Last year, the emissions gap widened, the Inflation Reduction Act passed, and average carbon credit prices rose by 53%. Imagine what you would have done differently if you’d known last January those facts would be true by year’s end.
The corporate climate action space is complex, but it’s not beyond forecasting — especially when you collect diverse opinions from experts who have both broad and deep knowledge of the climate, the technology, and the economic factors that will drive the pivotal events that are sure to occur in 2023.
We collected eight leaders’ perspectives on the trends that will define the year ahead so all of us can take more effective action to rebalance the planet. Specifically, we asked what trends they saw continuing that either excited or concerned them, and what companies should prioritize in the coming months as well.
Our expert panel:
New technologies show potential, but business must act to enable change
Emma Gibbs, Partner, McKinsey & Company
I am excited about the potential of Carbon Dioxide Removal (CDR) technologies. In April, the UN Intergovernmental Panel on Climate Change (IPCC) called CDR “unavoidable” and “a necessary element” to reach net-zero or even to limit warming to 1.5 degrees. It estimated that limiting warming to 1.5°C would need somewhere between 4 and 10 billion tonnes a year in CDR by 2050. On that scale, CDR will be a major industry, with strong potential for value creation and growth. Some are forecasting a $1 trillion market for CDRs in 2050. There is increasing private sector investment and demand from buyers, as well as growing government support.
All of this is encouraging but should not be oversold; CDR is still at an early stage. The world’s first truly large-scale DAC plant—meaning with a capacity of at least one million tonnes a year—is only scheduled to go operational in the mid-2020s. Illustratively, meeting the IPCC’s CDR target would mean building at least four such plants per week between now and 2050, each one requiring hundreds of millions of dollars of capital and thousands of engineering hours. There is a lot to do in a very short space of time. The foundational challenge remains reaching viable technologies that operate reliably at scale, trend towards lower-unit costs, and can be measured, verified, and traded with sufficient fidelity as to build market trust.
The interest in new technologies such as CDR reflect an expected shift in corporate carbon credit portfolios. At present, avoidance credits dominate the Voluntary Carbon Market (VCM), which will need to be complemented with high-quality and high-durability carbon removals.
With all this in mind, business leaders can look at their carbon strategy in 2023 and ask themselves the following questions:
- What commitments have you made, or should you consider making, to decarbonise and reach net zero?
- What is your strategy for reducing your emissions and what residual emissions do you expect?
- What does that mean for the volume of CDR credits you will need?
- How will you secure your supply of those CDR credits and at what price?
- Finally, what role will you play now to ensure that the supply you need is there at a price you can afford when you need it? Is 2023 the year to send a demand signal to give entrepreneurs the confidence to start building, to give investors the confidence to start lending, and to signal to both that they should do so with urgency?
Net zero is too linear. We need parallel tracks to avoid climate catastrophe
Stacy Kauk, Head of Sustainability, Shopify
There is no path to avoiding catastrophic climate change that isn’t founded on radically reducing carbon emissions. You’ll find roughly zero people in the carbon removal world who feel otherwise. The path to scaling carbon removal, however, needs to run alongside carbon reductions. Not a next step, but a parallel step.
I’d like to see more business leaders get involved by paying for carbon removal. More buyers means more money, and more money now means more supply later when we need it. That will lead to lower costs and, above all, lower temperatures.
While buying carbon removal can be complex, it’s eminently doable.
One concerning trend is the continued emphasis on “net-zero commitments.” The issue with net-zero commitments is that they are linear: measure, plan, get plan reviewed, reduce emissions, and then buy credits to cover the rest starting at the commitment date (say, 2030).
We need to do everything now: deep emissions reductions and investment in carbon removal so we can get the technologies we need available at meaningful scale down the road.
A net-zero commitment is a plan to reduce emissions and remove the rest by a certain date. We won't see any impact until years from now, we can’t afford to delay action.
More guidance on “green claims” will enable more businesses to take meaningful action
Namrata Sandhu, CEO and Founder, Vaayu
Over the past 12 months, we saw extensive and complex legislation roll in on the environmental claims that brands and companies can make. Updated EU-level guidance put retailers under greater scrutiny, and the consumer authorities of the Netherlands and Norway jointly released a new guidance document concerning environmental claims within the fashion industry. From recommendations for improving data quality to clarifications on how to relay life-cycle data to consumers, these moves are intended to ensure businesses offer real clarity when communicating about their sustainability.
In 2023, we expect the spotlight on “green claims”—the environmental claims about aspects of a business’s goods and services and how environmental they are or can be—to be even brighter. But the prospect of more specific guidance shouldn’t be a concern. The addition of useful information will help retailers better navigate the evolving terrain of “green claims,” and at Vaayu, we’ll be keeping on top of the changes to ensure our brand partners are protected, informed, and able to adapt as new requirements emerge.
