Renewable energy and business are pulling back on climate targets: here’s why

In recent years, the business world has undergone significant plot twist ON its climate goalsOnce pioneers in the race to reduce emissions and adopt renewable energy, many companies are now reassessing or even abandoning their environmental goals. This shift has been driven by a range of factors, including the rising costs of producing renewable energy, a lack of adequate government support and the financial unsustainability of ESG (environmental, social and governance) investments.

Key Data and Recent Turning Points

IN June 2024, Energy Institute report revealed that global emissions continue to rise, while the share of alternative energy sources in the global energy mix remains minimal. This is despite rising global energy demand, and particularly demand for oil. The disappointment among companies is palpable as ESG investments, hailed as the future of sustainable investing, have failed to deliver on their promise.

The Fall of ESG Investments

In just a few years, ESG investing has declined significantly. Wind and solar developers have seen their stocks plunge as production costs rise. At the same time, electric vehicle (EV) makers have faced a drop in consumer enthusiasm. In the face of these headwinds, many companies have found that their climate goals are often unrealistic, prompting them to change them or abandon them altogether.

The Impact of Policy and Regulation

The Financial Times recently published analysis showing that revisions and cancellations of climate targets were motivated by political and regulatory developments. Another contributing factor was the lack of sufficient government support, commonly known as subsidies. Despite generous subsidies from European and American governments, companies failed to meet their targets, including diverting attention away from polluting sectors.

The reality of reducing emissions

Rachel Whittaker, Head of Sustainable Investment Research at Dutch asset manager Robeco, told the Financial Times: “Everyone got swept away by the wave of enthusiasm. The reality is not that simple.” Reality has repeatedly shown that there is a significant gap between setting emission reduction targets on paper and actually reducing those emissions. Carbon offsets, a key component of many emission reduction plans, have proven ineffective, casting a shadow over the entire emissions reduction initiative.

Legal and financial challenges

A Dutch court has ordered Shell, one of the world’s largest oil companies, to scale back its oil and gas production operations. The decision sparked a media frenzy and pleased investors, as demand for oil and gas remained strong while Shell’s low-emission initiatives fell short of expectations. Even banks, that have promised to curtail their oil and gas operations have been slow to implement these cuts. Crédit Agricole in France, for example, announced plans to cut all ties with hydrocarbon companies, but most banks have continued to invest in the traditional energy industry because of its profitability.