Why CEOs are going all in on the energy transition

I spent an hour yesterday talking to a group of CEOs about whether they are pulling back on their commitments to combat climate change in the face of a volatile and uncertain economy. There are plenty of reasons to wonder. Higher inflation and interest rates are making long-term investments more costly.  Banking woes are raising the prospect of a credit crunch. And in the U.S., political pushback has cast a cloud over environmental, social, and governance (ESG) plans.

Yet, investment in the energy transition appears to be continuing unabated. And the reason, the CEOs agree, is because it has become what BCG CEO Christoph Schweizer, sponsor of yesterday’s CEO roundtable, called a “massive market opportunity.”  Some excerpts from the conversation:

“Yes, companies face short-term pressures, but fundamentally, our observation is that this is still on the agenda and it will be on the agenda for many years to come. It’s not about cost (reduction) and competitiveness versus climate, but rather using climate to achieve both cost reduction and competitiveness.” 

          –Christoph Schweizer, CEO, BCG

“This whole energy transition is a long-term investment that people are really trying to protect.”

          –Tiger Tyagarajan, CEO, Genpact

“There’s been a little bit of an outflow (from ESG funds) recently, but some of that flow from ESG has gone into climate…We’re seeing much more interest in climate, climate analytics, climate funds, climate indices.”

          –Doug Peterson, CEO, S&P

“Climate investments, climate activity remain a priority, even as we continue to navigate this VUCA world.  There’s no pulling back.”

          –Patrice Louvet, CEO, Ralph Lauren

“The transition of a hard-to-abate industry like cement to a carbon-neutral economy is feasible…And, it is profitable.”

          –Fernando Gonzalez, CEO, CEMEX

In the U.S., the momentum is clearly being powered by Inflation Reduction Act incentives for climate investments:

“It’s a game changer.”

         –Lorenzo Simonelli, CEO, Baker Hughes

“Incentives in the IRA are turbocharging all of this. It is creating an unprecedented growth opportunity for us at Entergy.”

          –Drew Marsh, CEO, Entergy

“The U.S. is incentivizing the energy transition.  Europe is regulating it.”

          –Ilham Kadri, CEO, Solvay

Technology and the Russian invasion of Ukraine are also adding to the momentum.

“We are definitely at a tipping point. You have the IRA tailwind…and the other thing is the intersection of IOT (Internet of Things) and the energy dilemma we find ourselves in, not only in this country but specifically what’s happening in Europe. That’s really creating tailwinds for everything that we’re talking about.”

          –Annette Clayton, CEO, Schneider Electric USA

“I think the pipeline that we’ve seen for these types of projects continues to grow. It suggests that the incentives and the resources are being deployed into these types of projects. We haven’t seen any significant change.” 

          –George Oliver, CEO, Johnson Controls

I asked if banking issues might slow climate investment. The response:

“I don’t think the banking issues are affecting this…First of all, they’re not really affecting the largest banks. And second, banks are just one source of capital…There is plenty of capital.”

          –Ronald O’Hanley, CEO, State Street

“The investments aren’t going to stop…But is the patience going to be there? We’ve benefitted greatly from ESG funds over the past two to three years…but now it’s all about free cash flow.”

          –Dan Fisher, CEO, Ball Corporation

“There’s still a lot of momentum and energy behind this…I’m not worried so much in the short term. I’m more worried about sustaining this for 20 years and being patient with our capital to take the risks we need to take in some of these unproven technologies.”

          –David McKay, CEO, RBC

Other news below.

TOP NEWS

Decarbonization optimism 

The CEOs at the Fortune roundtable discussion on decarbonization were optimistic about the progress being made towards the energy transition, citing government incentives and a focus on sustainability as driving factors. However, they acknowledged that there are still challenges to overcome, such as a lack of skilled workers, questions around who will operate and maintain new clean energy technology, and the slow pace of change in some industries. Fortune

Lack of safety

Dollar General and Dollar Tree have been accused of widespread safety issues. The U.S. Occupational Safety and Health Administration (OSHA) fined Dollar General over $15 million and identified 111 instances of workplace safety violations since January 2017. Dollar Tree was scrutinized in 2022 for a rat infestation and recalled of many of its medical and hygiene products. Axios

Less is more

Lyft has hired David Risher, the former CEO of the non-profit organization Worldreader, to replace co-founder Logan Green as CEO of the ridesharing company on April 17. Risher's philosophy of doing more with less is seen as an asset to Lyft, which has struggled to turn a profit and compete with larger rival Uber. Risher plans to focus on cost structure and increasing the volume of rides on the platform, while also addressing the shortage of drivers and keeping them satisfied. Fortune

AROUND THE WATERCOOLER

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Today’s management-speak has a lot in common with 1930s Soviet propaganda—and it’s making people miserable by Bogdan Costea, Peter Watt, and The Associated Press

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This edition of CEO Daily was edited by Jackson Fordyce.