2022 saw meaningful progress in the ongoing battle against the climate crisis. Legislative and budget packages aligned to—seemingly—tip the economic scales in favor of long-haul decarbonization. I’m cautiously optimistic that there’s sufficient momentum to maintain progress toward a climate-positive future, but simultaneously eager to see if, in 2023, we can collectively navigate the known and new obstacles and deliver on 2022’s groundwork.
Global regulatory landscape
Thanks to new-found unification and clarity in the world of ESG, 2022 was an inflection point for global climate regulation. Europe led the ESG ambition charge across a set of adopted disclosure rules. They seek to define sustainability more clearly so consumers, investors, and markets can assess products and services and the long-term value of the businesses that create them.
2022 witnessed significant consolidation across the alphabet soup of ESG disclosure frameworks. Several jurisdictions codified the Taskforce on Climate-related Financial Disclosures (TCFD) into law, and there was a transformative consolidation and coordination in the newly formed International Sustainability Standards Board (ISSB) and its international and interoperable climate and sustainability frameworks.
Here are the major global regulations that trickled across geographies in 2022:
- European leadership in climate and ESG across the Green Taxonomy, CSRD, and SFDR
- Disclosure laws across dozens of jurisdictions anchored on the TCFD for large corporations and financial institutions
- U.S. spending packages and bills:
– Requirement for federal suppliers to measure emissions and set SBTs
– Spending packages across the Inflation Reduction Act (IRA), including low-carbon infrastructure and e-mobility
– Federal funding for carbon dioxide removal
– Plus, the SEC rules (though stalled)
- International Sustainability Standards Board (ISSB) drafts. The ISSB has released two draft disclosures—one on sustainability, the other on climate—meant to harmonize the international ESG disclosure landscape, essentially consolidating leading frameworks like the TCFD, SASB, and GRI. Why? Because our economy does not have borders—it’s globalized.
2023 will be critical to see how companies react and if we can achieve the consistency, interoperability, and progress these policies and frameworks seek to provide.
That brings me to the next point: All those federal dollars will lay the groundwork for a 10x investment in private capital and innovation.
Innovation, technology, and funding
A significant portion of the Inflation Reduction Act’s (IRA) $369 billion—$60 billion to be exact, plus $3.7 billion to kickstart the carbon dioxide removal industry—will go toward the manufacture of clean tech on American soil. That’s a precursor for private investment in the climate tech space. When you layer in the regulatory landscape, we’ve got ideal conditions for a climate tech and sustainability tech boom.
The IRA signals that a decarbonized economy is critical to domestic production in the United States. That’s something that’s been an enormous challenge—drawing a connection between economic viability and the climate fight. So if we can tie economic growth and jobs and bring manufacturing back to the U.S. in service of reduced emissions, we’re in for an exciting era. That said, and this isn’t even a bold prediction, in the next five years, renewables will overtake coal to become the predominant source of electricity.
So with regulatory forces and investment in place, the markets follow, which means…
Greenwashing has met its match
If you asked the average person in 2021 about greenwashing, you might have been on the receiving end of a blank stare. That changed in 2022. People across industries are now greenwashing-literate. Again, regulation has and will serve to level the playing field and stop bad actors (greenwashers), but so will the market. And that means the death knell for greenwashing.
In February 2022, Morningstar reclassified 1,200 funds, citing they no longer deserved the ESG label. There was a new narrative of companies and funds reevaluating themselves or getting reevaluated by regulators. They started to ask, “Is what you’re doing really sustainable?”
When whole financial systems have gotten privy to it, we know greenwashing is on its way out. That means businesses must now anchor their climate goals and stated progress to actual, measurable data.
So it follows that even if you’re not a publicly traded company, you have stakeholders, investors, and customers to answer to. That means…
Climate strategy is corporate strategy
With climate regulations helping to govern large companies and the inclusion of supply chain disclosures like scope 3 emissions, climate strategy is now synonymous with corporate strategy. Higher standards will trickle down to smaller companies in every value chain, which will socialize and create the structure for climate strategy at nearly every level.
While smaller companies are spared from the more onerous disclosures, they still get brought into the fold through pressure from their largest customers, making climate and ESG a critical business strategy and function. Soon, every business will place equal importance on their climate impact as they do their financials.
The climate problem is undoubtedly an economic and financial issue. In 2023—and beyond—this is a movement we’re bullish on. But to fully realize the impact of climate and ESG on business, tech has to play a big role.
Climate tech, scale, and getting the data right
The climate field is growing at a breakneck pace to meet corporate demand. Soon—and to some degree, this is already happening—every company will have to take action, whether bringing on an in-house role to manage carbon accounting or training existing employees to become emissions-literate.
We’ve seen the finance and accounting world, operational experts, and supply chain and logistics professionals look to understand the material impacts of their departments on the business and the impact their business has on their carbon footprint.
That’s where there’s an opportunity to onboard digital tools to get the climate and emissions data right—so they can make business decisions with the environment in mind.
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Until recently, we’d see manual surveys go to suppliers to understand scope 3 emissions—nothing was digitized, and most data was unstructured. Now there’s this huge opportunity for tools to make sense of the data. It’s all about providing a solution to the climate problem at scale.
Companies have to understand their emissions data to be able to make meaningful change. That’s what’s happening primarily in Europe—the EU Taxonomy is coming into effect for financial reporting as early as next year. So large companies have to understand their metrics and activities through their entire supply chain because they depend on so many other companies and their actions to create a product.
2023 and beyond
We’re cautiously optimistic about the culmination of all these things that will make 2023 a banner year in the world of sustainability and ESG. The question, of course, is whether will it be enough to keep the 1.5°C warming scenario alive.
We’ll leave that question to the IPCC experts, but let’s acknowledge the obstacles:
- Unfair politicization – ESG is often a victim and a weapon wielded by right-wing leaders and pundits. The issue constantly gets dragged into the dysfunctional circus of U.S. politics.
- Energy crisis – We can’t talk about globalized action without acknowledging the geopolitical context of Russia’s invasion of Ukraine and the subsequent energy crisis. While some countries have doubled down on renewable infrastructure investment to achieve energy independence, many have opened domestic oil and gas reserves to provide affordable energy in the short term.
- International cooperation across economies – Two of the world’s highest emitting countries—China and India—continue to increase annual emissions as their economies develop. International agreements and finance packages between developed and developing economies are critical to improving the quality of life and fostering decarbonized economies.
Despite these challenges, we look ahead with high hopes for the progress 2023 will bring:
- Consistency, comparability, and interoperability of global regulations governing ESG, with clarity for corporations on how to act sustainably.
- A boom cycle in climate tech funding and innovation.
- The death of greenwashing as regulation and market pressures enforce integrity.
- Expansion of carbon literacy as more companies rely on emissions data to inform change throughout their operations and value chain.
We can’t wait to see where we are in 12 months!