Over this next year, it’s crucial that we see businesses prioritize decarbonization. To do this, they need to truly understand their carbon impact—you can’t cut what you can’t measure. By investing in climate technology solutions, businesses can gain a more accurate picture of their supply chain and operations, identify emission hotspots, and most importantly, make tangible carbon reduction measures across their business at scale.
With new legislation on the horizon and mounting pressure from consumers and wider stakeholders, businesses who invest in carbon reduction methods now will benefit in 2023 and beyond.
Avoidance and removal technologies should be equally prioritized
Elizabeth Aldrich, Vice President of Business Development, Anew Climate
Our analysis has shown total retirement volumes from 2021 and 2022 exceeded the total retirement volume of the previous four years across the major carbon registries, including CAR, ACR, Verra, and Gold Standard. We are thrilled that over the last two years the voluntary market has grown substantially both in volume of issuances and retirements in response to more aggressive corporate goal setting.
As carbon credit prices rise, we know this can be challenging for corporate budget setting, but it has encouraged exactly the kind of behavior change the world needs to see: more and more projects reducing emissions in lieu of their traditional revenue drivers and capital flowing to support these efforts. This creates a motion where buyers and carbon credit developers are working together towards shared climate action goals.
One concerning trend is that some carbon credit buyers seeking net-zero status are choosing to only purchase a subset of offsets known as removals. Removal credits are generated from projects that pull carbon dioxide out of the atmosphere. Many of Anew’s projects produce registry-approved removals, but they are merely one important piece of the solution. An exclusive focus on removals ignores opportunities for avoiding emissions from industrial processes, landfills, using more efficient cookstoves, or preventing aggressive harvesting of timber, even when those avoidances are cost-effective and just as impactful for the climate. Until every sector is regulated, reduction activities should be incentivized as much as removals.
Business leaders should recognise themselves as global citizens
Mark Kenber, Executive Director, Voluntary Carbon Markets Integrity Initiative
Another year has passed, and we as humans still don’t grasp the gravity of the situation we’re in. If we truly want to reach a net-zero world, transformative change is needed.
There are developments to get excited about. New technologies, including AI and web3, enhance our understanding of emissions and their impacts, enabling us to target interventions more effectively.
In the policy sphere, the proliferation of carbon pricing mechanisms around the world is also cause for hope. Countries like Indonesia, Colombia, Chile are looking to carbon taxes, emissions trading schemes and offsetting programmes to accelerate emissions reductions and meet their national commitments.
But this enthusiasm for carbon markets also means the stakes are even higher when it comes to integrity. We need to ensure claims made about the use of carbon credits and other instruments are robust, measurable, trustworthy and genuinely contribute to mitigating climate change. In the year ahead, VCMI will launch our Claims Code of Practice to help clarify the role high-integrity carbon credits will play in meeting global climate targets and deliver practical guidance to businesses around the world. Clearing away uncertainty should, in turn, drive more investment into the projects that are currently starved of finance.
Of course, offsetting residual emissions is only one part of the puzzle. Real progress will be shown by those companies that decarbonise as much as possible and then invest beyond their own value chains. Climate targets should be seen as a minimum bar, not a limit on actions.
Companies also need to look beyond carbon accounting toward impactful actions that may not be accountable, like inviting previously unheard voices into their AGMs, ensuring staff are “climate literate”, protecting natural environments without counting the carbon and sponsoring climate champions in local communities. In this way, businesses should view climate action from the perspective of global citizens working on this together.
There are a few key technologies with the potential to rapidly reduce, avoid or remove emissions – such as direct air capture or enhanced weathering – and no one company can bring them to market at the speed and scale required by science. Opportunities open up for companies that pool funding and explore pre-competitive collaboration.
Applying systems thinking while aspiring to go beyond corporate targets and walls will bring greater value to us all. Seeing this in practice at scale would probably be my greatest cause for optimism.
Corporates should leverage avoidance credits as a “here and now” part of the solution
Cindy McLaughlin, Head of Product, CarbonBuilt
Thanks to leaders like McKinsey, Shopify, and Frontier, there has been a sea-change in how people understand and fund high quality carbon removals like those created by CarbonBuilt's CO2 concrete curing technology.
We now need to make sure that industrial avoidance -- reducing the CO2 put into the air in the first place -- is equally valued and incentivized as a “here now” strategy to offset the capex associated with industrial retrofits.
This is especially true for hard-to-decarbonize industries like cement, which—if it were a country—would be the 3rd largest emitter. Ultimately, for every tonne of carbon avoided, you both eliminate the harm that tonne would have done to the planet and prevent the need to remove it later. Win-win.
