5 Climate Action Trends to Watch Out for in 2023

Last year was a rollercoaster year for climate regulation, litigation, negotiations and extreme weather events. At the recently concluded World Economic Forum Annual Meeting 2023, Davos, event, we heard powerful words from former Vice President Al Gore on how “we are still failing badly” despite all the climate action and pledges by governments and businesses. 

Emissions are still rising instead of decreasing. 2023 will be a crucial year for climate action. This article explores five major trends influencing climate change and environmental sustainability in the year ahead. 

Finalization of Climate Disclosure Rules 

There is an increasing demand to improve the global consistency and comparability of sustainability reporting, driven by the need for investors to more efficiently compare the sustainability performance of different companies. 

The launch of the International Sustainability Standards Board (ISSB) by the International Financial Reporting Standards (IFRS) Foundation was an essential step toward building a more robust sustainability reporting framework for businesses. These standardized guidelines will also help ease the burden on companies grappling with multiple Environmental, Social and Governance (ESG) reporting frameworks and varying regulations across geographies. 

Recently, the ISSB has made significant progress in finalizing this framework. In March 2022, the ISSB proposed two standards – one on climate-related disclosures and one on general sustainability-related disclosures – inviting comments from businesses, accounting firms and regulators. The rules regarding climate disclosure requirements are expected to be finalized by the ISSB early in the next few months. 

Some of the anticipated requirements include the disclosure of Scope 3 emissions and how businesses manage their climate risks and opportunities. The finalization of these rules by the ISSB would enable jurisdictions worldwide to more easily adopt mandatory climate disclosures. 

Green Jobs and Demand for Green Talent Will Continue to Rise 

To transform into a global green economy, we need green talent. According to the United Nations Environment Program, this will include complex problem-solving capabilities, engineering skills and more. 

Fortunately, green entrepreneurship is growing faster than overall entrepreneurship, according to the 2022 LinkedIn Global Green Skills Report. Here are some of the salient takeaways: 

• For the past five years, green skill-related job postings have grown at the rate of around 8% per year. Over the same period, the share of green talent has grown about 6% annually, as the demand increase leads to a worker shortage. 
• Green hiring is directly proportional to the income level of countries. From 2015 to 2021, high-income countries registered a 39% growth in the share of green talent, whereas low-income countries experienced only 18%. 

Green jobs for the global youth discussion was on the agenda of the November 2022 COP27 climate talks in Egypt. The clean energy transition is expected to create 13.3 million new jobs worldwide by 2030. 

Clean energy hiring, driven by initiatives like terra.do, Work On Climate, Climate Draft and MCJ Collective, has propelled global energy sector employment above pre-pandemic levels, according to the International Energy Agency’s first World Energy Employment Report.  

AI Adoption Will Continue to Grow 

Artificial intelligence (AI) environmental applications could add up to $5.2 trillion to the global economy in 2030, an increase of 4.4% over business as usual. ESG practitioners can use AI systems to analyze large amounts of data to assess company performance. 

For instance, Scope 3 emission data sets are notoriously difficult to measure. Tracking them poses a challenge because they comprise emissions from supply and value chains. Suppliers routinely fail to measure and share such information. 

According to a BCG study, organizations using AI-powered reporting systems are twice as likely to measure their emissions and achieve their emission reduction targets. 

Geospatial AI can help track and monitor endangered species, identify the vulnerable members of a community in the event of a natural disaster, build urban resilience by identifying hot spots and more. 

The U.S. Inflation Reduction Act Will Increase Investments in Clean Energy 

On August 16, 2022, President Joe Biden signed the $700 billion Inflation Reduction Act (IRA) into law. The largest-ever investment to build an equitable clean energy future and fight the climate crisis in the U.S., the IRA will invest $369 billion in energy security and climate change. 

The IRA will extend solar and wind tax credits to all projects that begin construction before 2025 and technology-neutral credits until at least 2032. The law aims to help generate up to 550 GW of new and utility-scale clean power by 2030. 

The enactment of the IRA has already led to significant clean energy-related investments and manufacturing announcements, which is likely to continue this year. 

The IRA extends a tax credit of $3/kg to “green” hydrogen, making it cost-competitive to its counterpart derived from natural gas and potentially creating new opportunities for renewable energy producers in 2023. IRA funding and tax incentives can help realize 45 GW of capacity deployment goals by 2040.  

Increased Scrutiny on Greenwashing by Businesses 

In 2022, we observed several instances of legislative action and investigations by regulatory authorities into greenwashing practices. 

For example, in the U.K., the Competition and Markets Authority (CMA) announced in July 2022 an investigation into the environmental claims of three fast-fashion companies that were allegedly misleading consumers. Businesses in several other sectors, including aviation, oil and gas, financial services, and food and beverages, were called out for greenwashing practices. 

It is expected that in 2023, some investors will more closely scrutinize the sustainability commitments made on paper by organizations. Businesses that are not upfront or transparent with their environmental policies or whose lobbying actions do not match their public sustainability commitments will be held accountable.  

The October 2021 Global Financial Stability Report of the International Monetary Fund identifies corporate greenwashing risk as one of the issues that can lead to the misallocation of capital. Increased regulatory oversight and climate-related shareholder resolutions will contribute to keeping businesses in check. 

Conclusion

Again, 2022 was a turbulent year for climate change. We saw accusations of greenwashing, limited progress in the U.N. Climate Change Conference (COP27), and extreme weather events worldwide, further aggravating a global food and supply chain crisis.  

Some of these negative trends may continue to haunt us in 2023. On the positive side, we will see developments such as the finalization of climate disclosure rules, an increasing role of AI in solving ESG challenges, and increased scrutiny by investors to ensure businesses commit to climate action.