Why 2023 will be the year of the climate culture wars

Scott Tew has been going to the United Nations global climate summits for more than a decade, but he noticed something different the last few years, especially in Egypt last month at the Cop27 summit.

The crowd had been overtaken by business people. Not just CEOs of renewable energy firms, but investors, venture capitalists, investment bankers. And oil executives. Lots of oil executives. More than 600 in fact.

“We’ve not really seen this before,” said Tew, head of sustainability at Trane Technologies, an Irish-domiciled maker of industrial heating and cooling systems. “Most of them were there trying to show solutions in the market that are working.”

The nascent world of climate finance is moving from one of pledges, promises and greenwashing to one of actual investments, products, and dealmaking, with 2023 a pivotal year. It’s also moving into a high profile place in America’s culture wars, with both left and right using global warming as a battleground for political point scoring ahead of 2024’s presidential election.

The major stories in 2023 will almost all be tied to how businesses react to increased investor and political attention, from both sides of the climate spectrum. There are six in particular to pay attention to.

Anti-ESG backlash will grow in culture wars

With Republicans taking control of the House of Representatives in the US, and therefore control of committee hearings, Washington is already gearing up for a new wave of attacks on “woke” investing and Wall Street, in particular companies with environmental, social and governance (ESG) strategies.

While the attacks are misinformed about using climate risk to invest, and misguided in that the issue is not resonating with voters, who are beginning to understand climate risk and opportunity better, it is a red-meat issue for the party as it looks for a leader ahead of the 2024 presidential election.

Several Wall Street executives, starting with BlackRock’s Larry Fink, will soon be hauled up to Capitol Hill to testify in front of Republican-led House committees, as the issue is far more about culture wars than climate finance and investing.

While the number of red states who have withdrawn funds from or otherwise penalised pension managers such as BlackRock and JP Morgan Chase is still small, it is increasing. And Wall Street is taking notice. Already several big firms have pulled back on their net zero pledges and membership in decarbonisation alliances, with the latest being Vanguard two weeks ago.

Scope 3 emissions will be included in new SEC rules

Nowhere does the political furore over ESG have a more harmful potential impact than on the US Securities and Exchange Commission’s (SEC) proposed new rules on mandatory climate reporting for public companies. The climate finance world is eagerly waiting to see if SEC Chairman Gary Gensler includes indirect emissions — so-called Scope 3 reporting — in the rules.

Scope 3 emissions, which are the pollution generated by a company’s suppliers and vendors, can often make up the vast majority of a large company’s carbon output. But they are also the hardest to measure and report on, and critics of including them in any new rules say they will distort financial reports and hurt investors.

The SEC has already put off announcing the rules after an unprecedented period that saw the agency swamped with comments from both sides of the argument. Publication of the new rules, if they include Scope 3, will be sure to draw a firestorm of litigation, which could threaten the entire program.

Several countries have already mandated climate reporting, especially in Europe, and many large US companies are already doing it, and realising the benefits through lower borrowing rates from lenders because of their commitment.

If the US government is defeated in its efforts to mandate climate reporting, it would be a serious blow to President Biden’s climate agenda, and indeed, his legacy. From what I hear from Washington, Gensler is set to include Scope 3 in the final version of the rules, which will likely come in the first quarter.

Although I expect it will be watered down to some extent to just the largest public companies, such a move would be a line in the sand that would return the US to the global climate leadership table.

Renewables race to attract new investors

Despite the shaky financial markets, wind and solar energy continued to make major inroads in the US energy mix in 2022, and that is set to continue next year.

The Biden administration has begun selling offshore wind leases on both the East and West coasts, and solar energy has boomed in places such as California, Texas and Florida.

Sales of electric vehicles in the US, which were at about 2 per cent of all vehicles sold in the third quarter of 2021, rose to more than 6 per cent in the third quarter of 2022 and are quickly reaching a pivot point that BloombergNEF estimates will bring them to more than 50 per cent by 2030. Even with a recession or two.

The biggest story of the past 12 months has been the number of carbon storage and removal companies that have tapped venture capital to finance their experiments. More than 300 companies at last count.

