Good morning, and welcome to the only Trump-free zone you may find in your news feed this morning.
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.
