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The role of the private sector in tackling climate change has evolved over the years, with some actors enthusiastically participating and others largely ignored on the sidelines. However, the latter position is becoming increasingly unfeasible. This year, we expect the relevance of climate change, its impacts, and policies to address it to increase across the private sector.
Here are six things I’m focused on this year at the intersection of climate, business, and finance.
american elections
If you’re considering this year’s climate, whether you’re in the private sector or not, you should start with the U.S. presidential election. If Donald Trump is elected president, the United States, the world’s second-largest emitter, largest economy, and largest market, will become a significant obstacle to progress on climate policy.
For the private sector, many corporate environments and decarbonization efforts will be thrown into uncertainty. The fate of federal tax incentives aimed at promoting clean energy will be a key issue, with some Republican lawmakers already pushing for their repeal. Even if they can’t completely repeal it, with control of Congress and the White House, Republicans could limit funding or find other ways to avert the crisis. President Trump will also target a flurry of climate change regulations that the Biden administration is rushing to complete. This is easier said than done, and it is prudent to expect major litigation regarding various regulations.
So, behind the scenes, Washington’s corporate lobbyists – until recently key Republicans – are worried that a Trump victory could spell chaos. Businesses have to anticipate a lot of uncertainty, and it’s difficult to plan and invest with that uncertainty in mind. This is a major headwind given the hundreds of billions of dollars in capital investment companies have made to advance clean technology based on these tax incentives and regulations.
Interest level
Building capital-intensive clean energy projects typically relies on large amounts of capital raised through debt or equity. So last year’s high interest rates caused many project developers to reevaluate some of their growth plans. We’ll know in the coming months whether these projects will move forward or be scrapped for good. Perhaps the biggest thing that will pave the way for developments will be for central banks to lower interest rates.
Implementing an IRA
The Biden administration has defined provisions for many key provisions of the Inflation Control Act, from what hydrogen projects qualify for tax credits to what qualifies as a “foreign concern entity,” and when We are currently in the process of making final decisions. These details make a big difference in how companies invest in clean technology.
Information disclosure regarding climate change
For many years, companies keen to demonstrate their climate credentials have relied on a variety of voluntary schemes to disclose how climate change impacts their business. Companies that are less concerned about climate change disclose little information. This year brings a number of new rules to level the playing field. The European Union’s Corporate Sustainability Reporting Directive requires some large companies to start collecting and reporting climate-related data for the first time this year. (U.S. companies with significant operations in Europe are also affected). In California, regulators will begin developing new climate disclosure rules for companies operating in the state, following legislation passed last year. And perhaps most importantly, the U.S. Securities and Exchange Commission is expected to release the final version of its own climate disclosure regulations.
climate change finance
Finding funding to deploy climate technologies in emerging markets will also be a topic at international summits and global climate talks, such as this year’s G20. A key challenge is ensuring that developing countries facing high interest rates have access to affordable financing to build clean energy infrastructure. One solution that may be discussed this year is known as blended finance. This approach combines funding from governments, philanthropy and other public institutions (so-called catalytic capital) with private sector funding. Catalytic capital providers take on additional risk or experience lower returns. catalyze Sufficient private sector funding to make the project viable. Expect to hear about blended finance at the International Monetary Fund’s spring and autumn meetings in Baku, the G20 meeting and COP29.
Remaking ESG
The backlash against ESG investing from culture warriors has caused some of its biggest supporters to retreat, at least rhetorically. However, it is still a space that deserves attention. At the most basic level, some of the largest ESG funds saw lower returns in 2022 as tech stocks, which make up a significant portion of their value, fell. These low returns, especially at a time when fossil fuel stocks were booming, led some to question the sector. But tech stocks are rising again, and ESG funds are benefiting. At the same time, the very meaning of ESG is being narrowed by debates over climate change and more specific regulatory rules on ESG labels (see his ESG guidelines from France).
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