Climate Week 2023 - The End of the Beginning

Climate Week 2023 was as frenzied as ever, with an overflow of simultaneous events challenging the logistical skills of even the savviest New Yorker. However, the mood was distinctly different than in prior years, which were characterized by a pervasive optimism toward the eventual achievement of what were, in hindsight, overly aspirational goals. This was the year when most people agreed it was time to get real – the days of lofty pronouncements, high-profile commitments, and a focus on disclosures are over. If “The Beginning” phase was goal setting, measuring and reporting, there was near universal agreement that the focus going forward needs to be on actionable solutions to generate tangible near term results. Here are my top 3 takeaways from Climate Week NYC:

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1)???? The world is not on track

-??????? The week began with most market participants acknowledging that we are unlikely to achieve either the Paris Accord 1.5C target or the Sustainable Development Goals (SDGs) by 2030.

-??????? The UN Global Compact’s Forward Faster initiative is a tacit admission of this - 85% of the 17 SDG targets are off track, and none of the SDGs are on track to be achieved by 2030. With “Forward Faster”, the UN Global Compact announced that it was sharpening its focus to 5 core “Areas of Action” – Gender Equality, Climate Action, Living Wage, Finance & Investment, and Water Resilience.

-??????? On the climate side, despite myriad initiatives, global CO2 emissions actually increased by 321 million tons in 2022, to hit an all-time high of 36.8 billion tons.[1] It seems likely that this could be exceeded once again in 2023.

-??????? Despite all of this, we need to move away from the “Armageddon” climate change narrative. Doomsday scenarios do not sell, and can counterproductively reinforce climate deniers’ claims of “fear mongering.” It can also lead to resignation and demoralization of the demographic which believes in climate change but feels increasingly powerless to do anything about it.

-??????? Solution – Take action now. Shift the emphasis away from aspirational targets that will be hard to achieve and which are extraordinarily costly to measure and report on. Prioritize achievable, tactical, technology-enabled solutions that can deliver impact now. There still needs to be a strong focus on data; however, no one can argue that the data is not available – it is abundant and needs to be utilized properly to put strategies into action.

2)???? Disclosure is neither the goal nor the solution

-??????? One of the most persistently recurring themes we heard all week was a sense of frustration with the multiple disclosure and standard-setting regimes. This alphabet soup of acronyms (SBTi, GFANZ, CSRD, TNFD, etc.) are collectively at risk of making standard adherence and regulatory disclosure so onerous as to be self-defeating. For the first time in history, business is actually asking for more regulation, and standards like those recently announced by the ISSB will be an important first step.[2] However, as science-based net zero submission requirements are made increasingly more stringent, many companies are being forced to revalidate their targets. Some companies are now pushing back – Amazon recently announced that they will look outside of SBTi to “seek to set science-based targets with other organizations and credible third party validators.”[3] If more companies follow suit, this could undermine an essential component of achieving net zero.

-??????? Solution - Don’t let perfect be the enemy of great. Spending too much time on regulatory disclosure delays the deployment of actionable solutions. If regulatory standards are too prescriptive, there will be low adoption; if they are too lenient, there will be low impact. Regulators and standard setters need to partner and cooperate with corporates so that we can land somewhere in the middle. As Jim Andrew, EVP and Chief Sustainability Officer for PepsiCo, was quoted as saying last week: “Every dollar we spend disclosing is a dollar we can’t spend doing.”[4]

3)???? We cannot divest our way to net zero

-??????? As important as it is to focus on reducing financed emissions by removing governmental subsidies of the fossil fuel industry, we also need to focus on proactively financing emissions-reducing alternative energies. Carbon capture and storage, green hydrogen, small modular nuclear reactors, methane capture, etc. are all technological innovations that will be crucial in reducing emissions in both the short and long term.

-??????? Political theatrics aside, simply divesting from the oil & gas industry is not the answer. For every seller there is a buyer, and fossil fuels will remain an unfortunately crucial source of global energy for the near term. It is far more impactful to engage with the management of large “brown” companies and make them slightly less brown, than it is to invest solely in Green Tech startups. Accelerating the energy transition of the big fossil fuel players through engagement, while simultaneously investing in emerging climate technologies, offers the best hope of achieving net zero by 2050.

-??????? Solution – A just transition is important but it is a 3-legged stool - finance needs policy and the real economy, none of these can do it alone. Policy and permitting are the main hurdles for the scalability of energy transition technologies and require rapid reform to enable the complete transformation of our aging energy infrastructure. Collaborations and innovative partnerships across sectors and with policy makers will be crucial to move the needle on climate challenges.

?Climate Week 2023 will hopefully mark "The End of the Beginning," and a move away from theory toward action and results.

[1] https://www.iea.org/news/global-co2-emissions-rose-less-than-initially-feared-in-2022-as-clean-energy-growth-offset-much-of-the-impact-of-greater-coal-and-oil-use

[2] https://www.ifrs.org/news-and-events/news/2023/06/issb-issues-ifrs-s1-ifrs-s2/

[3] https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/22-us-companies-singled-out-for-not-filing-science-based-climate-targets-76869741

[4] https://www.greenbiz.com/article/whats-top-mind-most-influential-people-climate

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