Sustainable cities in the spotlight at Davos 2025

key takeaways.

  • The failure to include externalities in the cost of doing business has resulted in what has been described as the biggest market failure in history
  • Corporations must shift to new business models that focus on achieving positive outcomes for nature, people and wider society, in place of a short-term focus on quarterly financials
  • In the construction sector, circularity, recycling, and innovative CO₂ storage are gaining ground, and will soon offer developers a ‘green discount’.

As nearly 3,000 business, finance, science and political leaders – including more than 50 heads of state – gathered in Davos, Switzerland for the 55th annual meeting of the World Economic Forum (WEF), Klaus Schwab, WEF founder, opened proceedings with a challenge. Against a backdrop of escalating climate change, geopolitical tensions and domestic political upheaval, he urged delegates to “transcend our current challenges […] by embracing constructive optimism, and believing in our collective capacity […] to improving the state of the world.1

Key to achieving this will be business buy-in, and throughout the conference a clear solution emerged – profitability through sustainability. To gain success for the long term, delegates heard, businesses across all sectors must look beyond short-term financial results, and focus instead on positive outcomes for nature, people and wider society. Far from being a philanthropic endeavour, though, this approach will enable businesses to adapt to a fast-changing world and build long-term viability, while helping to correct climate change and nature loss, which formed the biggest market failure in history, WEF heard.

The new nature of business

At the UN Global Compact’s SDG (Sustainable Development Goals) Tent, a series of events opened with a panel discussion entitled 'Why We Need a New Nature of Business: Charting a Path to Sustainable Prosperity', in front of an invited audience that included Al Gore, former US Vice President and Founder and Chairman of The Climate Reality Project.

The session began with a call for a future in which businesses look beyond quarterly results to focus on nature, climate and society plus financial metrics. Recent extreme-weather events in Los Angeles, Valencia and southern Germany showed that even if we try to distance business interests from the need to preserve nature and mitigate climate change, we can’t escape physical risks. As these can impact profitability, sustainability is a real business concern.

Read also: “Economic resilience and innovation” – Building Bridges 2024 makes the commercial case for circularity

Profitability through sustainability

Julia Binder, Professor of Sustainable Innovation and Business Transformation, IMD, emphasised the importance of moving to a new business mindset.

“Nature [degradation] and climate change,” she explained, are the result of “the biggest market failure in history.” To change this, “We need revolution not evolution – most of our systems are not fit for purpose.” However, she warned, “Business leaders aren’t incentivised to tackle these challenges because transformation costs money in the short term.”

The good news, though, is that those firms that have invested in making the shift are already capturing the benefits, with IKEA achieving significant growth while cutting its carbon footprint, and Mastercard2 hitting its 10-year growth target by integrating social inclusivity as a key feature of its business model.

Describing how the wider business community can make the transition, Binder explained, “Most companies are still very initiative-based – these initiatives are good, but they’re not made for scale and they are not core to the business. […] We need to have ‘kill or scale’ initiatives – you can have initiatives but after a while you kill the ones not working and you scale the ones that are.”

Sustainable construction – a circular disruption

This focus on creating net-positive business models, especially when it comes to nature, continued at an event hosted jointly by leading sustainable building solutions  firm Holcim and Goals House, a community of business and political leaders, NGOs, activists and entrepreneurs who work together to drive progress towards achieving the UN’s Sustainable Development Goals.

Nollaig Forrest, Chief Sustainability Officer at Holcim1, noted that nature-friendly solutions play a key role in making cities more resilient, from green roofs to permeable concrete enabling urban forests. Nature-friendly solutions reduce urban heat, improve air quality, enhance water management and enable friendly spaces for people to enjoy.

“The way we design, build and operate our cities matters,” Forrest explained, with circular and nature-friendly solutions we can improve quality of life across our cities.

The ‘green discount’

For developers, the challenge is to bring circular construction to scale. Where sustainable construction projects have often been bespoke, and commanded a ‘green premium’, the industry must begin to standardise the use of innovative CO₂ storage and recycled materials. 

Forrest explained: “We have been successful by taking a very local approach […], bringing together local stakeholders to find local solutions and adapt local regulatory frameworks. If you want to scale a solution you have to standardise it. We have 100 centres across Europe that are recycling construction demolition materials to make them more sustainable and also more affordable.”

As circular construction expands its footprint within the industry, delegates heard, emissions will be cut and pressure on nature will ease. We will also see nature becoming more integrated into the built environment, with permeable concrete that allows water to flow through into the ground, and more greenscapes and green roofs that clean our air and water and boost biodiversity.

In keeping with the theme of profitability through sustainability, panellists noted that the transition to circular construction could soon mean an improved bottom line for developers. As the cost for new concrete and steel rises – a study by McKinsey estimated that the price of concrete could rise by up to 90% and steel by 60% – recycled construction materials will become increasingly cost effective. Instead of a green premium, delegates were told, sustainable developers will soon enjoy a green discount.

Read also: Forming convictions in circularity

From short-term profits to long-term net-positivity

At Lombard Odier Investment Managers, we believe that in today’s fast-changing world, the transition to nature-positive, net-zero business models is a business imperative. To date, the externalities of doing business have been missing from the cost of many products and services. As regulators increasingly demand that this market failure be put right, firms that act early will help to ensure their long-term viability and benefit from growth opportunities.

We believe that nature’s regenerative power can show us the way. By working in harmony with nature instead of at its expense, we can harness its unique ability to regenerate value, and will discover new sustainable materials that can be deployed across a multitude of sectors. For investors, regenerative, nature-based value chains offer a way to target long-term returns and get ahead of increasingly stringent regulations.

As Davos 2025 nears its conclusion, we echo WEF founder Klaus Schwab’s call. Investors and businesses should embrace collaboration and “constructive optimism”, looking beyond short-term financials to build sustainable business models that target long-term profitability while benefiting nature, the planet and society.

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As World Economic Forum Annual Meeting 2025 Opens, Leaders Call for Renewed Global Collaboration in the Intelligent Age > Press releases | World Economic Forum
2 This communication is not investment research.
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