2025 is shaping up to be a year of paradox for sustainability, as businesses navigate a landscape teeming with both challenges and groundbreaking opportunities. Energy forecasts driven by AI have been caught mid-air with intriguing revelations from Chinese AI-giant DeepSeek. Meanwhile, political shifts, in the US, Europe and New Zealand, coupled with NZFA exits, stifle policy efforts on ESG. Yet, amidst these dynamics, the momentum for innovation and action remains strong. Read on to know what remains in the vogue and what seems to slow down in the sustainability space.
THE BULLS
Buildings contribute to 25-40% of global energy consumption, 30-40% of solid waste generation, and around 40% of global greenhouse gas emissions. It’s a budding sector with opportunities for innovation to help cut back on global carbon emissions.
In India, The Indian Green Building Council (IGBC), part of the Confederation of Indian Industry (CII) has developed green building rating systems and provides certifications. As of now, over 14,511 green building projects in India, covering 12.307 billion square feet, have adopted IGBC ratings. Additionally, there are more than 130 net-zero projects and several more under construction.
Demand for allied sustainable materials and technologies like low-VOC paints, recycled steel, rooftop solar and greywater recycling systems is another area that is witnessing high demand.
Like buildings, agriculture represents a big chunk, roughly 25%-30%, of the emission percentage. Consequently, it also represents a giant market for carbon-cutting solutions, and a plethora of startups are trying to fill it by offering everything from crop-tending drones to nitrogen-producing microbes.
AI is improving agricultural efficiency and ensuring sustainability. Technologies like drone analytics, automated irrigation, and AI-driven crop disease detection are helping farmers increase productivity, crop resilience while reducing environmental impact. For example, leveraging AI and digital tech, the World Economic Forum's AI for Agriculture Innovation initiative in collaboration with Government of Telangana supported chilli farmers achieve a 21% increase in yields and a 9% reduction in pesticide use. This benefits the soil health and increases biodiversity, promoting generative agriculture.
Another advancement made by India is the Indian Council for Agricultural Research’s (ICAR) introduction of 109 new climate resilient and bio-fortified crop varieties. On August 11th, 2024, 61 crops including 34 field crops and 27 horticultural crops were released at the research fields of ICAR-Indian Agricultural Research Institute, Pusa, New Delhi. This promotes the need to adopt climate-resilient crops to diversify agricultural practices and ensure food security amid unpredictable climatic conditions.
Direct air capture (DAC) technologies extract CO2 directly from the atmosphere, for CO2 storage or utilisation. Twenty-seven DAC plants have been commissioned to date worldwide, capturing almost 0.01 Mt CO2/year. Plans for 130 large-scale DAC facilities are now at various stages of development.
Building on the demand, the European Commission aims to store up to 50 Mt CO2 a year by 2030. In February 2024, the European Parliament and the Council of the EU reached a provisional agreement on the Carbon Removals Certification Framework too.
India too is making progress in CCUS technologies, including DAC, to help achieve its net-zero emissions target by 2070. India's carbon capture and storage market is expected to grow from USD 70.3 million in 2023 to USD 137.3 million by 2030.
In the private sector too, companies are falling back on CCUS to meet their carbon neutrality targets. In a big move, Google announced the largest-ever biochar carbon removal deal to purchase carbon removal credits from India-based Varaha and California-based Charm Industrial, for a total of 200,000 tonnes by 2030.
As traditional carbon reduction schemes weaken, geoengineering techniques like CCUS are becoming more popular, and are likely to gain traction in 2025.
In November 2024, COP29 was able to successfully finalize rules for an UN-monitored, global carbon credit trading system. A subject-matter that was originally conceptualized in 2015, this system will not only help countries achieve their climate goals quickly but shall also help developing countries find a way to fund climate projects.
On the sidelines, the Indian government too adopted detailed regulations for the planned compliance carbon market under the Carbon Credit Trading Scheme (CCTS) in July 2024. The Energy Conservation Act, 2022 now empowers the Indian government to establish a domestic carbon market and to issue carbon credit certificates (CCCs). CCC trading of voluntary offsets shall begin in 2025, and aims to have the compliance carbon market fully operational by 2026.
With voluntary carbon markets picking speed, we see opportunities for various climate project designers, developers and analysts. Many projects that have remained commercially unviable may find a new existence under the upcoming markets.
THE BEARS
The pullback on hydrogen began in earnest last year, and investors see it continuing in 2025. Countries scaled back their ambitions to produce and use the gas, which can be carbon-free if it’s produced using water and renewable energy. BNEF recently revised its forecast to find the gas will remain stubbornly expensive over the coming decades, costing as much as USD 5.09 per kilogram.
