US President Joe Biden’s two-day climate summit, held online on April 22-23, saw 40 global leaders make a series of commitments aimed at increasing cooperation to fight climate change and reduce greenhouse gas emissions.
Over eight sessions, heads of state and government, as well as leaders and representatives from international organizations, subnational governments, and indigenous communities spoke of the need for unprecedented global collaboration and ambition to meet the moment.
While the summit saw political decision-makers discuss the future of climate action, there are key opportunities for businesses and investors as well.
Major emitters up the ante on carbon neutrality
Recognizing that the status quo is no longer viable, leaders attending the climate summit vowed to take bolder climate action. The US submitted its new Nationally Determined Contribution (NDC), with a target to achieve a 50-52% reduction from 2005 levels in economy-wide greenhouse gas emissions by 2030.
China indicated that it will strengthen the control of non-CO2 greenhouse gases, strictly control coal-fired power generation projects, and phase down coal consumption. The European Union is putting into law a target of reducing net greenhouse gas emissions by at least 55% by 2030 and a net zero target by 2050. Brazil committed to achieve net zero by 2050 as well as end illegal deforestation by 2030. These countries were joined by pledges from India, Japan, Canada, South Africa and Argentina, among others.
These unprecedented commitments indicate that pressure is set to increase on corporations to take emissions reduction seriously. To stay ahead of the game, large energy users, from chemicals manufacturers to textiles producers and industrial firms, will need to make a decisive shift to tackling the key CO2 emissions elements in their business – or risk falling behind.
An investment opportunity
During a special session with US climate envoy John Kerry, leaders from government, international organizations, and multilateral and private financial institutions noted the need to leverage large sums of private capital for sustainable projects.
Plans such as the Biden Administration’s US$2tn clean energy investment plan, aiming for 100% clean electricity by 2035, and the European Union’s Green Deal, which includes US$572bn earmarked for spending on green projects, among them renewable energy generation, were reinforced during the talks, which will provide a boost to investors, who are increasingly being drawn in by outsized government spending and tax breaks for green projects.
In renewable energy in particular, we are already seeing an increase in investors entering the sector, and this isn’t only a result of public sector initiatives. In fact, we’re hearing that the stability of renewables is one of the biggest reasons driving the decision to invest. Traditional energy producers rarely enter pricing contracts that span decades. Renewables producers, on the other hand, can, thanks to the inexhaustibility of their energy sources.
Time’s up for fossil fuels
Transitioning away from fossil fuels was a major focus of the summit. Israeli Prime Minister Benjamin Netanyahu described hundreds of start-ups working to improve crucial battery storage for solar, wind and other renewable energy. Danish Prime Minister Mette Frederiksen renewed the country’s pledge to end oil and gas exploration in the North Sea. Others spoke of phasing out fossil fuel subsidies that have kept polluting energy sources artificially cheap for some time. On the flip side, in his closing speech President Biden urged world leaders to ramp up their investment in clean energy.
Taken together, indications are clear that the current price divergence between renewables and fossil fuels – whereby renewables become more affordable and fossil fuels are priced out – looks set to continue. To lock in energy price stability, we’re already seeing several companies around the world start to take a close look at their energy strategy, and the possibilities made available through innovative financial structures such as corporate power purchase agreements (PPAs).
New business opportunities for low-carbon energy and transportation infrastructure
Launched during the event, the US Trade and Development Agency’s (USTDA) Global Partnership for Climate Smart Infrastructure will aim to drive the adoption of transformational technologies that reduce greenhouse gas emissions and support resiliency to climate change, around the world.
In practice, this will mean public and private investment into projects such as energy storage and utility-scale solar and wind projects, as well as energy-efficient transportation technologies that reduce energy and water use.
Since the launch, grants have already been awarded to projects and suppliers in Thailand, Cameroon, Brazil and India, and the USTDA has released a Global Climate Partnership webpage to connect companies with the latest information on the business opportunities associated with this initiative, as well as requests for proposals.
For businesses, climate smart activities and profit now go hand-in-hand. But for companies that aren’t directly involved in the sectors targeted by the USTDA, there are still ways to piggyback on the benefits.
Take renewable energy development, for example. Through the power purchase agreement (PPA) structure, corporate energy consumers can take advantage of better strategic energy sourcing decisions. We believe bilateral power purchase agreements for renewable energy are a vital tool in building resilient, climate smart businesses, and numerous international companies have been early movers in this respect – from Anglo American to multinational companies such as Dow.
Leaders emphasize the need for private sector help
Although the summit focused on country-level targets, participants stressed the need for involvement from the business community.
Fortunately, the private sector has already shown it is ready and willing to take action. Ahead of the summit, 408 businesses and investors, ranging from SMEs to large multinationals, signed an open letter indicating their support for “a highly ambitious 2030 emissions reduction target, or Nationally Determined Contribution (NDC) pursuant to the Paris Agreement, in pursuit of reaching net-zero emissions by 2050.”
The global community still has a lot of work ahead of it, and it is hoped that all countries will commit to further climate action at the COP26 conference due to be held in Glasgow this November. However, at Atlas, we believe that businesses can start to harness the momentum of the Biden climate summit now to boost their own long-term strategies and set a trajectory towards net-zero.
As Angela Merkel, chancellor of Germany, said at the summit: “This is a herculean task, because this is nothing short of complete transformation of the way we do business.”