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The Year of Living Realistically
Ten Predictions for the New Year
Call me optimistic but — fingers crossed – when it comes to private sector environmental initiatives, I think 2022 will be a year of 1) less talk, more action; and 2) less emphasis on reducing harm, more on preservation and restoration.
So to start off the new year, here’s a brief list of things I’m hoping, and expecting, to see in 2022.
1. Be Here Now.
I’m for more short-term thinking.
Critics often lament that business leaders err by not taking long-term views. We’re regularly told that companies worry too much about the next few quarters and neglect the longer term.
(I’ve mostly resisted this argument because there are so many contrary examples. For example, EV players like Rivian and Tesla make huge bets on the long-term and the market rewards them with sky high valuations).
But when many companies are falling over one another in a rush to make net-zero commitments as far out as 2040 or 2050, I say to all CEOs: Please, bring on the short-term thinking. We need it.
For example, tell us your plans for the next one to three years.
Disclose your ghg emissions
What immediate steps will you take to reduce them? How?
What obstacles block progress?
Have you prepared a marginal ghg abatement cost curve?
How expensive are your opportunities to reduce emissions? Will they put you at a competitive disadvantage?
Will you ask customers to pay more for decarbonized products?
What specific public policies would support your decarbonization opportunities?
How will you collaborate with the various players in your supply chain to reduce respective Scope 1, 2, or 3 emissions?
How will you use offsets? What offsets have you purchased and at what price?
How does your offset purchase price compare to your cost of reducing emissions?
How will you address biodiversity challenges?
And so on.
If business leaders focus more on these nuts and bolts issues and disclose more about them, progress will accelerate.
2. Something in the Way She (Re)Moves Me
There has been a lot of useful debate about when, how, and even if carbon offsets should be used by companies seeking to reach net zero.
I’ve been clear about my views — I'm pro carbon removal.
Meanwhile, climate-pledging companies are learning that it is difficult and expensive to reduce emissions quickly. As they fall behind schedule to reach net zero, expect to see them increasingly turn to offsets.
I expect these companies will strongly prefer removal projects versus ones that avoid emissions (see Microsoft’s offset purchases). That's because only the former aligns with net-zero goals.
I also expect that because so much of the decarbonization challenge for companies connect to Scope 3 emissions in their supply chains, we will see keen interest in so-called “insetting.” And – here’s a place where environmental organizations can help – offset buyers will place more emphasis on co-benefits/side effects, such as biodiversity or community outcomes. (Updated Greenhouse Gas Protocol guidance will help).
3. I’ll Have What She’s Having
Financial institutions won’t be far behind companies in seeking offsets. Investment firms have been making pledges to decarbonize their funds. Banks are doing the same with their lending programs. If I'm right that decarbonization will be slow-going for most companies, it will be difficult for capital providers to decarbonize any faster. After all, if investors hold broad and diverse portfolios, how exactly can they decarbonize faster than the economy as a whole? What will they do? Buy offsets.
4. Where’s Waldo?
Where will the supply of high-quality nature-based removals come from? Demand will likely soar (see 2 and 3 above). Supply can’t ramp up quickly. Expect prices to rise sharply. That's not necessarily bad – higher prices should incentivize more supply and also make emission reductions relatively less expensive.
New private sector players are already responding to these signals and jumping into the carbon offset market. Many of these new entrants aim to broker, verify, or finance carbon projects. All good. But what we really need are more players originating carbon removal projects.
This opportunity strikes me as a great place for private-sector collaboration with NGOs. Each player brings different capabilities: NGOs (science, boots-on-the-ground, biodiversity expertise); companies: (speed, capital, technology).
5. Why Can’t We Be Friends?
Many enviros (not all) have long campaigned against businesses with big environmental footprints. This has had positive outcomes. Campaigning against businesses has raised the pressure on all companies to improve environmental outcomes. And truly bad actors have been called out. But overall, such attacks have been overdone in my view.
I expect more collaboration between environmentalists and companies with big footprints and less positive environmental reputations. Some of these companies are launching ambitious climate projects. See Rio Tinto’s pivot toward clean energy with the acquisition of Argentina’s Rincon lithium project. See Bayer’s programs to scale soil-based carbon removal and digitally-enhanced farming – both promising ways to address agricultural emissions. See Shell's efforts to reduce the emissions of its customers (a whopping 85% of its Scope 3 emissions). The list goes on. Cooperation between these companies and environmentalists is not always easy, but offers important ways to make progress. Further, collaborating on specific matters doesn't mean enviros have to agree with everything these companies are doing. But imagine the potential gains, for example, if environmental organizations and these companies lobbied together for the climate policies that would bolster these specific initiatives.
