Reflections post COP29: The landscape has shifted—are you adapting fast enough?

A topic that matters more than ever, and yet is debated more than ever

Sustainability matters now more than ever—the increasing need for an urgent step-up in action to meet key climate goals was a common refrain around COP29. Three illustrative facts were often cited:

• This is the first year we are on track to exceed 1.5 degrees.
• The costs of climate change are already piling up, global insurance losses from natural catastrophes are on track to exceed $135 billion this year. And beyond financials, these costs are now being counted in lives affected and lost. The Spanish Prime Minister spoke about the tragic floods in Valencia, one of the many examples discussed in Baku.
• Most countries and companies are behind on their plans and targets set for 2030. Countries working on their nationally determined contributions (NDCs) ahead of COP30 in Brazil need to take an honest look at how they can accelerate their plans, and where the financing for this will come from.

There is a strong sense that urgent action is needed, and a deepening worry that we will be left having to do “too much, too late” in the coming years.

And yet, there was an equally strong sense that, 29 years after the first COP, we are debating some basic requirements more than ever, especially financing. The sentiment is that urgent action is needed, but this is not transmitting into actions on the ground at scale. Again, three debates stand out:

• The late wrangling and final outcome on climate financing (one of the main objectives of this COP) underlined the challenge of reaching consensus in this complex system (see sidebar “Private capital’s role in bridging the climate finance gap”). Although it was triple the prior funding commitments, the final agreement of a $300 billion financing goal from the developed to the developing world is far lower than economists’ estimated need of around $1 trillion per annum. Extending the scope to all physical assets across the developed and developing world, our research suggests that up to $9 trillion per year will be required by 2050. We are a long way from that.
• The rapidly changing geopolitical and macroeconomic environment—and its implications on sustainability—was a second topic of debate. Interest rates are higher; inflation has returned; energy supply shocks and nearshoring pressure have emerged. And while there are some technologies that have surprised on the upside, for many others, early cost estimates have turned out to be too optimistic. Reality has changed and will continue to evolve. It raises the question of how far companies can go beyond their “in the money” trajectory, especially as many consumers are unwilling to pay a premium for more sustainable products without an improvement in price or performance. For some companies, these considerations are a reason to act with even more urgency and commitment; for others, they raise questions about the feasibility (or attractiveness) of acting on commitments made not so long ago.
• Finally, much debate surrounded the regulatory environment. Regulatory clarity and pathways have been critical instigators for many changes. Yet now, there is a sense of uncertainty that some regulations (see sidebar “Enhancing regulation as a means of boosting competitiveness”) may be delayed, rescinded, or much harder to meet. This led to some discussions on possible “first-mover disadvantage” in certain settings, if regulations get pushed back or if further down the road there is additional help announced for laggards.

It is hard to reflect a majority or consensus view, but a lot of our discussions balanced a dual reality: an urgency to act that has never been clearer and a context loaded with more uncertainties than ever before. We do plan to build on our climate technology and innovation framework (CTIF) in the coming year, which can help to inform policy makers as they reassess their NDCs. However, this article focuses on companies.

In our discussions, we saw businesses generally take one of three different stances on sustainability, although nearly all of them signal shifts in their behaviors ahead. The first were companies that see sustainability as a core business opportunity—such as start-ups, private-capital investors, and incumbents pivoting to scale up new clean technology. They emphasized that many investors have become more discerning. A common investor theme was “deal origination,” the challenge of finding reliable businesses to invest in, rather than any funding shortage. For many, the business idea remains important, but they also want to see a near-term path to positive cash flow and derisked execution. Some notable recent failures were discussed not as a failure of the idea, but as a failure of execution—of not sweating the small stuff, or of not moving fast enough and then being caught out as competitors raced ahead or market conditions turned. Some startups are looking to a broader set of financing mechanisms, such as blended finance, to overcome the scarcity of capital available to them. Others hope for more mature carbon markets (see sidebar “The emergence of carbon as an investable asset”) to provide a bankable source of revenues for their ventures.

As a contrast to the first category, companies in high-emitting industries such as oil, gas, and power, or hard-to-abate sectors, such as steel, cement, aviation, and shipping, are in principle well-placed to invest in decarbonizing their processes. Yet, many struggle to make business cases for deploying new climate technology, such as carbon capture or hydrogen, that meet their investment hurdle rates. They are faced with a need to rethink business models and partnership approaches to find solutions that continue reducing emissions.

Finally, there are companies committed to either meeting or exceeding their previous commitments. They often seek to be sustainability leaders to compete in their sector and to respond to customer or employee needs. Despite their high ambitions, many of these companies find themselves struggling to stay on track towards their commitments—be it due to geopolitical developments, regulatory changes, or because they haven’t moved fast enough. They may need to take an honest look not only at what they can achieve but also what can be done to accelerate their progress, for example through better execution or resourcing.

