2024 was a big setback for net zero coalitions. Many asset managers, especially US asset managers, left the Net Zero Asset Manager Initiative and Climate Action 100+. The UN-convened Net Zero Insurance Alliance was completely disbanded.
This is a drastic change from just four years ago when there was great hope and enthusiasm that the finance sector could change the world if participants came together for the greater good. Today, that dream seems like a distant memory.
How did we get here? What went wrong and why? And most importantly, how can net zero coalitions be stronger going forward?
The proximate cause of member departures was most likely investigations opened by a group of over 20 US state attorneys general. There is no doubt that these investigations were politically motivated, but to assign the cause solely to politics and look no further would be a failure to fully scrutinise all the factors that ultimately led to the departures.
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Early in my career, when I was a quality engineer, I was taught to ask “why” five times to get to the root cause of a problem. So, I will ask why four more times.
Why were the investigations effective in getting organisations to exit the coalitions? I suspect because the organisations realized that the commitments they made did, in fact, expose them to incremental legal and compliance risk despite the disclaimers.
Why did the coalitions ask organisations to make commitments that would expose them to more legal and compliance risk? There are several answers to this question, but I’ll highlight the one most interesting to me: because the commitments had to be ambitious.
Why did the commitments have to be so ambitious? Because the commitments needed to respond to the narrative that it is urgent to take action to mitigate climate change.
Why is climate change narrative focused on creating urgency? Because the global movement to mitigate climate change is built around Kotter’s 8-step model for leading change, in which the first and most important step is to “create a sense of urgency.”
To be clear, the intent of this article is not to debate whether it is urgent to take action if we want to reduce the potential future negative impacts of climate change – it is. Science clearly shows that if humanity continues to produce greenhouse gas emissions at the current rate, there will be significant changes in regional temperatures and precipitation. And history shows that prolonged changes in regional weather patterns can have negative impacts on economies and societies.
Rather, the point of this article is to ask whether creating a sense of urgency about potentially very negative but highly uncertain outcomes decades into the future has been an effective approach for marshalling the action needed to avoid such consequences, and more importantly, whether those seeking to mitigate climate change should continue using Kotter’s change management model. Naturally, this question cannot fully be explored here, but I at least want to start to bring awareness to some of the alternatives.
One critique of Kotter’s model is that it does not address the emotional aspects of change. Common responses to change include confusion, denial, fear, and anger. Creating a sense of urgency does not help people address those feelings. If anything, it probably makes them more resistant to change because no one wants to feel rushed to act when they’re not ready to act.
Going forward, I think net zero coalitions should incorporate ideas from the Kübler-Ross Change Curve and the Bridges Transition Model (no relation to Bridges Fund Management or the Bridges Spectrum of Capital). Both frameworks deal with the psychological processes of change. Understanding these processes and addressing them through strategy and communications increases the effectiveness of change management initiatives.
Another shortfall of the Kotter model is that there is no explicit step that evaluates the feasibility of the strategic vision or how it might be accomplished. There is an implicit assumption that all barriers can be removed. When using the Kotter model, nothing prevents one from creating a strategic vision that is technically, commercially or politically impossible, or if possible, outside of one’s control or influence to bring about.
In the future, I would like to see net zero coalitions make greater use of the Theory of Change framework. This framework prompts users to identify desired outcomes and then work backwards to identify the activities that are likely to help bring about those outcomes. In addition, I hope coalitions will put greater emphasis on providing the knowledge and skills needed to enact change.
To be fair, the Kotter model also contains many good ideas and principles, and I’m not saying it should be completely discarded. There is no perfect change management model; they all have their strengths and weaknesses. The best approach is to combine ideas from multiple models.
2025 is a chance to reflect and reset. I hope net zero coalitions use this moment to rethink their fundamental approach to change management. The barrier to change is no longer a lack of awareness about climate change or a lack of desire to mitigate it; the barrier is the massive and entrenched system of physical infrastructure and economic incentives that underpin the entire global economy.
I hope that net zero coalitions will now shift their efforts to focus on the very difficult task of showing exactly how, and how much, investors can influence or support changes to the economic system. Investors who want to support net zero need more than anecdotal case studies – they need a realistic Theory of Change.
