10 green business trends to watch out for in 2021

From net zero strategies to COP26, 2021 promises to be one of the most eventful and important years on record for the green economy

If the past five years have taught us anything it is that predictions are a mug's game. The global economy has endured a particularly volatile period since the Paris Agreement was signed in 2015, with President Trump's victory, Brexit, and the flexing of authoritarian muscles all sparking geopolitical tensions and economic uncertainty, even before the pandemic struck. Yet for multiple reasons 2020 felt like something of a watershed, with Joe Biden's victory in the US and the emergence of coronavirus vaccines fuelling hopes 2021 could see both an economic recovery and revival of some sense of international order.

As such, the foundations could be in place for an epic year for the green economy as diplomatic, policy, technological, consumer, and investment trends all combine to drive a rapid uptick in the pace and reach of global climate efforts. As such, it is possible to predict with a fair degree of confidence that a number of green business and policy trends will help shape the next 12 months

1. Net zero moves from aspiration to action

By the end of 2020 over 1,500 corporates and national and state governments covering around 70 per cent of the global economy had net zero emissions targets either in place or in the pipeline. Projections now suggest that if these targets are met the world would be on track for just over 2C of warming by 2100 - still in breach of the goals of the Paris Agreement, but a drastic improvement on the outlook just two years ago. However, that 'if' represents an almighty challenge that is contingent on the biggest and fastest industrial revolution in human history.

As such, attention at both the national and corporate level will continue to shift this year from the need to set net zero targets to the need to deliver an actionable and credible net zero strategy that can deliver on those targets. Pressure to develop such strategies will come from all quarters with investors demanding to see credible plans, policymakers strengthening the climate policy framework in support of more rapid decarbonisation, and activists targeting those net zero pledges that they regard, often with considerable justification, as 'greenwash'.

Work will continue to develop a standardised approach for assessing whether a net zero plan is credible, but broadly speaking stakeholders will demand to see serious clean tech investment capital, clear short term decarbonisation goals, proper engagement with supply chains and the wider value chain, and above all a willingness to countenance a rapid curtailment of fossil fuels.

2. Preparing for a green consumer boom

The short term economic outlook may be bleak with the third wave of the coronavirus crisis all but guaranteeing a double dip recession, but eventually better times will return. The pandemic has delivered a disorientating economic catastrophe where millions have lost their jobs or seen their income reduced and business and investor confidence has been hit hard, but at the same time millions of workers have seen their savings swell as they have been forced to work from home. Consequently, the Treasury is hoping that a consumer boom could help drive a rapid recovery as soon as the vaccine roll out allows lockdown conditions to be eased and people feel comfortable tapping into some of the money they saved. Clean technologies should be well placed to take advantage of this trend. The electric vehicle market was one of the few bright spots last year and demand should continue to grow as a degree of normality returns. Similarly plenty of families will assign some of their pandemic savings to home improvement projects, again providing an opportunity for energy efficiency upgrades and heat pump and solar installations.

The Green Homes Grant and Plug-in Grant scheme should both help drive a green consumer-led recovery, but expect calls to grow for the government to take further steps to ensure savings are invested in emissions-saving technologies and not emissions-exacerbating foreign holidays. Green stamp duty incentives and long-called for cuts to VAT on clean technologies would make a lot of sense.

3. Carbon market developments

Carbon markets look set to enjoy a bit of a moment in 2021. China kicked off the year by finally launching its long-awaited national carbon market and while its emissions caps look generous at the moment it provides an important foundation for future developments. Meanwhile, the UK-EU trade deal raised the prospect of future integration between the established European emissions trading scheme (ETS) and the proposed UK national carbon market. There is even (probably naïve) talk of some Republicans being willing to pursue a bipartisan agreement with Joe Biden to deliver a national carbon price in the US.

More broadly, the debate over how to ensure the 'net' part of corporate net zero commitments is credible will move to the fore this year, as the COP26 Summit seeks to finalise new rules for international carbon credit markets and more businesses step up investment in so-called nature based solutions. The debate will be heated and opponents of carbon pricing mechanisms and carbon offsets will make their voices heard, but more and more businesses to play a proactive role in these fast evolving carbon markets.

