Sustainability backlash: Facts & fantasies

Taking a global perspective on the economic and technological trends underpinning Net Zero initiatives, one sees clear albeit uneven progress of the energy transition. On the world stage, the US pulling out of the Paris Agreement has de facto deactivated the multilateral framework for climate action put in place in 2015. That said, save for the US, carbon neutrality targets remain in place among the World’s largest economies (EU, China, Japan, India and UK). Better still, in some jurisdictions (EU, Japan, UK), Net Zero targets for 2050 are set in domestic law, supporting decarbonization policies. However, global emissions kept rising worldwide since the end of the pandemic (+0.4% in 2024 vs. 2023) and could at best plateau in 2025. As a result, the +1.5°C limitation goal is now officially out of reach [1].  

 

Furthermore, the past 18 months have revealed noticeable headwinds to the environmental transition. On the one hand, several regulations in Europe and the United States are being unraveled, numerous companies are backtracking on their decarbonization targets, and, in their daily life or votes, a significant share of the population is de-prioritizing environmental issues in front of competing concerns. On the other hand, in other regions of the world, several jurisdictions continue to promote sustainable finance topics and disclosure, while some firms maintain or accelerate their decarbonization plans and associated CAPEX.

This joint publication between Natixis CIB Green & Sustainable Hub and CIB research deciphers a nuanced backdrop where the transition keeps unfolding. It debunks fantasies, acknowledges undeniable setbacks, sheds light on structural transformations, and draws lessons on how sustainability could coexist and strive alongside other considerations.

 

The shades of transition pushback vary between a fierce hostility to sustainability issues, particularly in the US, a fatigue from reporting obligations and a de-prioritization in the face of other major (geo)political issues. Opinion polls and votes studies reveal contrasted attitudes according to age, income-level, political affiliation, with some defeatism among citizens regarding the transition feasibility and achievement means. This feeling is fueled by rising populism that undermines support for sustainable policies. An eroded consensus worsens the intrinsic bottlenecks of the transition, with dissonant behaviors from customers not actually willing to pay a premium for greener products. Manifestations of this backlash oscillate between backtrack (withdrawal of initiatives like SBTi, climate alliances exit), lightening (EU Omnibus, streamlined ESG disclosure, decrease in green CAPEX), postponing (shift of decarbonation targets over time) or a break (giga green projects at a standstill, NZAM initiative on hold).

 

However, counterexamples temper this movement: the maintenance and affirmation of transition plans and associated CAPEX from certain corporates, the launch of new green and sustainable bonds frameworks, or even the acceleration of the deployment of green technologies. Besides, targets recalibration and/or missing is not always a synonym of disengagement. They sometimes announce an age of reason and the advent of goal delivery-centered approaches, following a phase of reckless and gregarious unrealistic target setting.

 

Overall, the consequences of targets rollbacks, pull-back from climate coalitions, or sustainability disclosure shrinking, are hard to gauge, with time-lags and often disseminated effects. Potential consequences widely fluctuate from one sector to another, with a groundswell on the energy revolution that continues despite everything.

 

Regional dynamics outside Europe or the U.S. depict a more favorable transition outlook. Without neglecting a baseline effect, the multiplicity of initiatives across South-East Asia, the Middle East, or South America is compelling. They range from the introduction of disclosure obligations, launch of domestic green or transition taxonomies, sustainable finance products development, or massive CAPEX in transition solutions.

 

The case of the car-making industry illustrates divergences between both geographies and stakeholders. China’s growing domination of the battery electric vehicles (BEVs) market raises growing concerns in Europe about the future of the industry itself, with a dilemma between rapidly decarbonizing passenger mobility with affordable Chinese models or wiping out the EU automotive industrial basis and making its workforce redundant. Moreover, the stop and go in EU public policies, for instance on EV purchasing subsidies, creates uncertainty.

 

In this context, China acts as a forerunner, with an export and markets conquest-driven transition, anchored into security of supply concerns. Lessor known fact is China’s pursuing active transition policies, this through clear Net Zero agenda, accelerated development of renewable sources and accelerated build-up of manufacturing base for low-carbon technologies (battery electric vehicles, solar panels, electrolysers, etc.) over the past 10-15 years. Such policies sit within a threefold ambition to reshuffle China’s growth engine, upgrade its manufacturing base and ultimately tackle mounting climate protectionism from developed countries.   

 

Electrification of uses in industry, building and transport, the backbone of energy transition, is actually happening. Signs of expanding uses of electricity are multiplying all across the globe, especially in China and even in the US. Due to continuing landing of onshore wind and solar PV development costs, associated incremental electricity demand is set to be met by renewable sources in the upcoming years.

 

Better still, projected acceleration of electricity demand in the next 10-15 years, in particular from data centers, is laying the ground for new partnerships between buyers of electricity and operators of low-carbon generation assets. Such partnerships are even expected to provide direct support to the development of nuclear sources, in particular small modular reactors (SMRs).

 

Challenges surrounding the uptake of low-carbon hydrogen provide valuable lessons on the economic and technological challenges facing the energy transition. While it has recently suffered a series of setbacks, uptake of low-carbon hydrogen is still progressing globally. Failures of heavily subsidized equipment manufacturers and sluggish deployment of global electrolysis capacity so far are there to remind us how ‘Darwinian’ maturation of new technologies remains. Time to market as well as swift extraction of scale economies are key to overcoming industry challenges in the industrial link of the value chain. The ‘chicken and egg’ dilemma cannot be solved without proper overlapping of consistent, overarching policies on the demand side and informed risk taking on the supply side.

 

All in all, the transition is still unfolding. The basic foundations are laid down, on the existence and need for disclosure, on carbon accounting necessity (and the multiplication of carbon trading systems worldwide), on the need for harmonized criteria to define sustainable activities (taxonomies), on the urgency of action, as global warming makes no pause. Staying the course for transition is therefore essential and business wise.  

It comes with no surprise that the transition entails trial-and-error processes, especially regarding technology mixes. In the meantime, climate scenario modelling and pathways will have to be reshuffled due to the rise of AI and its induced electricity demand, as well as the growth of the military and security sector, which remains heavily powered by fossil fuels.

At EU level, lessons were learned from the 2022 energy crisis which followed Russia’s invasion of Ukraine and gas and electricity prices reaching unprecedented levels in wholesale markets. While still underpinning EU’s climate agenda, development of low-carbon energies (electricity, hydrogen and other renewable gases) now sits within broader policies also aiming to tackle sovereignty as well as re-industrialization challenges.  

 

The ongoing sequence and questioning of sustainability affect the ways transition is or should be steered and framed. It calls for what we frame as “a new recipe”. Reciprocity in economic competition and decarbonization efforts is crucial to reinvigorate support to the transition, alongside improved acceptability of measures aimed at vulnerable stakeholders. Environmental norms are less denounced in their essence and requirements than by the fact that they are unequally applied, i.e. non-EU firms unfairly benefit from not being subject to them. This is also why domestic content requirements are increasingly bundled with energy (security) transition considerations.