6. Revenge of the Nerds
We’ve seen how technological innovations can speed up climate progress (see solar, storage, EVs). I’m now hearing every day from entrepreneurs in the crypto, blockchain, NFT/DAO, and AI sectors who want to do more on the climate front. My response: “Welcome aboard.”
These folks see opportunities to: improve the fast-growing carbon offset market; use AI to modernize NGO fund-raising; put robots on farms to reduce pesticide usage; make direct air capture cost-effective; and much more. I think these are all promising bets.
I’m always in favor of ambitious people with goodwill from any sector joining the environmental field. We need new ideas, strategies, and technologies. I remember when people like me transitioned from Wall Street to the environmental sector. Most enviros kindly welcomed us into the field. And I think we newcomers were able to make some positive contributions, like coming up with creative deal structures for conservation initiatives. Let's encourage this trend and welcome all new allies.
7. Truth or Dare
There tends to be a lot of hyperbole in environmental dialogue. Companies make audacious proclamations and publish glossy sustainability reports that on closer inspection are ofttimes non-specific and non-committal. Investors make speeches about their ESG goals without strict guidelines for their portfolios. Environmentalists urge companies to do things that sometimes make no business sense. I hope 2022 is a year when we will shift to what I call “radical transparency.” It's easy to do — just tell the truth. Drop the hype, let go of the exaggeration, and simply spell out what you are doing. Share where things go well and where they do not. Ask for help. My sense is that leaders are now ready to do business this way.
8. Dancing with Wolves
As pressure rises for companies to decarbonize, expect them to divest carbon-intensive businesses. Likewise, as ESG investing gains further momentum, expect the cost of capital to rise and valuations to fall for these non-green business units.
These trends will lead to more carbon-intensive business units being owned by private sector players (PE or hedge funds). Expect assertive efforts to encourage these private owners to step up and match the climate and other environmental commitments of public companies. I welcome the entry of private players into the field of climate leadership. They will bring a short-term and realistic approach to environmental goals. And if we’re correct that doing the right thing environmentally makes business sense, these private market deal pros will figure that out and embrace such opportunities. Let's hold them to that.
9. Mr. Smith Goes to Washington
We always state that public policy is the most important thing to get right to accelerate environmental progress. Alas, policy progress has been too slow, so we’ve been leaning on the private sector to lead on a voluntary basis. Many businesses have stepped up but they’re discovering how difficult it is to make significant progress without the right regulations, tax incentives, and mandates. Expect them increasingly to lobby for the public policy we need. Also, expect more pressure on them to do so. (Bravo to the new NGO Climate Voice for doing this). This is an area where collaboration between environmentalists and big business makes enormous sense.
10. My (Re)Generation
Everybody paying close attention and aspiring to lead knows that reducing environmental harm and/or getting to net-zero is not good enough. We need to regenerate and restore our ecosystems. The most ambitious leaders will focus not only on decarbonization but also on protecting biodiversity, restoring watersheds, helping animal welfare, producing nutritional food, and addressing human health challenges. If that sounds like a lot, you’re right. This won't happen overnight and many players are not yet ready to step up to these big challenges. But this is where true leaders will distinguish themselves this year. Let’s encourage and help them succeed.
Positive momentum is building. It better be, because time is not on our side. Let's all push hard to make these expectations come true.
One Last Thing
We love making book recommendations here at the Instigator (see here for our all time best enviro book list, and here, and here). I’m delighted to recommend another great climate novel – Termination Shock by Neal Stephenson. This sprawling novel takes place in the near future. Climate change is wreaking havoc. Some aggressive take-charge wealthy individuals respond with their own geoengineering programs. Anxious governments jump in the fray. All hell breaks loose. I think novels like this are very useful because it's not easy – at least for me – to foresee vividly what a climate changed world will look like. This book shows us – very plausibly. Spoiler alert. . . it's not pretty.
I was planning to prepare a thorough book review for you but writer Cory Doctorow did it for me here.
Many of our subscribers reported that they really liked our earlier “cli-fi” recommendation, Ministry for the Future, by Kim Stanley Robinson. (Ezra Klein calls it “the most important book” of last year.) I think you will feel the same about Stephenson’s book.
And if you want more on geoengineering, check out Gernot Wagner’s new Geoengineering: the Gamble or Oliver Morton’s The Planet Remade: How Geoengineering Could Change the World. Both are great books.