climate and finance

What’s Next in Climate Finance?

March 12, 2024

Abroad and at home, 2023 was a landmark year for funding clean energy projects. The World Bank announced it would increase climate funding to 45 percent of its total lending (a $9 billion annual increase). In the United States, the Bipartisan Infrastructure Law and the Inflation Reduction Act (IRA) funneled public financing to reduce carbon emissions and support a greener grid. And private sector partners are scaling up operations to address the climate crisis, with private sources spending more than $5 for every government dollar in 2023.

However, tailwinds may threaten this progress around the world. From heightened economic and geopolitical uncertainty, to shifting regulations and global elections, the C-Suite and the public must remain nimble in navigating these potential challenges in 2024.

A New Horizon for Capital and Labor

In July 2023, the prime interest rate increased to its highest level since the aftermath of the dot-com bubble bursting, raising the cost of capital throughout the energy economy.

This negatively impacted a wide range of sectors and industries, including clean energy projects. For example, developers cancelled an offshore wind project in New Jersey and stock values for several climate funds decreased. With a high inflation rate, companies increasingly needed to turn to venture capital and government credits and funds to finance projects, instead of relying on private bonds and loans.

Now, as inflation moderates in the United States, the Federal Reserve may cut interest rates in the coming year and unlock additional sources of financing.

With the U.S. unemployment rate at 3.7 percent, the competition for skilled labor is also here to stay with a lower pool of workers in the labor market. Expanding partnerships with industry and labor will be critical for training the next generation of workers and filling vacancies. Managers will also need to upskill the current workforce through learning and development, as employees across sectors remain longer in the labor market.

Increasing Reporting Requirements

Regardless of the broader conversation around environmental, social and corporate governance (ESG), companies will have to navigate a shifting world of climate impact reporting.

Earlier this year, China’s three major stock markets announced new sustainability requirements for participating companies. The U.S. Securities and Exchange Commission (SEC) also recently unveiled a final rule requiring public companies to disclose greenhouse gas emissions and how climate change affects their business operations.

These actions will create opportunities for companies with a public track record of climate leadership, as funds and investors can now evaluate a company’s environmental impacts with greater transparency. They also give an opening for climate communicators to amplify company actions around cleaner supply chains with key audiences like investors and policymakers.

Global Elections Could Shift the Narrative

Finally, with around a quarter of the world’s population (around 2 billion voters) expected to vote in upcoming elections, 2024 has been billed as the “super election year.” These races will determine the balance of power in Western blocs like the United States and the European Union, alongside the world’s largest democracy in India and in emerging markets like South Africa.

Domestically, if former President Trump wins another term, will he and congressional Republicans seek to undermine the IRA? If re-elected, would President Biden expand upon the IRA and offer additional incentives for utilities to adopt cleaner energy sources?

The answer to this question will be pivotal in determining U.S. government commitments to global climate funds and progress toward clean energy goals. Companies can navigate these uncertainties by analyzing their supply chains and seeing where they can reduce carbon emissions with or without government support.

Alongside partners in civil society, companies are well-positioned to lead the clean energy projects that will shape our future. The C-Suite can navigate challenges in climate financing by proactively engaging in public affairs, staying nimble in strategy and emphasizing transparency in communications around environmental impacts.

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