How companies can respond: Three ideas for 2025

Regardless of where they lie on the spectrum, the time is now for companies to reevaluate where they stand, rethink how they will get to their goals, and thoughtfully communicate this publicly. In doing so, there are tangible actions that businesses can take:

1. Take a reality check and refresh your sustainability strategy. Many companies and leaders created their sustainability strategies four to five years back. Some did it out of a sense of mission, others reacted to a mandate, while others saw a path for real competitive advantage. All those stances still hold, but it is time for companies to reevaluate their progress. While the end goal of meeting Paris-aligned climate targets remains more urgent than ever, many of the underlying assumptions have fundamentally shifted. And volatility and uncertainty are likely to increase rather than decrease.

   This is a fast-moving world. The market has shifted, and even a 5 percent deviation in some past assumptions is enough to throw some plans significantly off track. On many factors, deviation and future uncertainty are at a much higher amplitude. This isn’t the time to tweak plans made four to five years ago. It is time for a major refresh with a scenario-based strategy for the future. A sense of mission remains important, but wishful thinking will not get us to great delivery and execution.

   It is evident some companies are rethinking bullish commitments they made in the past, with some even explicitly resetting their targets. But to be clear, we don’t see this as reneging on commitments; rather we see it as a recognition that we have learned a lot. The market has shifted, and it is time for companies to have a detailed and specific conversation on where they want to go and what actions they need to take.

   For many, this may mean a commitment to act faster, invest more, and execute better to achieve their ambitious goals. For others, this could mean managing a more complex external ecosystem and thinking of partnering with others in a new way. Some may want to consider potential new business-building opportunities, which were previously not apparent and may provide new growth opportunities. Some others may realize their plans were too ambitious and they haven’t acted fast enough, so now they need to do much more to get back on track. Whereas others, whose plans are unfortunately based on assumptions that are not in the money now, face the reality that their plan will cost much more than they anticipated. Finally, there are companies that still lack full clarity around their own emissions footprint (especially scope 3) and run the risk of being caught out if the regulatory environment moves fast in their industries.

   This is the time for the classic “strategy under uncertainty” that requires each company to reexamine their assumptions, create scenarios for the future, and link them to possible options ahead. They can then accelerate on a committed, preferred plan while keeping other options viable long enough for more certainty to emerge. Whether the motivation is an enduring sense of mission, to fulfill mandates, to create competitive advantage, or a pragmatic look at what can yield a positive return on investment, businesses need an honest evaluation of where they are and how to move ahead—not mere tinkering.

2. Expedite the road to cost-competitive climate technologies. For a long time, it has been clear that, for some companies, identifying and scaling up new climate technologies that can also bring their costs down will be the perfect “good for us, good for the world” situation. While renewables and some other climate technologies have scaled up, many others are only starting to move from lab pilots to commercial scale. Now, more than ever, it is imperative to industrialize these technologies given their very attractive economics, and huge potential to accelerate the transition (see sidebar “Accelerating energy transition investment”). There are 12 known-and-developed climate technologies that will deliver 90 percent of required abatement. Solar and wind are already the lowest-cost sources of an incremental megawatt hour. The next frontier is accelerating the deployment of the new wave of technologies (including hydrogen, long-duration energy storage, precision fermentation, and smart microgrids and renewables). Our research shows that once technologies are at a “post-lab stage”—with the prototype demonstrated in an operational environment—unit costs can typically be reduced by more than 50 percent through scaling. Accelerating plans to achieve cost parity with fossil or traditional alternatives is powerful as it helps scale-ups attract financing and secure offtakes. Another possible accelerator is the development of carbon markets and blended finance.

3. Execute on in-the-money technologies with operational rigor. For companies that have advanced to the scaling phase, a frequent challenge has been operational and commercial execution. Too many businesses have moved beyond “first of a kind” operations but failed to bring down their cost structures when scaling up. The effort, expertise, and discipline required for industrialization have been underestimated. Derisking execution requires at least as much effort as derisking the business case. It is best done by teams and leaders who have strong prior experience with the precise tasks at hand. It requires consistent application of best practices in the supply chain, sourcing, construction, ramp-up, and operations. For companies looking to scale climate technologies, speed of execution, the ability to drive down unit costs, and locking in offtake agreements are all paramount.

Where do we go from here?

COP29 brought into sharp focus dramatic shifts in sustainability, financing, regulation, markets, and geopolitics, but the imperative to accelerate progress remains. This will be a complex transition. Companies need to be careful about returns on investment and take a robust strategic approach so that investments made can cope with the macroeconomic uncertainty of the rapidly shifting landscape.

The rules of the game have changed. To meet their ambitions, companies need to accelerate action, not continue to hope that their past assumptions will come true. They need to honestly assess where they are, what is possible, what they can accelerate, and what they cannot deliver. They should not wait until the tail end of the decade to realize they will not meet their ambitions but instead lean in now, with refreshed sustainability strategies, clear financial models, and courageous leadership.

Many assumptions underpinning sustainability plans have changed. With more volatility ahead, the path is indeed complicated and uncertain, but there are also in-the-money tools to accelerate action. True collaboration within relevant ecosystems, commitment to world-class execution, and embracing the full potential of digital tools (see sidebar “Harnessing digital technologies to boost and derisk execution”) are some examples of themes that need to be explored if we are to get back on track with decarbonization goals while also creating business value. The real leaders will move faster, build business value, and emerge stronger. The end goal remains important, but so too is the real rate of progress. The clock is ticking.