19 May Embracing the rise of the new climate economy
In the next decade or so, the climate will shift from being a part of the economy to becoming the major focus in macroeconomics. New elements of sustainability will continue to transform all industries, from manufacturing, energy and food production to transport and consumer behaviours.
Many industry leaders believe emerging technology and in particular, artificial intelligence will play a pivotal role in shaping our future. While technology and AI will play a strong part, our climate will ultimately define our global economy for the years to come.
No part of the global economy is likely to avoid being influenced by climate and sustainability factors. The new climate economy will be the defining feature for businesses, governments and societies alike.
The transition from clean technology to climate technology
Climate technology appears to be a predominant focus for long-term sustainable investors. During the early years of clean technology, the focus on energy production resulted in significant capital outflows and volatility with investments. Unlike clean technology, the opportunities in climate technology spread across a range of industrial and commercial sectors.
Today, the associated capital costs related to climate innovation is cheaper than the costs of climate-related impacts on developed economies. Over 215 corporations are generating reports linked to climate-related costs amounting to a combined figure exceeding trillions of dollars.
Investment in climate technology is continuing to grow with reports claiming well above the venture capital market rate. Venture capital and corporate investment in this industry are growing faster than venture capital in its entirety in the early 2010s. Aside from investing in technology linked to renewable energy, the climate technology VC’s are exploring agriculture, food production, eco-friendly transport and a broader range of startups.
The emerging role of the chief sustainability officer
Environmental, social and governance (ESG) factors are becoming prevalent in the financial services market. What was once regarded as a niche industry has grown into something that appears on the agenda of nearly all financial institutions as a vital investment factor and an element of competitive advantage.
We have experienced a significant rise in the importance of the chief sustainability officer in business. Corporate sustainability is no longer a sideline consideration, but an increasingly important element capable of supporting senior management with the transition to this new economy. In a similar way that the successful businesses in the digital transition were those that embraced the digital changes, this is likely to be repeated within the climate scene, and so the role of the chief sustainability office will inevitably become more prominent.
The influence of our physical environment
Corporations may be continuing to overlook the impact climate-related impacts have on earnings, overall financial performance and other related economic activities. While some businesses are introducing climate-focused volatility into their assessments, there is a profound difference, exceeding trillions in terms of the unexpected global impact of climate change and the reported corporate financial risks.
The development and growth of the global economy are specifically focused on regions that are experiencing the most adverse of climate impacts. China and India, the two fastest-growing economies, are ranked number 2 and 3 for recording the highest number of natural disasters after the US. Unlike the United States, China and India’s significant economic development is exceeding their limited capacity to manage the impact of major disasters, leaving them particularly vulnerable to health and economic-related impacts from natural disasters.
Interpreting the global economy through the perspective of a new climate economy is a relevant way of viewing our future as we improve our way of understanding and anticipating individual, market and economic behaviour for the future. Just as we experienced with the rise of digital technology, there were clear established winners and losers and a resulting new and more complex geopolitical order, we must anticipate climate to generate a similar level of opportunities.