4. The 'Biden Effect'

Joe Biden believes in the power of the US Presidency. Regardless of the inevitable Congressional gridlock, he has already shown a willingness to use the bully pulpit in the Oval Office to apply political pressure and help shape the international conversation. He will do this repeatedly on climate issues, while at the same time pulling every available lever to drive green investment and accelerate the retirement of fossil fuel assets. The Democrats victory in Georgia's Senate races has provided him with yet more levers to pull. Expect a surge in US clean infrastructure investment and a new wave of net zero strategies from corporate America.

And where America leads, others will follow. Biden has made no secret of both his desire to prioritise international climate action and revive the Obama era's more multilateral approach to tackling global challenges. If he can resuscitate the alliances with China and the EU that enabled the Paris Agreement and step up pressure on those countries that continue to drag their feet on climate action then the chances of both a successful COP26 Summit and a further enhanced green investment climate will be significantly increased.

5. Changing diets, natural solutions, and shifting expectations

Nearly 450,000 people have so far signed up to Veganuary this year, but that is just the most visible manifestation of a cultural shift now moving so fast it is taking even its advocates by surprise. Growing demand for plant-based food has triggered multi-billion dollar investments in everything from lab-based meats to sustainable agricultural practices. It is a trend that is only going to accelerate this year as the fallout from the pandemic intensifies our collective focus on physical and planetary health.

But it is also just part of a much wider zeitgeist that shows no signs of burning itself out. Public engagement with the natural world has rarely been higher and pressure on businesses to tackle everything from their plastic use to their supply chain impacts is only moving in one direction. The expectation on businesses to act responsibly is now firmly embedded, with social media presenting a clear reputational risk to those that fail to meet the new standards the public expects.

The policy environment is also tracking this trend with a major focus from the government on enhancing nature as part of its wider net zero strategy. Expect the sweeping plans to reform agricultural subsidies to bolster nature and expand ecosystem services to become one of the most significant, if under-appreciated, policy stories of the year in the UK.

6. Home working dilemmas

It is one of the biggest economic unknowns arising from the coronavirus crisis: will the home working practices that have become the norm for millions of workers over the past year persist as the recovery gathers pace or will people flock back to the office? The answer has significant implications for the economy, urban planners, and the environment.

Home working has the potential to slash transport emissions, enhance productivity, and help revive communities right across the UK. But if the transition towards more flexible working patterns is mismanaged it also has the potential to damage city centres, exacerbate social divisions, and actually increase emissions as people spend more time in inefficient homes.

A big debate about the shape of the post-Covid economy is already well underway and is only going to intensify as the vaccine roll out allows the return of a degree of normality. Home working will be at the heart of the discussion. Innovative policy and technology thinking is going to be required to ensure the environmental and quality of life benefits on offer from more distributed workforces are realised and the risks of negative unintended consequences are minimised.

7. Evolving investor demands

Arguably the most important component of the surge in net zero commitments from the corporate sector over the past year has been the extent to which the financial sector has got with the programme. The already powerful divestment movement has been augmented by a raft of top banks and asset managers that have pledge to deliver fully decarbonised portfolios. The Net Zero Asset Manager Initiative now boasts 30 members with over $9tr of assets under management, while the Net Zero Asset Owner Alliance includes 33 members boasting just over $5tr of assets. That's a lot of money and a lot of influence.

As with the wider net zero transition the precise details on how these financial powerhouses will make good on their targets are very much a work in progress. But all businesses need to be aware that if the ranks of banks, pension funds, and investors that are seriously committed to delivering net zero portfolios continue to expand then it could have huge repercussions for any organisation still wedded to unsustainable and polluting practices. Taken to its logical extreme net zero portfolio plans mean fossil fuel infrastructure being starved of finance, insurance cover, and respectability, at the same time as a wall of money attempts to seek out viable climate friendly investments.

Add soon to be mandatory climate risk reporting requirements in the UK and the likelihood that Joe Biden will lean heavily on financial regulation to drive climate action in the US to the mix and the pressure from investors for businesses to deliver credible decarbonisation plans is only heading in one direction. Expect the emergence of net zero investment and portfolio decarbonisation plans to be one of the defining - and yet underreported - business stories of the year.

