The Business Of Decarbonization Pays Off — But Don’t Wait To Start – CleanTechnica

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The business of decarbonization is too important to wait, say experts. But merely having climate commitments that focus on 2050 isn’t sufficient, as such pledges may lull business leaders into thinking there is still some time left until they need to act. It’s not only possible but prudent for organizations to decarbonize, safeguard nature, and build resilience rapidly — now.

In fact, businesses that fail to address growing climate risks in the near term are more likely to experience steep financial losses throughout the coming decade.

Two World Economic Forum (WEF) reports — “The Cost of Inaction: A CEO Guide to Navigating Climate Risk” and “Business on the Edge: Building Industry Resilience to Climate Hazards” — provide a roadmap for companies as they move forward toward net zero operations. The authors describe the roadmap as a plan that every business leader should be activating within the next 24 months to drive better executive-level decision-making.

• Avoid economic loss by enhancing resilience.
• Increase revenues and sustainability through adaptation.
• Collaborate to protect communities and ecosystems, through resilience and adaptation.
• Accept that it is a decisive moment for action.

With the planet already facing irreversible tipping points, the frequency and severity of climate hazards with a direct impact on business and societies globally will continue to grow. The cascading economic and societal risks for business are complex and interconnected, but they can be understood in three separate ways: direct operational costs, supply chain disruption, and instability in nature and society.

Why the Business of Decarbonization Needs Immediate Action

Natural disasters like hurricanes, floods, and wildfires have had a direct impact on the business climate. The climate crisis is already having profound effects on the global economy, with climate-related damages having surpassed $3.6 trillion since 2000, more than doubling in 20 years. Climate inaction means missing out on opportunities, as the global green economy is expected to expand from $5 trillion in 2024 to $14 trillion by 2030. The economic case for decarbonization is better than most may think, as industries can reduce 10–60% of their emissions at no or limited additional cost. At carbon prices in line with net zero requirements, almost all sectors could abate over 50% of their emissions, with some achieving net zero.

The US has seen hundreds of billions of dollars in clean technology investments since the 2022 passage of the Inflation Reduction Act (IRA) — solar installations, offshore wind farms, electric vehicle manufacturing plants, battery factories, mining and processing of battery minerals, adoption of heat pumps, and other energy efficiency improvements. Whew! CleanTechnica editor Zachary Shahan says that the IRA has been “one of the most under-appreciated pieces of legislation in American history.”

Lots of businesses are already investing in decarbonization. The IRA is the biggest reshoring and pro-manufacturing legislation that the US has ever experienced. Its strategic and numerous incentives have been crucial to motivating EV and battery manufacturing. IRA investments are recreating a strong domestic EV manufacturing sector as well as breaking China’s dominance of critical mineral and battery component supply chains.

Yet, as the global energy mix shifts toward low-emission sources, further significant investments are required to modernize infrastructure and ensure the reliability of power generation. This includes upgrading transmission grids and expanding energy storage systems to support the integration of variable renewable energy sources like wind and solar.

To make this leap, it’s important for businesses to understand the full scope of emissions that are produced by the world economy — as categorized under the Greenhouse Gas (GHG) Protocol. This is essential in order for companies to assess and manage their carbon footprints effectively.

• Scope 1: Direct emissions from company-owned or controlled sources, such as factory emissions.
• Scope 2: Indirect emissions from the generation of purchased energy, like electricity.
• Scope 3: All other indirect emissions that occur in a company’s value chain, including material extraction and processing, transportation, waste management, and the use and end-of-life treatment of sold products.

Refining and Planning for Financial Risks due to the Climate Crisis

In a December 2024 interview, John Mennel, a managing director at Deloitte and its purpose strategy leader, outlines how, because renewables are the cheapest source of energy, “companies generally save or make money when they’re more sustainable.” Companies, of course, will only move as quickly as they can define investments profitably and finance them.

Unlike direct emissions produced by an institution’s own operations, financed emissions represent the broader climate footprint resulting from the allocation of financial resources to entities that may contribute to greenhouse gas emissions through their operations. Two types of climate risks are becoming material for business: physical risks (acute events like floods and chronic issues like sea level rise) and transition risks (e.g., regulatory changes and stranded assets). Companies now need to consider the risks to their existence and assets from climate change. Moreover, if they do have a decarbonization plan, they must anticipate how to reduce the capital expense to accomplish it as well as how to increase the return on investment.

Together, these risks are reshaping industries, threatening financial stability, and creating urgency for climate action. Powerful statistics that emerge from new World Economic Forum research include:

• Companies investing in adaptation, decarbonization, and resilience are seeing up to $19 in avoided losses for every dollar spent. That’s the equivalent to the economic impact of COVID-19 every two years.
• Businesses investing in adaptation, resilience and decarbonization are seeing tangible returns — up to $19 in value for every dollar spent.
• Businesses that fail to adapt to physical climate risks could lose up to 7% of annual earnings by 2035.
• Companies that fail to decarbonize face mounting transition risks: up to 50% of profits by 2030 in heavy-emitting sectors. For the average listed company, climate-driven losses equate to a drop in earnings of 8.1–10.1% per year by 2045.
• Green markets are projected to expand from $5 trillion to $14 trillion by 2030.
• Extreme heat and other climate hazards are expected to cause $560–$610 billion in annual fixed asset losses for listed companies by 2035. Telecommunications, utilities, and energy companies are most vulnerable.

Final Thoughts about the Business of Decarbonization

While it is a long way short of requirements of the Paris Agreement, we are at the beginning of a “prolonged period of decline for the first time since the industrial revolution,” according to DNV’s Energy Transition Outlook.

What will it take to reduce the emissions of the formidable power, buildings, transportation, and agriculture industries? It will require hundreds more wind turbines, solar panels, electric vehicles, and storage batteries. The production of these industries, in turn, will require water, energy, rare earth elements, and critical metals to produce, creating more emissions from production. Is this progress toward decarbonization achievable?

While some say that decarbonization remains a significant challenge, pathways to a net zero future are on the horizon. The business of decarbonization requires leaders who are both visionary and practical, innovative and articulate.