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    Davos 2023: greening returns - a new investment imperative

    Davos 2023: greening returns - a new investment imperative

    “We are underestimating the scale and speed of the environmental transition. We are seeing new economic systems unfold that are enabling electrification and a more circular economy. The new investment imperative is to understand the trajectory of these economic systems and seize the investment opportunity.”

    That was the message from Hubert Keller, Lombard Odier Senior Managing Partner, as he joined finance specialists, senior politicians, academics and thought leaders from across civil society for the opening night of the World Economic Forum’s annual gathering in the Alpine resort of Davos.

    We are underestimating the scale and speed of the environmental transition. We are seeing new economic systems unfold that are enabling electrification and a more circular economy

    Under the conference theme “Cooperation in a fragmented world”, chosen against the backdrop of a world fractured by war, high inflation, growing geopolitical tensions, and the twin threats of food insecurity and climate change, Hubert Keller gave cause for optimism, and called for “investment in nature” as the best way to build a new economy that works “for people and the planet”.

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    Back to business

    When German engineer and economist Klaus Schwab created the European Management Forum in the Alpine resort of Davos in January 1971, the event was quickly embraced by first business and then political leaders. Sixteen years later the annual gathering became the World Economic Forum, expanding its purpose to include social and geo-political affairs, and in the process becoming the leading international organisation for public-private cooperation.

    This year's gathering could prove as significant as any in the Forum’s history, as the retreat goes back to its business roots

    Across more than 50 years the conference has played host to numerous pivotal political meetings, including a 1994 negotiation between the then Israeli foreign minister Shimon Peres and former Chairman of the Palestinian Liberation Organisation Yasser Arafat – a negotiation that concluded with a draft agreement on the forming of the Palestinian Authority and partial Palestinian self-rule in Gaza.

    This year’s gathering could prove as significant as any in the Forum’s history, as the retreat goes back to its business roots. Davos 2023 will see the highest-ever business participation, with 52 heads of state joining more than 1,500 business leaders, including 600 of the world's leading CEOs, signalling the growing eagerness of corporations to embrace their social responsibility.

    Read also: Lombard Odier bets on sustainability and alternatives to navigate economic transformation – an interview with Hubert Keller

    On the urgent question of the climate challenge, Hubert Keller gave cause for optimism. Already the economy is transitioning away from today’s ‘take-make-waste’ linear model

    Underestimating the transition – a cause for optimism

    On the urgent question of the climate challenge, Hubert Keller gave cause for optimism. Already the economy is transitioning away from today’s ‘take-make-waste’ linear model, he explained, and towards one that is Circular, Lean, Inclusive and Clean (CLIC®).

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    “We are seeing new economic systems unfold that are enabling electrification and a more circular economy,” he said. “We are underestimating the scale and speed of the environmental transition. We have crossed inflection points when it comes to electrification. There are unstoppable forces at play.”

    Rania Al-Mashat, Egyptian Minister of International Cooperation, gave further cause for hope, highlighting the way in which climate action is becoming more mainstream, with governments, civil society and individual citizens all engaging with the climate challenge.

    Against a difficult global backdrop, the UN’s Sustainable Development Goals are key to making progress in developing nations…

    Investing to protect those most at risk

    Rania Al-Mashat also spoke of the importance of finance in advancing the sustainability transition in emerging and developing markets, in particular the need to move from public debt to private investment by creating investible projects and a level playing-field for private sector investors.

    Against a difficult global backdrop, the UN’s Sustainable Development Goals are key to making progress in developing nations, she explained. Projects must be made more investible, she said, by setting up just financing with the involvement of multi-lateral banks, by catalysing private sector involvement, and by acknowledging that countries must own their investment and development pathways.

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    Professor Lord Stern, economist, agreed, outlining the important role of public-private partnerships in helping the most climate-vulnerable nations become more resilient, and emphasising the major step up in investments needed to accelerate the transformation.

    Seizing the opportunity

    Hubert Keller echoed this call to investors in both emerging and developed markets, and across economic sectors. “We need to deploy capital,” he said. “This goes beyond a traditional approach to ESG. It is about developing new investment skills, cutting across sectors and trying to understand the shape of this new green economy. The new investment imperative is to understand the trajectory of these economic systems and seize the investment opportunity.”

    For Professor Lord Stern, this opportunity can become the most meaningful growth and development story of the 21st century. The sustainability transition, he said, is a story of investment and growth – “of energy efficiency, productivity, innovation and discovery.”

    On the much-debated question of whether development and growth are at odds with tackling the climate challenge, Rania Al-Mashat agreed with Professor Lord Stern. All development projects have climate impact at their core, she explained: “Climate and development are not mutually exclusive, but go hand in hand.”

    The stability of our ecosystems depends on putting a price on nature

    Investing in nature

    For Hubert Keller, investing in nature” is essential if we are to bring about these dual outcomes. Already around half of global GDP depends on nature1. This, he said, is set to expand: “Nature will represent a much larger portion of our economy. For this decade [nature] is the only solution to removing carbon from the atmosphere affordably and at scale. The stability of our ecosystems depends on putting a price on nature.”

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    …the regenerative power of nature is already leading the world towards a sustainable, equitable and resilient economy

    Hubert Keller concluded by sharing his belief that the regenerative power of nature is already leading the world towards a sustainable, equitable and resilient economy. In nature, as with electrification, the transformation is happening more quickly than many realise. “We are underestimating the green subsidy competition,” he said, “and the fact that many environmental solutions are ready to scale.”

     

    1 Half of Worlds GDP Moderately or Highly Dependent on Nature, Says New Report > Press releases | World Economic Forum (weforum.org)

    Important information

    This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.

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