eight key sustainability challenges.

The transition from WILD to CLIC™ affects every dimension of the economy. It represents an evolution from an economy that destroys value or neglects value opportunities, to one that creates value and pursues untapped potential.

The root cause of the current WILD economy is human development. The pressure to keep up with a growing, changing world increases the urgency of the sustainability revolution, as demographic pressures continue to increase demand for food, water, energy and the products or services that improve our quality of life. Drivers of this change include future growth in population, shifts in the main geographic centres of population, urbanisation and the shifting composition of age and income groups.

At the same time, digitalisation is revolutionising the way our society operates and interacts. Digital connectivity is now a key criterion in the evaluation of economic development and social equality. Digitalisation (including artificial intelligence, cloud computing, the internet of things and geospatial data) is pushing the boundaries of our technological capabilities ever further and is serving to enable many of the solutions that will drive the sustainability revolution.

To arrive at a CLIC™ economy, we believe the global economy will have to address eight key sustainability challenges:

Source: LOIM. For illustrative purposes only

These sustainability challenges define both the end-goals of the CLIC™ economy and the investable opportunities they encapsulate:

zero-waste.

Zero-waste is a vital goal without which no economic model can be sustainable. Currently, waste flows are growing at twice the rate of population growth and will reach 3.4 billion tonnes by 2050. Improved waste management could not only extract billions in economic value, but would also benefit from shifting economics through the avoidance of carbon emissions. Investable opportunities can be found in the avoidance of waste through e-commerce and off-price retail, as well as repair services and producing more durable goods.

regenerative nature.

Regenerative nature seeks to redress the rising threat posed by the loss of natural capital, which is recognised as one of the most material threats our society faces today. Ecosystems are regenerative assets whose value comes from the benefits they provide over a lifetime. Biodiversity provides the building blocks for organisms and ecosystems to adapt and evolve in a changing environment and maintain humanity’s ability to benefit from ecosystem services and biological resources in the face of an uncertain future. The cumulative value of these ecosystem services is worth an estimated USD 125-140 trillion per year, exceeding the value of global GDP by a factor of one and a half. However, the value of ecosystem services is estimated to have declined by USD 4-20 trillion per year between 1997 and 2011. Underinvestment in nature neglects the opportunity implicit in the superior rate of return of natural capital. Business models focusing on water solutions, smart farming, low carbon protein and forestry are well-positioned for the transition.

dematerialisation.

Dematerialisation concerns the transition from a product-intensive to a service-based economy. Interest in the ownership of personal goods, such as cars, needs to fall as sharing models become more widespread and disrupt transport, real estate and consumer markets. Digitalisation is enabling the virtualisation of print media, brick-and-mortar shops and paper-based record-keeping, reducing material footprints. Cloud computer, sharing and leasing models are also gaining ground.

resource efficiency.

Resource efficiency is the concept of doing more with less. At present, around 13 tonnes of materials are effectively consumed by each person per year, but much of this is actually lost during production processes. As natural resources become more scarce, leaner forms of production offer a competitive advantage. Smart, computer-enabled production techniques, additive manufacturing and the use of advanced materials are some of the specific growth opportunities.

a fair society.

A fair society would be one in which no marginalised groups are restricted from exercising their full social and economic potential. For example, in the US alone, closing racial gaps would boost economic activity by USD 1.5 trillion. Yet at present rates things are not moving quickly enough – it would take 257 years to close the global gender pay gap. Investors should take heed – diversity in the workplace is not only the right thing to do, but also boosts performance. Investments in fintech, online education, access to sustainable and affordable energy and water, and more accessible forms of health care are prime investment candidates to addressing iinequalities. Progress on these fronts will also shift spending patterns in consumer discretionary sectors.

a secure society.

A secure society is of growing importance in the face of the rising risk of environmental, social, technological and political disruption. The COVID-19 pandemic has brought to the fore the vulnerabilities of our society, economy and supply chains. With 90% of the impact from natural capital occurring through supply chain effects, improved supply chain management should be a key investor concern. Investable opportunities include best-in-class players, logistics and tracking technologies, cybersecurity and businesses that recognise the value of transparency in their risk disclosures.

zero-emissions.

Zero emissions is a goal that must be pursued without delay to avoid the increasingly catastrophic costs related to climate change. A temperature rise of 1.5°C to 2°C puts our society at risk of considerable social and environmental damage, yet our current policy commitments are projected to contribute to 2.8°C to 3.2°C of global warming – a calamitous rise to a level where outcomes become dangerously difficult to predict. Investment is required across the board in renewable energy, cleaner forms of transport and green construction but also, crucially, in ‘hard-to-abate’ or carbon intensive sectors such as steel, chemicals and cement.

Click here for more information on the LO Portfolio Temperature Alignment tool

adaptation and resilience.

Adaptation and resilience are now an urgent necessity in response to the physical effects of climate change that can no longer be avoided. With 90% of urban areas located along coastal lines, rising sea levels and storm surges puts millions of people and trillions of dollars in assets at risk, while rampant wildfires, in places such as Australia and the US, highlight that climate risks are already acute. Engineering and construction services aimed at protecting cities and key infrastructure are critical, alongside improved monitoring technologies and the redistribution of costs through financial services such as insurance and risk-rating agencies.

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