However, startups are looking to address the major headache over the cost of green hydrogen production. For example, Newtrance has developed and is now expanding its membrane-less electrolysers to bring down the cost of production. The startup is now piloting its technology with BPCL and ONGC Energy Centre, both major players in the energy industry.
With the introduction of EU Carbon Border Adjustment Mechanism (EU CBAM), more countries are looking at introducing a carbon tax. Countries such as the UK, Denmark, Canada and France have introduced carbon taxes and countries such as India, Brazil, Vietnam and Russia are considering introducing them.
In 2025, following Singapore, Thailand will become the second ASEAN country to implement a carbon tax. The carbon tax will initially be levied on the oil sector and is expected not to increase the overall tax burden on oils, as the new legislation will only convert a portion of the existing oil tax into a carbon tax. This carbon tax aligns with the EU CBAM.
While the levy is ultimately designed to incentivise low-carbon production, companies shall have to suffer its brunt until viable solutions and requisite changes are put in place.
Put simply, net zero means cutting carbon emissions to a small number of residual emissions that can be absorbed and durably stored by nature and other carbon dioxide removal measures, leaving zero emissions in the atmosphere.
In October 2023, 1,003 of the world's largest 2,000 publicly listed companies, covering aggregate annual revenue of USD 27 trillion had net zero targets, a 40% increase from June 2022.
However, there seems to be resistance in bringing these commitments to reality due to concerns about their economic impact, especially for industries reliant on fossil fuels. Accenture reports that only a fifth (18%) of companies are on track and over a third (38%) say they cannot make further investments in decarbonization in the current economic environment. Rising energy prices, high costs of decarbonisation and increasing right-wing pressure have played a strong role in disincentivising many companies from working on their net zero goals.
This brings home the fact that simple net zero targets cannot be an indication of ESG stewardship and one needs to evaluate real actions and resultant progress while considering opportunities.
Starting with loudest anti-ESG calls, President Donald Trump has issued a number of executive orders at reversing climate legacy, including receding (for the second time) from the Paris Agreement. The acting Chair of the US SEC confirmed that it would withdraw is proposed climate disclosure bill, removing the only federal mandate on such disclosures.
The EU’s impending ‘Omnibus Simplification Package’ is expected to greatly dilute efforts on multiple green regulations amid proposals from Germany and France that ask for delays and exclusions for companies.
Australia's Macquarie Group announced its exit from The Net-Zero Banking Alliance (NZBA), a global banking sector climate coalition, joining a host of North American banks that have quit the alliance since Donald Trump returned as US President in early November. Goldman Sachs was the first to leave, on December 6, followed by five U.S. peers - Wells Fargo, Citigroup, Bank of America, Morgan Stanley, and JPMorgan.
However, despite the backlash on the term ‘ESG’, efforts towards the cause continue. The US Climate Alliance, a net zero-focused group of 24 US state governors, sent a letter to UN Climate Change Executive Secretary Simon Stiell, indicating that they plan to remain committed to the US Paris Agreement goals despite President Trump’s announced withdrawal from the international climate accord. Most banks that have withdrawn from the NZBA still remain committed to their net zero targets. Hence, political pressures and short-term economic gains may demonstrate a downstream, however, significant climate risks continue to bother those aiming for long-term success and sustainability.
ON THE BENCH
Until the start of 2025, most would have believed AI to be the largest power consumer in the near future. However, a recent revelation by Chinese artificial intelligence company, DeepSeek, upends all these energy demand forecasts. The Company last month announced that it has developed its model for around USD 6 million, a thousandth of the cost of some other AI models, while also using far fewer chips and much less energy. While these claims remain unverified, there is a lot more uncertainty over AI’s power consumption in future.
For the energy space, this could have dual implications:
Reduced power demand for both renewable and non-renewable sources: In a response to meet climate targets under high-power consumption, many AI companies such as Google, Open AI and Microsoft, had sought clean power sources for their data centers. Many of these projects may now falter as the very premise of their demand shatters. However, this may not be altogether true, since the industry will continue to need power. Further, with increasing number of homes and industries powered by electricity, power demand may still hold high despite uncertain consumption by AI companies.
Opportunity for energy-efficient data models: This revelation endorses that there are energy-efficient AI models that may be made at a fraction of the cost, than the current estimates. However, most companies, even countries, have heavily invested or committed large amounts of money in AI-infrastructure. It is possible that this pool of money may now be directed to support innovations that could greatly bring down energy and infrastructural requirements.
If you are looking to leverage opportunities in this space, feel free to write to us at info@esgityadvisors.com.
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