Corporations are feeling the heat from extreme weather

Corporations are spending more on sustainability operations amid a growing recognition that severe weather brought on by the climate crisis may threaten bottom lines.

New data from Honeywell and tech research and advisory firm The Futurum Group found that around nine in 10 businesses said they are planning to hike their energy-efficiency budgets, while about 43% said weather-related disasters, extreme heat, and rising sea levels spurred a boost to near-term sustainability investments in 2023.

Honeywell began taking these quarterly temperature checks last year to gauge market demand as the 117-year-old industrial giant looks to grow its energy transition business and other green tech operations.

We spoke with Honeywell Chief Sustainability Officer Gavin Towler about how weather events have impacted business outlooks, the move toward tech-focused approaches to sustainability, and how companies are thinking about environmental goals.

This conversation has been edited for length and clarity.

What stood out to you about this report after a year of gauging business investment and feelings around sustainability?

We were interested to see the level of sentiment around where we asked the question [about] the events of the past summer. Because this summer, we saw quite a lot of additional floods, droughts, wildfires, and quite severe climate impacts. And if you read the news, obviously, we’re currently at 1.3 degrees of global warming. But because it's an El Niño year, this summer was a little bit warmer than it would otherwise have been. So the weather conditions we had this summer were roughly what you’d expect with a 1.5-degree warming. Now, 1.5 degrees is the stretch goal of the Paris Agreement—the Paris Agreement actually has a goal of 2 degrees, but with an aspiration of keeping the climate to 1.5 degrees of warming. So this is what success looks like—this past summer. And clearly, we had a lot worse climate impacts than we’ve seen in recent years. So one of the things that we asked this time around, is [whether] the impact of climate-related events inspired anything, any change in thinking in your company organization around sustainability planning. And the result wasn’t entirely surprising. We expected to see that people would come back and say, “Yes, it has.” But actually, about 46% of organizations said the weather impact was likely to cause a change in their planning. And 44% said it would cause a change in their sustainability investment. And that was in addition to 35% who said that natural disasters are already part of that planning.

So it basically showed that the sentiment is that people do realize, at least people in these leadership positions, do see the connection between increased frequency of natural disasters and a need to change their investment strategy, and need to build more resilience into the industrial building, whatever infrastructure that they operate, in order to be ready for the impacts of global warming.

The report shows that more companies than last year are now opting for a tech-driven approach to sustainability rather than a process-driven approach, or one focused on business policies and operations. What’s driving that switch?

What’s happening there is people are getting an appreciation that some of the tech that’s really key to sustainability is very proven and has scaled to the point where it’s now the lowest-cost option. So as an example, wind power, solar power—and wind power at the moment is going through some issues with cost of wind power, and manufacturers have had issues with turbine performance—but solar power, in particular, has broken through. It’s now the cheapest option.

So a lot of companies that are looking at investing in their own power production are now saying, “OK, yeah, well, let’s not put in gas turbines or backup diesel generators; let’s put in wind and solar”…So that’s very enabling for people bringing their scope-2 emissions down…So I think that that realization is driving a lot more interest in technologies like battery storage and electrolyzers for green hydrogen. And in particular, we’re seeing a lot of green hydrogen projects now in Europe. We’re also seeing a lot of battery projects, mostly based on lithium-ion. But a lot of interest in going beyond lithium-ion to other chemistries that, potentially, at scale, would be even cheaper. So all of that helps because, obviously, you need batteries if you’re going to go to high levels of wind and solar power.

The other factor that’s also playing a role here is that when you think in terms of carbon abatement curves—and for those who don’t know what a carbon abatement curve is, you plot the cost of per-ton CO2 avoided, or per-ton CO2 emissions eliminated, versus the amount of CO2 eliminated. And if you rank all of those from the things that have the biggest payback to the things that cost you the most, that’s called an abatement curve…And when you look at abatement curves, all of the things to do with energy efficiency are over on the left—they’re the things that have a payback. And a lot of the simple stuff, like taking out old incandescent lights and putting in LED lighting or fixing leaks in the building so that you have better insulation, a lot of those have been done, at least in developed economies. And so people are saying, “Yeah, energy efficiency, energy conservation, we did that, we got some good savings, we got 15%–20% out of that…what’s next?” And so “what’s next” then causes people to look at some of the higher-tech solutions, and in particular, transitioning more toward renewables.

Are you able to tell from doing these reports how closely corporate attitudes about sustainability track with big severe weather events? Like, do you see more executives thinking about this after a particularly bad hurricane season, for example?

It’s probably too early to pick that out after just five issues of the survey. But I think it’s more…the frequency of severe weather events is actually ticking up, and everybody notices that, and companies, as they go through writing their 10-K and filing their significant risks, they have to speak to the risks that they face from things like natural disasters. Well, obviously, if natural disasters are becoming more frequent, that’s a problem, particularly if you’ve got capital assets that are exposed, whether those capital assets are an oil refinery in Louisiana or a hotel in Florida. And so more companies are, from a financial and legal perspective, realizing this is actually material…People have talked about how it’s going to be really bad by the end of the century. This is not the end of the century; we’re talking about this year. And so there’s more of a realization that this is not a problem that somebody else will have to solve 20 years from now, this is a problem that, if you’re running a large corporation, you’ve got to invest now in actually making your corporation resilient. Otherwise, you could actually face short-term risks to your balance sheet and to your profitability to your operations.