or finance, every role can play a crucial role in driving outcomes for the overall organization.
5) Circular business models pave the way for climate adaptation and to preserve biodiversity. Even as organizations contend with reducing their emissions, circular business models and approaches have gained steam. According to a report from BDO LLP, businesses in this sector saw an investment of over $1 billion in disclosed capital, in 2022 with a special focus on material recovery from waste. Reduced resource extraction preserves biodiversity. There is also evidence that investing in circular business models boosts climate adaptation. Employing regenerative agricultural methods reduces carbon, methane, supports adaptation and builds resilience.
The bad…
1) Climate adaptation is yet to take center stage. Frequent droughts and floods, combined with excessively hot summers and winters has increasingly exacerbated food shortage directly impacting human health, globally. According to the World Economic Forum, two-thirds of global adaptation finance is allocated to developing countries and nearly all funding comes from the public sector.
2) There is no real oversight or policing of “how” companies meet their specific goals. Aside from the fact that getting through an ESG report will require both determination and stamina, regulators around the world recognize the need to control and weed out greenwashing. Although the Greenhouse Gas Protocol and ISO 14064 provide guidelines to corporations to measure and assess their emissions, corporations must still rely on incomplete or insufficient data across jurisdictions and their supply chains. The EU’s Green Claims Directive and the US Federal Trade Commission (FTC) have implemented new regulations to address such misleading claims.
3) There is an over reliance on carbon offsets, and this is beyond troubling. Estimates show that nearly two-thirds of the world’s biggest companies with net zero targets use carbon offsets. Carbon offsets are mechanisms that achieve emission savings for the buyer of these credits. These typically include projects that support renewable energy projects or the protection of forest land (where you’re paying someone to not do something), in a different part of the world (typically in SE Asia). In practice, due to several reasons including a lack of oversight, many of these projects have failed to deliver.
4) There is not enough trained workforce to strategize and deploy. Staggering levels of commitment need sizable levels of investment in workforce training and development. Whether that is deploying solar PV installations, offshore wind turbine projects, or energy efficiency measures, there is a woeful lack of a trained and skilled workforce within the communities where these projects are deployed. A report by the Boston Consulting Group projects a 7 million green skills gap by 2030. In many cases, organizations’ net zero and carbon neutral goals far exceed in-house capabilities with less-than-adequate teams. While large Fortune 500 companies can afford massive teams; small- and mid-sized companies are feeling the squeeze. Between keeping track of and influencing policy changes, additive requirements in reporting standards, data gathering & analysis, reporting, marketing, and overall governance of these efforts, these companies are feeling stressed.
5) Historically overlooked and marginalized communities are still an afterthought. While the government and public sector financing is centrally focused on channeling dollars to ensure an equitable and just transition, these efforts alone will be insufficient. There is also serious stakeholder fatigue among environmental justice advocates who are pulled in to engage with organizations on essentially the same set of issues. As decarbonization efforts go into over drive, community-facing environmental justice groups don’t have the capacity to devote a lot of resources to regulatory and adjudicatory proceedings.