Where is Sustainability heading in 2023?

In 2023, the world will continue grappling with a veritable soup of intertwined crises, including energy, food and cost-of-living. With tangible daily life effects, these have largely obscured the world’s green transition and the still achievable endeavour to stay below 1.5°C, coupled with biodiversity decline of existential magnitude, not only to nature but to humankind itself. What is to expect?

Sustainability transitions remain under (ambiguous) influence from combined energy, food and cost-of-living crises 

Russia, in parallel to the invasion on Ukraine, wages an energy war on Europe, whose heavy dependency on Russian gas has laid foundation to energy prices not experienced since the seventies. Meanwhile, disrupted Ukrainian grain exports, along with extreme droughts in large parts of the world, has set off  food shortages hitting in particular the Global South. While global food prices are currently falling, we are still in the midst of a cost-of-living crisis. 

Where does this all lead in terms of sustainability? Some of the observed impacts stretch across weakened public policy, increased need for inclusive climate action and a reshaped energy landscape.

National policy weakening

More than a third of the global economy is expected to contract in 2023. Economic recessions of this kind can promote the birth of more authoritarian regimes, departing from various forms of dictatorship already affecting a sobering 70% of the world’s population. Within such restrictive environments, efforts of crisis management are made more challenging. Climate and environmental public policies need protection from populist movements that counteract clearcut, impactful and long lasting incentives and regulations.

Inclusive climate action

During recessions, progressive policy makers therefore need to double down on just transition efforts, with consideration given to welfare allocation and impact on marginalised voters. For example, carbon taxes, although vital for meeting climate targets, may continue to face backlash from the public if perceived as a hidden government agenda to raise taxes in general.

At international level, some recognition of just transition issues and climate equity imbalances between the Global North and Global South was given at COP26. The following 27th COP was the first major African climate meeting, with even further attention paid to developing-country issues. Altogether, the so often overlooked “social” dimension of climate action is likely to gain further momentum this year. 

“... for the first time, global demand for fossil fuels ‘peak or plateau’ across IEA projections”

Energy

While recent UK and German coal mine initiatives are seemingly isolated steps backwards, the International Energy Agency (IEA) expects the increase in European coal use in 2022 to be temporary, with demand falling in advanced economies in the coming years while remaining robust in emerging Asia. In turn, global production capacity of fossil gas by 2030 is estimated to double the total of lost Russian gas, i.e. the world has now largely overcompensated in the wrong direction. The IEA nevertheless points to the strong incentives created by increasingly expensive fossil fuels globally. Remarkably, the agency hints at a potential historic turning point where, for the first time, global demand for fossil fuels “peak or plateau” across IEA projections.

Disrupted delivery – The Nord Stream pipelines are sabotaged in the midst of the Russian-European energy conflict

The cost of carbon emissions increases

The societal cost of emissions keeps rising through droughts, storms, rising levels and the like. In parallel, so will the cost of emitting, manifested through the respective price levels of emissions allowances and of offsetting emissions. 

Allowances
While annual allowances at the European carbon market (ETS) historically have been given for free to so-called hard-to-decarbonise industry sectors, the idea is to gradually reduce the number of such allocations to zero. This would progressively raise prices to incentivise further emission reductions. Over the last two years, the price of ETS allowances has doubled.

Offsets 
We are likely to see further disclosures such as the Verra "phantom credits" in the near future, despite ongoing work to create a universal offsetting standard by the Voluntary Carbon Markets Integrity Initiative (VCMI). Nevertheless, the current global supply of carbon removal solutions simply cannot meet the aggregate demand stemming from net zero targets. This suggests that most companies underestimate their future CO2 compensation cost, especially in regards to high integrity credits. However, first things first; companies following the Science Based Targets need to set their priorities right and halve their emissions by 2030 altogether without reliance on offsets.

Biodiversity enters the stage

Closely intertwined with climate, the biodiversity crisis is here and it matters. Last year, world leaders at the UN Convention on Biological Diversity COP15 agreed to protect 30% of global land and sea areas by 2030. Seen as a Paris Agreement for nature, this framework paves the road for rising global scrutiny and collaboration along with national and sector-level plans that require companies, financial institutions and investors to take concrete actions. Here, the EU is anticipated to take next steps crafting its Nature restoration law, as part of its broader 2030 biodiversity strategy. 

Estimates indicate coral reefs contribute US$2.7 trillion per year in ecosystem service value, including US$36 billion in coral reef tourism. While being rich havens for biodiversity, they are among the most vulnerable ecosystems on the planet.

The World Economic Forum, currently convening in Davos, calls for combined nature-positive and net-zero transition initiatives. While energy, inflation, food supply and cyberattacks are of immediate focus, the WEF community ranks biodiversity loss and ecosystem collapse just after climate change in its annual assessment of top global risks within the next decade. In turn, frontrunning business and finance institutions see an opportunity to stay ahead and demand mandatory footprint reporting. 

In 2023, we may see early initiatives of biodiversity credits as one of the market-based financial mechanisms to unlock private finance. Whereas carbon offsetting credits are based on projected emissions uptake, biodiversity credits rely on an adequate valuation of ecosystem services and community benefits. As such they may well face credibility challenges similar or worse than their carbon counterparts.

All in all, different factors and topics will impact the green transition with the outcome still in the unknown. Organisations should focus on being agile, setting both short-term and long-term goals, and (simply put) act! In order to reap the benefits of the emerging green economy, we need to get from inertia to action in a systematic way ensuring that organisations are committed, have enough innovation capacity and are internally aligned.