2023 might be the year investors get real about funding climate adaptation tech

Predictably, 2022 has been another year of climate disasters. Record heat waves killed thousands of people across multiple continents, glacial melt floods devastated Pakistan, and strained energy supplies (throttled by Russia’s attack on Ukraine) fueled a cost-of-living crisis across Europe that revived coal burning in many countries. 

Russia’s invasion has also, however, convinced EU leaders to wean their economies off of Russian oil, subsequently accelerating the rollout of renewable energy systems. The buildout of solar and wind projects across Europe will gather pace in the coming year, although it will take longer for those farms to come online.

In finance, regulators, bankers, investors and politicians have all turned a scrutinous eye on ESG funds, piling pressure on the world of sustainable finance from all sides—including from within (see former HSBC responsible investing chief Stuart Kirk’s divisive speech against climate regulation). 

While the U.S. Securities and Exchange Commission and the EU markets regulator, ESMA, have tightened regulation on ESG funds to prevent greenwashing, disgruntled old-school investors have taken up the counter argument and rallied against “woke” capitalism, withdrawing funds from managers they accuse of putting the planet before profits. 

Personally, I favor more regulation of the market and believe surviving ESG funds will emerge stronger from the shakedown—although they might not call their funds “ESG” anymore, opting for a new moniker that doesn’t combine three facets into one.

Then of course, just last month, world leaders gathered at COP 27 to continue negotiating how to keep the world on track to meet the Paris Agreement goals of preventing global warming from exceeding 1.5°C.

COP 27 failed to achieve a transnational agreement on phasing down fossil fuels—a vital step in reducing carbon emissions—but was successful in building international consensus on “loss and damage,” establishing that developed economies have a responsibility to compensate developing nations for the fallout from climate change and must set up a fund to do so. Details on that will come next year.

Although many were disappointed by the lack of action on fossil fuels at COP 27, BCG global head for sustainable investing, Vinay Shandal, told me last month that he felt invigorated by the conversations he saw on the ground there.

Shandal says COP 27 broke the taboo of discussing investment in climate adaptation, rather than mitigation, and that businesses, financiers and governments were huddling together to figure out how to actually implement solutions to our climate problems. 

No doubt that taboo was broken partly because, this year, numerous reports showed the world is already hurtling past our Paris Agreement targets, having spewed enough greenhouse gas emissions into the atmosphere to lock in a certain amount of warming regardless of what changes we make now. Adaptation is a necessity.

So, as with every year since this newsletter began, the key takeaway of 2022 seems to be that change is coming, but not fast enough.

The upside of embracing adaptation means the year(s) ahead will hopefully see more startups announcing breakthroughs in building climate-resilient infrastructure, such as flood warning systems or drought resistant crops. Financing in green tech will be invigorated by U.S. President Joe Biden’s multi-hundred-billion-dollar Inflation Reduction Act, passed this year, too.

I’m on the watch for advances in industrial battery tech, progress on decarbonizing blast furnaces, and success in designing climate-resilient electricity grids.

Enjoy the holidays, and let me know what trends you expect to see in 2023.

Eamon Barrett
greeninc.news@gmail.com
@eamonbarrett88

P.S. MSCI also recently released a comprehensive outlook of ESG and climate tech trends in 2023, here, if you want some inspiration.

CARBON COPY

EU sets a carbon tariff

Members of the European Union agreed on a plan to impose a carbon tax on imports shipped from countries where the cost of pollution is lower than in the EU. The tax covers industry products including steel, cement, ammonia and electricity. The carbon tariff is intended to prevent manufacturers in countries with weaker rules on pollution from undercutting EU local industries. EU manufacturers are already required to pay a price on carbon emissions. The EU is expected to set a start date for the carbon import tariff later this week. Reuters 

A breakthrough in nuclear fusion

Scientists in the U.S. have made a breakthrough in the pursuit of generating energy from nuclear fusion—the same process that powers the Sun. Conventional nuclear power plants use fission, or the splitting of an atom, to generate energy. Nuclear fusion creates more energy than fission while also producing zero radioactive waste. But, until now, achieving nuclear fusion has always cost more energy than it produces. The U.S. scientists achieved a “net energy gain,” producing 20% more energy than they spent (although the output was roughly enough to boil 10 kettles of water and the fusion reaction was still inefficient if you consider the energy required to charge the equipment.) Fortune

ESG funds face downgrades

Plans from EU regulators to set quantifiable standards for ESG investments threaten to undermine $3.2 trillion of assets under management, stripping those funds of their “green” credentials, unless fund managers bring those products inline with the new rules. The new rules concern a class of funds known as Article 8 funds. According to Morningstar, only 18% of current Article 8 funds meet the proposed criteria set out by the EU markets regulator, ESMA. Unqualified funds will have to downgrade to the non-ESG Article 6 category. Bloomberg

Blackrock backlash continues

The backlash against Blackrock’s ESG practices is growing. Last week, a Texas senate committee issued a subpoena requesting documents detailing the asset manager’s ESG practices and requested one of six top executives attend a hearing on December 15. Meanwhile, activist shareholder Bluebell has called from Blackrock CEO Larry Fink to step down or be replaced, accusing Blackrock of greenwashing and alleging that Fink’s “hypocrisy” on ESG practices has caused reputational damage to the fund. CNBC

IN CASE YOU MISSED IT

Gen Z’s antiwork mentality has a lot to do with the ‘world crumbling’ around them by Chloe Berger

A top climate tech investor predicts more VCs will flood into the sector. Here are the technologies he’s looking to invest in now by Anne Sraders

The COP no one wants you to know about by Jason Knights

Big tech is laying off workers. The growing ‘green collar’ job industry hopes to recruit them by Abigail Bassett

CLOSING NUMBER

74 tonnes

Microplastics—the microscopic shards of deteriorated plastics formed as bigger products disintegrate—have tainted our global water system, our food chain, and even our atmosphere, as new research from the University of Auckland shows. Scientists at the university reported this week that over 74 tonnes of microplastics precipitated out of the air in Auckland, New Zealand, in 2020, raining the equivalent plastic content of 3 million water bottles on the city. The researchers proposed that waves breaking on the shore might be propelling microplastics into the air.