Hello from London. While we were busy at the latest Climate Capital Live event, Shell softened some of its climate targets, retreating from an earlier commitment to cut the carbon intensity of its products 20 per cent from 2016 levels by 2030, as the energy major grows its global gas business.
Shell’s choice puts the global economy in danger by “exacerbating the climate crisis”, Mark van Baal, founder of activist shareholder group Follow This, said in a statement. Baal, who was with us at Climate Capital Live, added that the move “puts the company’s future at risk” through exposure to new disruptions and stranded assets.
Later today we’ll be watching for a vote on the Corporate Sustainability Due Diligence Directive, which would require companies to identify any environmental and social harms in their supply chains. With EU elections looming and Germany facing economic doldrums, concerns that the rule would saddle small firms with too much paperwork have gained more traction.
For today’s newsletter I reported on the effort to mobilise the workforce for the energy transition. The green skills gap is a major opportunity for labour, that could become a bottleneck. And FT climate reporter Aime Williams has an item on investment opportunities in climate adaptation.
Thank you for reading. — Lee Harris
Green jobs
Easing the green labour logjam
The red tape that results in long wait times to open critical mineral mines, permit new housing construction, or erect new electrical transmission have come into focus as real-world hurdles hold up the energy transition.
But the supply of skilled green workers — and the time it takes to train them — has been overlooked as a major bottleneck to unleashing the energy transition. An electrician in the US or UK, for example, typically trains in apprenticeship for at least four years.
Climate hawks will be happy to see that in the UK, at least, green job growth may finally be starting to buck sluggish trends. According to data from the Office for National Statistics released yesterday, the UK saw a bump in green job creation after the pandemic.
Full-time jobs in green sectors increased to an estimated 639,400 in 2022, a figure almost 20 per cent higher than the ONS estimate for 2020. Growth was buoyed by new hiring in the waste, low-carbon transport and renewable energy sectors.
Previously, green job trends had been stagnant. Between 2018 and 2020, the number actually slipped by 18,900, according to the ONS.
The long-heralded “green jobs boom” may be a soggy political cliché, but the energy transition requires a small army of tradespeople, such as electricians, in sectors that have struggled to recruit younger members.
Julian Critchlow, the lead author of a recent report on the net zero workforce from consultancy Bain & Co, told me that in the short term, skills may be a tougher constraint on the energy transition than the availability of capital.
There is “no lack of capital” in a sector such as offshore wind, he said, whereas “the skills to be able to put those wind farms up — you need the ports, the turbines, the blades, the construction — all new skills, new sectors, at the same time as we’re trying to run the offshore E&P [oil and gas exploration and production] industry”.
Critchlow was speaking from experience. He left Bain in 2018 to serve as director of energy transformation and clean growth in the UK’s Department for Business, Energy and Industrial Strategy (BEIS), and found his plans snarled by Brexit and the Covid-19 pandemic — both of which demonstrated how material constraints such as labour, shipping and supply chain delays can be just as binding as a high cost of capital.
The Bain report underscores the scale and speed of the reskilling challenge. “The decline in coal mining in the UK saw the loss of roughly 1.1mn roles over a 70-year span. The net zero transition will impact four times as many people in a tenth of the timeframe,” it reads. “In the US, the Servicemen’s Readjustment Act (the ‘G.I. Bill’) upskilled millions of World War II veterans to address postwar labour needs. The UK’s net zero ambition requires the same level of radical thinking.”
Bain predicts that the UK will lose some 240,000 jobs, and gain about 1mn, netting out around 760,000 jobs gained. Those gross figures conceal significant churn, and job losses will be more heavily concentrated in some regions. The West Midlands and Scotland are expected to be particularly impacted by shifts in vehicle manufacturing and offshore oil and gas production.
Currently, according to the ONS, 14 per cent of UK employees work in three industries — electricity, gas, steam and air conditioning industry; manufacturing; or transportation and storage — that account for more than 60 per cent of national emissions.
Workforce ‘aged with the infrastructure’
Back in the 1970s, Critchlow said, the nuclear and natural gas industries “required a big workforce that aged with the infrastructure”.
It has been decades since the UK embarked on a major energy buildout. The UK’s electricity usage has been in decline since about 2005. As a result, recruitment efforts may have gone rusty.
Now, with energy use predicted to rise, construction workers and tradespeople will be in higher demand. But it is an open question whether new green jobs will be good jobs — and whether labour unions will capture that growth.
“There’s intense competition for all of these skills, and it is a problem that some of the suppliers in this area, like Octopus, are non-union [energy] suppliers,” Laurence Turner, head of research at GMB union, told me. “There are wide variations in terms and conditions across the industry, and when you have non-unionised employees, you do see that race to the bottom.”
Manufacturing employment is also a cause for concern. “We’re switching from labour-intensive jobs on the operations side of energy production to renewables, where there are jobs to be created in manufacturing, but those supply chains by and large aren’t based in the UK,” Turner said.
A green jobs crunch would not last for ever, Critchlow added: “At some point we will see the other industries come off. We’ll see reductions, and that will create a more challenging environment. But that’s probably one or two parliaments away.” (Lee Harris)
Climate finance
Climate adaptation may be less sexy than mitigation, but the pay-off is real
Adaptation finance — the money needed to help the world cope with the nasty side-effects of rampant warming — has always been the poorer relative of efforts to stop climate change happening in the first place.
While everyone can rally behind the global effort to stop climate change, projects that accept our fate seem to generate less enthusiasm — both from the private sector and from multilateral lenders and governments.
Moreover, the Climate Policy Initiative has found that the private sector is missing in action when it comes to resilience and adaptation — about 98 per cent of the funding in this space comes from the public sector. And much more money is needed. In November, the UN Environment Programme said developing countries — which bear the brunt of the negative effects of global warming — need $387bn a year to adapt to climate change. That’s about 10-18 times more than the public finance currently on offer.
It’s a gloomy scenario, but a new paper from the Global Adaptation and Resilience Investment Working Group offers some encouraging news. The paper argues that, actually, there are lots of listed companies working on climate “resilience solutions” and that investing in them is “fundamentally attractive”.
“There is now greater certainty around the near-term trajectory of climate change and the demand drivers for climate resilience,” the authors write.
The paper — which uses data and analysis from the MSCI Sustainability Institute and investors at The Lightsmith Group — unveils a new model that identified 800 companies working on resilience solutions.
It acknowledges that investment in adaptation has been “minuscule” compared with private sector investments in decarbonisation. Investors are already quite keen on securing financial returns by investing in everything from solar power to green hydrogen to electric vehicles.
But the conversation around adaptation, the authors say, has been framed around the cost to governments, rather than an investment opportunity. They argue that the adaptation investing opportunity is broad — and includes companies developing increasingly sophisticated analysis and forecasting systems, as well as ones offering drought tolerant crops, water storage and cooling technologies.
Its broader point is that climate change is happening, investors can be confident of this fact. Companies exist that allow you to profit from this conviction. There’s a bonus, which is that investing in these companies can help advance environmental justice, helping people in developing countries live with the negative effects of a climate change they have done little to cause.
Will we see a flood of Wall Street money now suddenly flow into adaptation finance? I suspect not — but perhaps by presenting the issue as a problem addressed by an asset class can help turn the tide. (Aime Williams)
Smart read
How do different forms of government trade policy affect the growth of the electric vehicle market? Here’s an interesting business school-style case study by Christopher Tang of the UCLA Anderson School of Management.
Read the full article here