Drill baby drill! With those words, the second Trump administration has made clear that the US is still committed to fossil fuels, now and for the foreseeable future. Taking the US out of the Paris Climate Agreement yet again, it only reinforces the message.
At the same time, and not unrelated, large global banks like JP Morgan and asset managers like Blackrock are turning away from commitments to net zero – notably leaving the Glasgow Financial Alliance for Net Zero (or GFANZ), which was set up at the COP26 meeting in Glasgow, Scotland in 2021. These large financial institutions may just be trying to avoid scrutiny and lawsuits from government officials at state and federal level in the US, but their departure is more than optics and preempting lawsuits. The fossil fuel business is profitable. And profit drives business.
What does this message give to countries in the Gulf or to developing countries?
It’s easy to think that the shift in tone in the US and among rich corporations toward the negative portends a serious slowdown on global sustainability efforts. For those looking from the outside, they’d be forgiven for thinking sustainability isn’t worth it. Having a green strategy is a loser’s game.
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There are two reasons why such thinking is shortsighted and plain wrong. First, most environmental problems are local in nature. Climate change has, unfortunately, become shorthand for everything environmental. It’s not. While climate change has local effects, such as exacerbating extreme weather, its solution lies in reducing aggregate global carbon emissions.
But all countries should still want clean waterways, breathable air in cities, and natural biodiversity that supports food production, resilience to things like coastal erosion or urban flooding, and even our mental wellbeing.
Trump may threaten to roll back environmental regulations in the US, but this doesn’t mean Americans will tolerate worse air and water pollution. Citizens in other countries shouldn’t be taken for granted either. No one wants nor should want dirty air and water. The technology and know-how exist to solve these and many other environmental problems.
The second reason for countries to discount the current vibe shift against sustainability, is the risk of losing out. There’s an economic case to be made about the value of investing in energy efficiency. That’s simple. Efficiency doesn’t need some language around sustainability to make sense. It’s good business.
What is to be lost? A seat at the front of the technological frontier. And deep pocketed investors that have a different view on the environment and sustainability. Fossil fuels will remain part of the energy mix for longer than many expect, especially in developing economies, but their dominance is declining as renewables grow rapidly and nuclear energy sees renewed investment.
But it isn’t just about where we get our energy from. There’s also a revolution happening in materials, electric mobility, precision agriculture and water management, sustainability building techniques, and so on. Some think ‘sustainability’ is some woke social movement. Sometimes it seems so. But it isn’t. It is about innovation. Take your eye off the ball, and a competitor will come along with a cheaper, cleaner, and more reliable solution.
Just because large players in capital markets are toning down their sustainability commitments, namely by leaving organizations like GFANZ, does not mean that money for sustainability will dry up – private capital and public capital. If anything, little will change except for rhetoric.
Investors will take care in saying ESG (environmental, social, governance) as a driving factor. We’ll hear more of ‘we seek opportunities that offer long-term value, and we recognize the need to acknowledge long-term risks.’ For countries and for companies, having a green strategy still makes sense. There’s no need to make a moral case for that. There’s plenty of money to be made.
Professor Adam D. Dixon is Adam Smith Chair in Sustainable Capitalism at Adam Smith’s Panmure House owned by Edinburgh Business School at Heriot-Watt University.
