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The decarbonization of the global capital stock is crucial to addressing climate change. This requires replacing carbon-intensive processes with clean energy, manufacturing, and agriculture. The financing of this transition is expected to be facilitated by debt finance, as banks and institutions see it as a new line of business. The transition involves large-scale capital-intensive projects like building out clean energy generation. The momentum in the climate tech space has been driven by the recognition of the financial opportunities tied to climate investments.
Decarbonization presents the challenge of transitioning to clean technology while maintaining energy and manufacturing operations. This is similar to rebuilding a plane while it is still flying. The transition needs to happen quickly, as the world relies on energy and manufacturing every day. Fortunately, advancements in research and development have made clean technology more cost-competitive, creating new opportunities for businesses. The transition involves finding cleaner alternatives for sectors like aviation and industrial heat, which require further research and development.
Incentive alignment has been a key challenge in the climate space. Clean technology and climate-specific incentives have supported the growth of clean energy. Financial institutions play a crucial role in financing the transition, with decarbonization being brought by debt finance. Banks are motivated to invest in climate projects as they see them as key opportunities for new lines of business. The shift towards climate transition is attracting ambitious individuals within existing organizations, who recognize the returns on climate investments.
Carbon reporting and integration of climate goals into financial decision-making have become crucial for businesses. Companies are increasingly reporting on their carbon emissions as a key indicator of long-term financial risk and supply chain strength. The Task Force on Climate-related Financial Disclosures (TCFD) reporting is gaining significance and could become a standard for investors. Watershed, as an enterprise climate platform, helps businesses track and forecast their climate progress, integrating carbon data with financial data to inform decision-making.
There is growing optimism in the climate transition, particularly among those closely involved in the space. Progress is being made globally through commitments from governments and increased investment in clean technology. Businesses are recognizing the benefits of aligning climate goals with financial strategies. However, general sentiment has not caught up with expert optimism, and there is still a need to address doomerism and misconceptions about the trade-off between climate priorities and business priorities.
This week is the second half of our mini-series on the two major levers to reduce the impact of climate change. Last week, we covered Carbon Removal with Nan Ransohoff. Today we're focused on Carbon Reduction. To break down the business of decarbonization, I'm joined by Christian Anderson. Christian is the co-founder of Watershed, which helps companies like Monzo, Spotify, and Walmart measure, report, and act on their emissions. We discuss the impact on financial statements, why debt financing is key, and why people say no to climate programs. Please enjoy this breakdown.
For the full show notes, transcript, and links to the best content to learn more, check out the episode page here.
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Show Notes
[00:02:14] - [First question] - Climate change as a result of the inertia of capital
[00:03:44] - Financing a capital stock transformation for decarbonization
[00:05:22] - Decreasing dependence on legacy tech to mitigate humankind’s energy debt
[00:08:32] - System of incentives to use and invest in clean technology
[00:10:59] - Banks and debt financiers getting into the climate effort
[00:12:46] - How Watershed’s individual corporate customers approach decarbonization
[00:15:30] - Complexity and recent progress to decarbonize industry
[00:18:25] - How more effective energy will accelerate the decarbonization of supply chains
[00:20:58] - Surprising cost curves for various clean energy processes
[00:24:16] - Energy solutions for the most energy-intensive applications
[00:26:44] - The impact on corporations’ balance sheets and stakeholders
[00:29:49] - Why sophisticated companies are needed to drive the decarbonization transition
[00:31:46] - How companies measure and then modify their carbon footprints
[00:35:00] - Companies getting serious about climate issues in the past year
[00:37:29] - Capital flowing to tech niches and the problem of infrastructure regulation
[00:40:35] - Digital tools for decarbonization projects
[00:42:43] - How new businesses approach the climate issue from inception
[00:44:39] - Structure of Watershed’s buyers
[00:46:53] - Why people and businesses say no to Watershed
[00:48:55] - Perspectives across Watershed’s global markets
[00:51:36] - The most worrisome aspects of the climate crisis
[00:53:26] - Simplicity in the complex domain of climate change
[00:54:39] - The overall sentiment toward the climate movement
[00:57:37] - Forces that antagonize the climate movement
[00:59:25] - An exemplary case study of Apple’s climate work
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