I expect that to continue as companies begin to move from net zero pledges to actually removing carbon from their emissions. I also expect to see more revolutionary breakthroughs in battery storage, electric vehicles and even nuclear energy in 2023.

The announcement this month that its Lawrence Livermore National Laboratory has successfully created new energy through nuclear fusion (as opposed to the traditional fission) is set to kick off a major new round of funding for the three dozen or so fission research companies currently testing their technologies.

None of these companies are public as none of their products or developmental strategies are proven yet, although some of the largest oil companies, such as Chevron, have dabbled in fusion investments. Which brings us to our next theme for 2023.

Oil companies will start buying renewables firms

Flush with cash from oil prices tied to the Ukraine invasion by Russia earlier this year, the world’s largest oil companies are increasingly looking to buy renewable energy companies as a hedge against the renewable transition.

With Biden and other governments increasingly considering, or indeed slapping windfall profit taxes on the big energy companies, it makes business sense for these industrial giants to continue to increase their renewable energy mix. Oil companies have invested in renewable energy projects for decades, but more often than not as a feint toward the transition while continuing to pump oil from the ground.

There has never been a better time, or better value, in securing renewable energy assets, for all of the reasons written above. And while some renewable energy companies and hybrids have seen their stocks perform well this year, once the market begins to recover, we expect them to lead the way. So the time to buy, from an oil company’s perspective, is now. Or at least, 2023.

“The ones who are going to win are the ones who have feet in both worlds,” said Tew. “And are using money from fossil fuels to move into renewables.”

Green Marshall Plan takes shape for Ukraine

While nobody, at this point, thinks the war in Ukraine is going to end anytime soon, there are already international plans taking shape to rebuild the nation in a green format, with renewable energy at its core.

Some 70 members of European Parliaments in places such as Germany, the UK and Brussels put their names to a plan last month to commit about €750bn (£665bn) to rebuilding Ukraine’s infrastructure in a “Green Marshall Plan” once the time is right. In many cases, entire industries will need to be rebuilt, such as the country’s steel industry. In the Green Marshall Plan, new steel plants will be built with renewable steel-making capacities.

Ukraine is also rich in iron ore, which makes it a prime candidate to benefit from, and help fuel, the boom in battery storage and the minerals that go with it. The government officials expect Europe’s energy shift from Russia’s oil to renewable energy to be in many ways led by a massive effort to rebuild Ukraine from scratch in this format.

The idea of a Green Marshall Plan is set to catalyse Europe in 2023 and will certainly become a bigger story, but only if the trends in the war keep moving against Russia.

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Biodiversity rises as all eyes shift to the Amazon basin

The UN annual summit for biodiversity, this year known as Cop15, in Montreal, always pales in comparison to the bigger climate change summit of the same name, Cop27 this year in Egypt. But biodiversity is set to become a much larger climate story in 2023.

The major reason is that the world’s focus will return to the Amazon basin next year, with new Brazilian leader Luiz Inacio Lula da Silva. After years of neglect and deforestation under Jair Bolsonaro, which led many environmentalists to believe the world’s largest carbon sink (because of its trees) had reached a point of no return in its destruction, Lula’s first year after being elected in November will be regarded as a pivotal point in the attempt by climate activists to save the planet.

“It could prove to be the most consequential election in my lifetime, if not generations,” said Andrew Dudley, CEO of Earth Live, an independent media network featuring interviews with people on the front lines of conservation battles around the world. “If he can reverse the damage to the Amazon.”

Scientists estimate that more than a third of plants and animal species could be wiped out because of climate change in the next 50 years. As the so-called nature movement seeks to grow to protect animal and plant life, along with investments in industries such as forestation, the concept of biodiversity will be more closely tied with other aspects of fighting global warming going forward.

As companies such as Spain’s Iberdrola or Belgium’s Solvay have led the way so far in committing to biodiversity programs, others are increasingly moving forward with nature-based commitments, according to a report in September by McKinsey. While more than 80 per cent of Fortune 500 companies in the US have some sort of climate target, only about 5 per cent now have set targets on biodiversity.

I expect that to change as companies increasingly adopt nature-based solutions into their climate plans along with decarbonisation.

David Callaway is founder and editor of Callaway Climate Insights and former editor of USA Today.