What A Decarbonized Global Economy Needs Post-COP26

Managing Director of Clean Energy Ventures, a VC firm investing in companies commercializing disruptive clean energy technologies.

While the world’s leaders convened in Scotland in November to reach an agreement on how to tackle climate change, supply chain challenges continued to plague the world and threatened to delay climate action. Today, no sector is seeing the effects more than the energy markets. From oil shortages in the U.K. to the global natural gas shortage, we’re seeing clean energy cast aside as countries scramble to adapt to hotter summers and colder winters amid climate change. 

The reality is that we’re back in a high-priced fossil fuel environment that has the potential to derail our transition to a decarbonized global economy. What has driven world economies to this point, and how can business leaders across the global finance ecosystem come together to fix it?

Renewables can’t match soaring demand.

Renewable energy is taking center stage in the fight to decarbonize. By the end of 2020, renewables made up 29% of global electricity generation, with numbers projected to grow exponentially. According to IRENA, installed renewable power generation capacity will need to soar to more than 27,700 gigawatts in 2050 — a remarkable rise from the 2,500 gigawatts currently produced. Wind, solar and energy storage solutions are forecast to be the superheroes, but there’s just one problem: These renewables and the required infrastructure to bring them to market aren’t being developed fast enough to keep up with decarbonization goals, not to mention the growing demand for energy.

As we’ve seen from the 2021 United Nations Climate Change Conference (COP26), global governments can follow the lead of the private sector, which is taking climate action into their own hands. We’re seeing new innovations every day, but what’s missing now is the proper catalyst: financing to back these climate-tech innovations to enable a full-fledged energy transition.

Right now, we have a bumbling, unregulated approach to addressing carbon emissions, though it’s undoubtedly a global issue that requires the highest level of coordination. Funding is principally focused in the U.S. and Europe while nations in Africa, Latin America and developing Asia are falling way behind — even though these regions are where the worst climate impact will be felt. The reality is that disproportionate financing means disproportionate climate action and impact. For businesses to do their part in bringing all nations together to combat this problem, I offer the following solutions:

Inaugurate a World Bank for climate finance.

Clearly, global funding needs a makeover to get more players on board as soon as possible for the greatest possible impact. In the two decades I’ve spent as part of the investor community, it has been clear that there are gaps — in the companies that are getting funded and where in the world these companies happen to sit. Investors from the U.S., EU, Japan and China need to step up to the plate to ensure that the transition to a clean energy economy is diversified geographically, essentially acting as a World Bank for climate finance.

All business leaders need to understand the interconnectedness of climate action and the global implications leading to innovative financing partnerships, business frameworks and global impact. With this approach, climate tech innovations from all corners of the world will be more likely to succeed to have an impact right now.

Institute a dedicated climate council.

Regularly addressing how to advance commitments and create solutions will also require a body dedicated specifically to the cause — not just once a year, but every hour of every day.

The U.N. has a Security Council that seeks to address threats to international security, and we need to mimic this approach to tackle looming climate threats. A climate council is key to advancing the future of renewables and keeping countries accountable for their emissions. Governments are already establishing carbon pricing at a state, country and regional levels, but this process needs to be managed independently from political bodies and coordinated to avoid a patchwork of conflicting regulations.

Companies and their investors have to be fully equipped to measure and report on greenhouse gas emissions. We have no standardized regulations for monitoring the commitments of corporations like GM, JPMorgan Chase or Unilever’s “carbon ledgers,” or setting examples for small and mid-sized companies to follow. We need to “measure what matters,” to quote the title of venture capitalist John Doerr’s book. Global standards set by a climate council for governments and the private sector alike will lead to accountability that stakeholders, including investors, can understand.

Focus on scaling innovations.

An important goal of the gathering in Glasgow was to build bridges to provide more equitable and reliable access to new technologies that can reduce the cost of decarbonization.

After global leaders return home, our biggest assets moving forward are the world’s climate innovators who are fighting climate change head-on by developing advanced materials, digital solutions and everything in between. From grid management solutions to electrification enablers to processes that radically lower the cost of renewables, many of the solutions we need are already on the table — now it just comes down to rapid adoption and scaling. That’s where climate financing, from both the public and private sectors, can help provide broader access to the necessary technologies across the globe to ease the transition. The investor community including traditional tech VCs, corporations and the public sector all need to collaborate to fund viable and scalable climate technologies. We all have a different role to play in a company’s life cycle, and by doing our due diligence on a company’s capacity to ensure lasting global impact, we’ll see tail winds of change immediately.

Looking Beyond COP 

COP26 has certainly created a splash in the fight against climate change, and we need to see continued momentum through revolutionized global financing to ensure that promises are kept and goals are met.

Innovators must step up to the challenge, investors have to be ready to meet climate change head-on, and the public sector needs to ensure firmer regulations and friendlier incentives — that’s the only way to rapidly transition to a decarbonized future.

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