The Future of Corporate Climate Action “`

At year’s end, the relationship between the private sector and climate change appears less promising than it initially seems.

Over the past year, businesses have faced significant pushback from conservative activists, leading many to curtail their climate initiatives. The challenges of achieving net-zero emissions goals have also caused many companies to scale back their ambitions. Weakening consumer interest—a key driver of these efforts—further complicated matters due to widespread inflation.

Investor commitment, another crucial factor in corporate decarbonization, appears uncertain as well. Morningstar data indicates that climate funds are experiencing their first year of net outflows. The election of a U.S. president unconcerned with climate change adds to the pessimistic outlook.

Prioritizing short-term profits might seem prudent, prompting companies to temporarily sideline decarbonization efforts. However, such a strategy is shortsighted and risks hindering future competitiveness. While the private sector’s role in climate change has become more complex in 2024, decarbonization and climate resilience will remain vital for businesses and investors in the coming year.

Here are several reasons for this continued importance. While not exhaustive, this list offers grounds for optimism about future progress.

Deployed capital

The U.S. has witnessed substantial increases in clean technology investments since the 2022 Inflation Reduction Act (IRA), encompassing solar installations and electric vehicle manufacturing. Companies generally avoid cancelling projects with significant sunk costs, ensuring that these investments yield returns regardless of Washington’s actions. This creates opportunities across supply chains and related sectors.

Innovation: financial, technological, and otherwise

Technological advancements over the past decade are transformative. Mature technologies like solar power, now cost-effective, serve as a benchmark. Other technologies, including EVs, are nearing similar cost reductions, making their consumer adoption increasingly economically viable.

Financial innovations are also noteworthy. Investment professionals have developed new financing mechanisms and capital stack innovations to accelerate capital flows to clean technologies. Several funds and programs are concluding pilot phases, and scaling up these initiatives could significantly expand financing opportunities for emissions-reducing technologies and projects.

Continued policy support

Predicting the level of future climate policy support from Washington is difficult. However, much of the Biden administration’s climate agenda, especially tax and incentive policies, is likely to persist, partly due to corporate demand.

Climate disclosure globally

With the return of former President Donald Trump, proposed U.S. climate risk disclosure mandates are effectively defunct. However, global disclosure initiatives continue in various jurisdictions, including Australia, India, Singapore, and the United Kingdom. The European Union has implemented particularly stringent regulations impacting companies operating within the bloc, regardless of their origin. (Implementation timelines vary based on company size and European revenue, but many large companies will need to comply next year.)

The impact of disclosure on climate action remains a topic of academic debate. Yet, information empowers action. Companies may uncover cost-effective or even profitable decarbonization opportunities during the disclosure process. Markets may penalize companies lagging behind competitors, a dynamic that will become evident with global climate data disclosure.

The persistence of extreme weather

Assessing a business’s vulnerability to extreme weather is often overlooked. However, rising costs will necessitate a comprehensive evaluation of climate change adaptation strategies. Increasing insurance costs will further incentivize such assessments.

The precise timing of these trends’ prominence remains uncertain. While market timing is challenging, significant opportunities—if not necessities—exist for businesses to continue their climate change mitigation efforts next year.