Forum Institutional

3 reasons businesses should invest now in decarbonization

Decarbonization is cheaper than ever, and it’s good for business.

Decarbonization is cheaper than ever, and it’s good for business. Image: Getty Images/iStockphoto.

Taylor Francis
Co-Founder, Watershed
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  • The global energy crisis has accelerated the need for a clean energy transition.
  • Governments around the world are mandating carbon emissions disclosures.
  • Businesses can unlock the economic opportunity of decarbonization.

The economic landscape has changed dramatically in the past year. A recession looms, and the Russian invasion of Ukraine introduced dangerous uncertainty to the global energy market. But one piece of good news has surfaced, despite the gloom elsewhere: decarbonization is cheaper than ever, and it’s good for business.

I spend every day helping leading companies like DoorDash, Walmart, Boom Aviation, and Airbnb measure and reduce greenhouse gas emissions. What I see in the current landscape is a bounty of opportunity. Companies going green are not only doing the right thing for the planet; they are doing the right thing for their bottom line. Here are three key reasons why now is the time to invest in decarbonization:

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    1. Green technology is cheaper than ever

    While inflation is driving up the price of everything from eggs to new cars, the costs of renewable energy and green technologies are dropping – and are poised to go even lower. Government subsidies enacted in the past year are expected to supercharge a long-term trend driven by technical innovation.

    The Inflation Reduction Act (IRA) passed in the US adds about $369 billion to the climate fight, mostly in subsidies for the private sector. The opportunity this unlocks is immense: the IRA offers new tax credits for everything from electric vehicles to heat pumps. Companies can accelerate their own decarbonization by making cleaner purchases at subsidized prices.

    The building and operating costs of new renewable energy projects remained lower than those of coal and natural gas plants this year, despite massive supply chain disruptions. The costs of wind and solar have decreased about 10% every year for several decades now. Recent projections show this trend will likely continue, and switching the global economy to renewable energy could generate savings of up to $12 trillion by 2050.

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    2. Decarbonization unlocks economic opportunity

    I’m seeing first-hand the returns being realized by early investors in decarbonization. Climate is no longer just a noble crusade. It’s a big business opportunity.

    These opportunities are many and varied. They can be happy coincidences that manifest when you start to do something a little differently – like when DoorDash offered subsidies to their drivers to switch to e-bikes, which also decreased delivery times in some cities.

    Other fiscal benefits are more direct. Corporate climate plans can unlock significant capital. More than 400 financial institutions – representing a stunning 40% of the world’s capital – have joined the Glasgow Financial Alliance for Net Zero, committing to fund and support companies with net-zero targets.

    Consumers and corporate customers both increasingly demand climate responsibility, and reward organizations that are serious about sustainability. Companies like Apple, Walmart, and Target require or incentivize their suppliers to track emissions and plan for net-zero. In a recent consumer survey, 71% of participants said they would pay a price premium for a sustainable brand, and 49% said they have paid a premium for products branded as sustainable in the last 12 months.

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    3. Get ahead of regulation

    All businesses will likely have to commit to reducing their carbon emissions eventually. Regulations for disclosing and reducing emissions are only getting more rigorous. Pressure from investors, employees, and customers also continues to grow.

    The US government recently proposed a rule requiring many federal contractors to disclose their emissions, climate risks and targets. The US Securities and Exchange Commission is proposing similar disclosures from public companies, while the EU and the UK are already implementing programmes requiring public companies to disclose carbon emissions and other key climate metrics.

    With France banning short-haul flights, California outlawing gas-burning cars, and the EU cracking down on emissions from the shipping industry, governments and regulators around the world are getting serious about climate change. Businesses that are ready for this shift have a chance to be climate leaders: they will reap financial rewards and move the needle on this existential crisis. Companies that aren’t investing in decarbonization – or have scaled back climate ambitions in the face of a changing economy – will be stuck in reactive mode.

    Economic conditions for cutting carbon from your business are better than ever, and early adopters will be rewarded for doing the right thing. The global economy is quickly moving to net-zero. It’s time to seize the opportunity.

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