Climate change and the damage it's causing will spur more lawsuits in 2024, according to Investcorp.
Last fall, a judge ruled in favor of a group of Montana youths and declared that the state of Montana failed to consider climate change when approving fossil fuel projects. Already this year an activist group has brought a case against Dutch bank ING, along with unwanted attention and criticism.
“The number of climate related lawsuits has gone way up,” said James Socas, global head of climate solutions at Investcorp. “That Montana suit, I think, was very eye-opening for people. And [corporate] boards don't like to be in the newspaper, and boards don't like to have legal risk. So we think that's going to be a real focusing mechanism.”
That's just one of 10 climate predictions that Investcorp, the $50 billion alternative investments manager, plans to publish this week. If only half of them are realized, 2024 will be one of the most consequential years for climate change and related investments.
Much of Investcorp.'s business, which was founded in 1982 in the Middle East, is related to climate change as many of those nations pursue energy transitions domestically and invest in climate projects abroad. For those reasons, Socas says his firm — which he argues is a “mini Blackstone” focused on middle-market companies — has an edge over other asset managers.
“Our view is that climate is going to be the biggest investment theme soon. You really can't make asset allocation decisions without thinking about climate,” Socas said.
In November at the COP28 UN Climate Change Conference in Dubai, Investcorp said it planned to raise a $750 million fund to combat climate change. The manager’s predictions for 2024 hint at how the firm might allocate that money. But Investcorp argues that all asset managers should be considering these possibilities.
“In addition to there being a real opportunity to invest behind solutions, whether it's climate adaptation or resilience, everyday investing is also becoming increasingly more aligned to sustainable economic growth,” said Habib Abdur-Rahman, the global head of sustainability at Investcorp.
The gradual warming of the earth coupled with El Nino means this year could be the hottest on record; the first year where the average global surface temperature is 2.7 degrees Fahrenheit warmer than the pre-industrial era. Investcorp thinks the especially dangerous threshold of warming will be breached, draw a new level of attention, and prompt more action. Regardless of how much warmer 2024 is or isn’t, the consequences of a warmer earth — stronger storms, more wildfires, droughts and other calamities — “will accelerate the shift in narrative from ‘energy transitions take a long time’ to ‘we cannot afford additional delays,’” Investcorp says.
Climate change is going to be a bigger factor on U.S. oil production, as President Joe Biden’s administration weighs lowering inflation with meeting environmental goals and catering to the populace in a White House election year. Investcorp predicts that the U.S. position as the top oil producing nation will weaken (Global production of oil and other petroleum liquids has averaged around 100 million barrels per day in 2023 and the U.S. accounts for almost 20 percent of that). Investcorp also believes that climate change will be a major issue during the election as Biden and Donald Trump face more questions about the impacts climate change is already having on U.S. citizens.
Another prediction: The carbon markets — a wild-west space rife with problems including measurement and fraud — will continue to mature. “Throughout the year, increasing regulatory scrutiny and oversight begins to calm down concerns around integrity and transparency in the voluntary carbon markets,” the Investcorp report says.
Investcorp’s least likely prediction, which it characterized as “below probable” is that increases in the atmosphere’s carbon dioxide levels, temperatures and the disasters expected to follow as a result, lead to a sort of Manhattan Project of the 21st century that will accelerate carbon capture technologies.
During the early years of the pandemic, people adapted to the threat by altering their daily lives and developing new vaccines at an unprecedented pace. It was a good example of investment and progress not just continuing but thriving under even some of the most dim periods. The same is possible when it comes to climate change, Abdur-Rahman said.
“To me, it's just a when question. It's all going to get done, it's all going to get fixed, and it's an incredible investment opportunity,” Socas said. “But yeah, it's going to be challenging. It may be a little bit messy, but that's human history.”