Avoidance credits remain grossly undervalued compared to removals AND relative to the social cost of carbon. Corporations should start to place a meaningful value on very high-quality industrial avoidance credits, as it will accelerate the adoption of decarbonization technologies like CarbonBuilt’s, and the subsequent climate benefit.
Additionally, every company should buy high-quality removals regardless of industry or emissions profile. To use a World Cup analogy, we need more “shots on goal” to develop scalable technologies, and broad corporate support can be a catalyst. Imagine if every company bought even 10 tons of removal credits. The impact would be transformative.
Climate action built directly into products and services is the competitive advantage
Will Rocklin, Head of Product, Safara
We’re transitioning from an environment of voluntary climate action to a potential landscape where policy will require companies to take action. A good example is the Inflation Reduction Act that passed in August, with the intention of lowering greenhouse gas emissions 40% below 2005 levels by 2030. This bill fuels what the U.S. is good at—investing in new technologies so companies can change outcomes and create wealth. I am, however, disappointed that this bill is controversial. Policy that invests in climate change is about avoiding ecological collapse to maintain our way of life. (Kinda important, right?)
From a purely capitalistic point of view, this is a tremendously ROI-positive bill. On average it will cost taxpayers $37 billion a year over 10 years. That sounds like a lot, but it's only 2.3% of this year's discretionary budget and represents 0.16% of US GDP. In other words, we can keep the world as it is by paying in couch cushion change. With prices so low, why wouldn't we do this?
It's never been easier to make your product or service eco-friendly, and it isn’t just a moral imperative that you do so (although it is that.) It's another value proposition for your product. It's a competitive advantage. And it's what your customers want. (Not just Democratic-leaning customers. 69% of Republicans under age 34 "Personally worry about the environment a great deal or a fair amount" according to Gallup.)
Making your offering eco-friendly can be cost-effective. Safara is leveraging the Patch API to power our hotel booking service. We pay the cost to offset the emissions of our customers' hotel stays rather than passing it onto the consumer for the reasons above. We are a seed-stage startup. If we can do it, what's your excuse?
Greenhushing could paralyze climate action. Here’s the path forward
Brennan Spellacy, CEO & Co-Founder, Patch
This year we began to hear about a concept called “greenhushing.” It’s a predictable reaction to greenwashing accusations in which companies hold off publicizing their climate action for fear of being criticized—either for making mistakes or not going far enough. Greenhushing is another example of the fallout from a lack of clear and cohesive standards for how companies should go about setting and executing on their sustainability goals. The corporate climate action journey is complex enough without having to tiptoe around greenwashing landmines—real or perceived.
My fear is that this trend grows beyond “hiding climate action” to not taking action at all. I saw signs of this sort of inertia in my conversations at COP27 last month. Companies are waiting to fully engage on climate because the guidelines are constantly changing.
In 2023, we have to put an end to uncertainty inertia. Three fundamental shifts in the way we approach corporate climate action can help us get there:
- Embrace iteration: This is a playbook the climate community can adopt from tech: iteration is key. When developing software, you would never sit on your product for years, waiting for it to be perfect before releasing. Instead, you release a product in phases. It gives you opportunities you wouldn’t have otherwise, like learning from users, fixing bugs, and ultimately building a much better product over time. We don’t have time to wait for perfection when it comes to climate change. Fear of imperfection and the criticism that comes along with it is stifling innovation. In the year ahead, we all need to shine a positive spotlight on those who are choosing an iterative approach and making progress—at least as much as we shine spotlights when companies fall short.
- Demand transparency: This paradigm shift away from perfection and towards iteration opens the door for greater transparency across the ecosystem. Companies should feel empowered to be more upfront about their climate goals, how they plan to achieve those goals, and what’s working well and what’s not. Policies in the US (and more imminently in Europe) will call for much more public clarity on how companies’ claims are backed up by their actions. Beyond a regulatory point of view, more openness will help us all reach our objectives faster. We’ve consistently seen in business and technology that transparency enables accessibility.
- Add zeroes: We’re still not even close to the right order of magnitude when it comes to annual investment on climate. When you only consider the transition to clean energy, we invested $755 billion in 2021 — that number needs to triple by 2025 in order to have a chance at hitting our climate goals according to a study from BloombergNEF. Carbon removal investments need to keep pace. When all is said and done, a livable future will be built on thousands of solutions. That’s because only hundreds of them will work and only tens will scale. At a moment when rapid innovation and uptake is needed, now is not the time to give up on the potential of as-yet unproven solutions.
Editor's note: The views expressed above are those of external experts and do not necessarily reflect the opinions of Patch.