There is still uncertainty about how climate tech - which focuses on solutions to air pollution, water scarcity, energy generation and others - will be regulated, write Ridwaan Boda and Naledi Ramoabi.
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Concerns over climate change have prompted action from governments, activists, and corporations. This has fast-tracked the rise of "climate tech", a new category of technology focused on mitigating the effects of climate change.
First gaining traction during the Paris Agreement in 2015, climate tech encompasses solutions to environmental issues like air pollution, water scarcity, energy generation, distribution, and more.
Globally, the climate tech market is currently valued at approximately $2.5 trillion. Investors are now focusing on contributing capital towards long-term, impactful, and outcome-focused projects.
As such, there is an opportunity for companies which implement ESG practices through climate tech to attract more investments. The technology is being embraced by governments and nonprofit organisations alike.
Regulators across the globe are taking steps to ensure that legislative and regulatory frameworks are in place that promote and prioritise sustainability practices.
In light of the changing legal landscape, there is still uncertainty about how climate tech will be regulated. This may create difficulties for those who are interested in climate tech and could have a detrimental effect on innovation. On the other hand, having regulation on climate change and sustainability creates certainty and opportunities for developing climate tech solutions.
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The use of tech can sometimes go against the very sustainability goals that are trying to be achieved. How the technology is powered could be contributing to some of the sustainability issues, such as carbon emissions. For example, some of the technologies that use blockchain to capture and analyse data use a lot of energy consumption, which is harmful to the environment.
In other words, companies should make sure that the technologies they use are actually helping to reduce their environmental impact and not making it worse. For example, a company that uses solar panels to generate electricity promotes sustainable practices. However, if the same company turns around and uses a lot of energy to power its data centres, its overall environmental impact may be negative.
In procuring climate tech solutions, organisations must also be aware of the necessary organisational and procurement processes that should be followed to mitigate legal and operational risks. Some of the risks can be addressed by:
- Having in place a policy to regulate climate tech adoption, which ties in with the organisation's overall ESG goals and initiatives;
- Conducting proper due diligence to ensure that the climate tech solution will enable the organisation to meet its business requirements and other relevant legal obligations and, as importantly, its ESG goals and objectives;
- Understanding the impact or likely impact of regulation and other initiatives on the actual technology involved, and seeking the required assurances (including warranties and where appropriate indemnities) from vendors in relation to compliance and other objectives;
- Negotiating and concluding sound agreements with vendors that cover major aspects of the climate tech solution such as intellectual property, licensing arrangements, compliance, data privacy and security, etc. and from a vendor perspective, ensuring that the vendor's terms and conditions as well as policies are adapted for climate tech solutions risks; and
- Ensuring that there are sound project management practices in place during the implementation phases.
The success of building and implementing climate tech solutions is dependent on several factors, including technology developments, science, and the law.
It is imperative that organisations conduct due diligence and enter into sound contracts before committing to a technology solution. As with most innovative solutions, some drawbacks and risks may be associated with adopting climate tech, but the benefits far outweigh them.
The positive impact that climate tech can have on sustainability practices is a legitimate reason why the government and private organisations should seek to incorporate climate tech in their ESG practices and strategies.
As climate tech adoption increases, some regulatory interventions may assist in ensuring compliance with ESG standards.
Regulatory bodies can also enforce laws, incentives, and mandate reporting on ESG impact. They can also supervise the safety and effectiveness of climate tech, setting performance standards and certification schemes.
These regulations may assist, not only in fostering a sustainable environment and fair competition, but also drive climate tech adoption and investment in ESG initiatives. However, as with all attempts to regulate technology, the pace of technology often outstrips the utility of regulation, and a pragmatic, principled approach should be adopted rather than hard and fast laws which may impede or frustrate innovation.
Ridwaan Boda is an executive at ENSAfrica's corporate commercial division and Naledi Ramoabi is a candidate legal practitioner at ENSAfrica's corporate commercial division.
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