CLIC® economy I Lombard Odier

Today, we live in an economy that is characterised by value destruction. The way people consume, produce, and organise their lives is unsustainable. We call this wasteful, idle, lopsided and dirty economy the WILD economy.

The economy is transitioning towards a model that is geared towards leveraging the vast value creation opportunities that sustainability has to offer. The vision for that future is clear: an economy that is circular, lean, inclusive and clean, the CLIC^® economy.

circular.

A circular economy emphasises the re-use, re-manufacture and recycling of products to extend their economic life.

lean.

A lean economy mobilises idle assets through sharing rather than the personal accumulation of material goods. For instance, using on-demand car or holiday accommodation services rather than owning a personal vehicle or second home.

inclusive.

While inequality can act as a hidden drag on growth, greater inclusivity can be a driver of innovation, performance and opportunity.

clean.

At USD 2.9 trillion per year, the potential returns generated by a clean economy exceed the USD 800 billion increase in annual investment our analysis suggests is required to decarbonise our economy by more than 260%.

unlocking potential and gaining momentum.

The transition to a CLIC^® economy should unlock trillions in untapped value. And the opportunities for sustainable growth are massive: unrecycled e-waste contains 17 times the amount of gold as raw gold ore; trillions in assets currently sit idle and are ripe for exploitation through a more sharing-oriented economy; modest action on gender parity could add USD 12 trillion to the global economy by 2025; and renewable energy often costs less than traditional fossil fuels.

The transition to the CLIC^® economy is gaining speed, driven by market forces, investors, consumer demand, and policy and regulation.

transforming key systems.

How do we transition to a CLIC^® economy? Our conviction is that the transition from WILD to CLIC^® requires profound change in major systems that affect 95% of our investment universe. The environmental transition will impact all investors because profit pools are changing and all industry classes will be materially affected. The below three systems represent areas where investment is needed at scale to effect urgent transformation and ensure we respect planetary boundaries.

energy systems. This involves electrifying 70% of our economy through the greening of energy supply and demand, the emergence of new storage and distribution networks and increased energy efficiency
materials systems. This refers to reducing the intensity of primary materials used for our economic output. It is aided by the rise of new sustainable materials, and resource efficiency to decouple production from primary material resource dependencies while avoiding waste and pollution
land and ocean systems. This encompasses the return of 1 billion ha of agricultural land back to nature by fostering new food systems and enabling nature to retrieve its regenerative properties. The nature transition will unfold in themes such as climate-smart forestry, renewable materials ecosystem services, sustainable food production and sustainable consumption

Enabling these three themes is the pricing of externalities, or carbon markets.

carbon. This refers to external pricing pressures and forces from carbon taxes, the compliance markets and the voluntary markets that will impact the three systems. We expect carbon to play a key role by providing market-based incentives to accelerate the transition to nature-based solutions and drive removals of greenhouse gases

Source: LOIM. For illustrative purposes only.

systems drive planetary boundaries.

This systems-change framework guides our investment approach because such systems are integrally linked to planetary boundaries. For instance within nature, food and land use together drive planetary boundary transgressions accounting for:

24%

of greenhouse gas emissions

90%

of deforestation

52%

of soils degraded

25%

of biodiversity loss

70%

of freshwater use

As the world transitions to a CLIC^® model that operates within and helps restore planetary boundaries, we foresee major shifts in the vast majority of sub-industries within energy, nature and materials. This framework is endorsed by a coalition of major industries and policymakers and is set to guide the way to a CLIC^® economy by finding solutions and unlocking opportunities. Using this systems taxonomy focuses our efforts on addressing the areas most under pressure and fortifies our core conviction that sustainability is driving returns.