8. It's time to talk about climate resilience

2020 was the joint-hottest year on record. Natural disaster costs rose again to over $210bn. There is a credible argument that the pandemic itself was linked to climate and deforestation risks. And yet climate resilience remains something of a side issue for policymakers, investors, and businesses alike. The hope was that the pandemic would spark an increased engagement with long-tail risks, effective disaster response, and the need for systemic resilience, but to date any improvements on these fronts have been patchy at best.

This needs to change and there are some signs that 2021 could deliver progress. More and more leading food businesses are openly voicing their concerns about escalating climate impacts and stepping up investment in more sustainable agricultural practices. The UK government's reforms of farming subsidies will have nature-based enhancements to climate resilience at their heart. And the COP26 Summit will see developing nations implore richer countries to step up support to help them bolster their resilience in the face of worsening threats.

Climate resilience will still struggle to be a headline-grabbing issue, even when tragic climate impacts make their way onto the front pages. But there are signs that this crucial topic will edge up the agenda for political and business leaders this year.

9. COP26 opportunities

Climate change may be of greater concern to the public than ever before and clean technologies have never been more popular, and yet the topic still routinely struggles to lead the news agenda. For several weeks this autumn that should change.

The COP26 Summit is by some metrics the biggest political event the UK has ever hosted. Assuming the coronavirus pandemic is under some sort of control (which at time of writing is a depressingly optimistic assumption), scores of world leaders, thousands of diplomats, tens of thousands of campaigners, and countless journalists and broadcasters will descend on Glasgow for the most important UN Summit since 2015. It is a big deal.

There are three big tests the Summit will have to pass if it wants to be considered a success. First, the technical finalisation of the Paris Agreement rulebook needs to be completed and the negotiating deadlocks that have marred recent talks must be overcome. Second, all major emitters need to deliver more ambitious and credible national decarbonisation plans, thus providing the investment signals that will drive accelerated climate action throughout the 2020s. And third, political and business leaders need to seize the teachable moment the Summit offers and engage both the public and as many key decision makers as possible with the urgent need to embrace the net zero transition.

As such any and all businesses have a role to play in both supporting the Summit and driving forward the narrative that climate action is inevitable and desirable. Those businesses that are already fully committed to this transition also face a unique chance to raise their profile and build support for their climate strategies. They should invest serious time and resources in seizing an opportunity that will not come round again.

10. Post-Brexit, post-Trump green culture wars

The Conservative government and its supporters bristle at attempts to draw parallels between Brexit and Trumpism, and in fairness there are plenty of crucial differences between the two movements. There were plenty of well-intentioned Brexiteers who made their case in good faith, something that is much harder to say of Trump's outriders. But there is also a big similarity. Both President Trump and the Brexit campaign were supported by a disparate but vocal group of libertarians and reactionaries who enjoy a media profile out of all proportion to the small minority of the public who share their views. Now that group and the influential network of think tanks and media outlets that sustain it are preparing for the new post-Brexit, post-Trump era, and on both sides of the Atlantic they have environmental action in their sights.

Some of the government's top Brexiteers have been consistent in arguing that Brexit will allow them to pursue more ambitious and effective green policies. But others make no secret of their desire for a low tax, laissez-faire post-Brexit approach to governance and are preparing to launch an all-out assault on climate action that will seek to repeatedly characterise decarbonisation as a high cost, liberal elite endeavour. Having helped install him in Number 10 they will want to see Boris Johnson do their bidding.

Over in the US similar calculations are underway, with the GOP leadership nodding towards bipartisanship while showing zero desire to disown the climate denialism and political obstructionism that has defined their party for over 20 years. They will launch fierce attacks against any and all attempts by the Biden administration to accelerate the net zero transition, again alleging that the costs are too high and will disproportionately fall on working people.

These co-ordinated attack lines will exaggerate the cost of climate action and ignore the costs of inaction, but if governments are around the world are to build on encouraging recent measures to accelerate decarbonisation efforts they will need to respond to, and then win, this simmering culture war. The debate over how to ensure the net zero transition is fair, that the costs are evenly shared, and the benefits reach all corners of society will be one of the defining trends of this coming year, and the rest of the decade.

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