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Green transition: where is the world heading?
Article published on 1 December in l’AGEFI
The global economy is now on a warming trajectory of around 3°C. But if the commitments made at COP26 were to materialise, we could limit warming to 1.8°C. Our collaborative study with Oxford University, published on 30 November 2021, reveals the countries making the right moves in the transition to a green economy.
As commitments to transitioning to a green economy take shape, the risks and opportunities for nation states, regions and businesses are changing. In the real economy, these transformations also have major implications for investors' portfolios.
Covid-19: seizing opportunities to build back greener
In our research collaboration with Oxford University, we studied the evolving competitiveness of countries in key industries as they transition to a green economy. We also examined how much of their Covid-19 stimulus spend countries have directed towards building back greener. Bailouts have given countries a unique opportunity to invest in low-emission infrastructure, improve their technological capabilities, help their workforce take advantage of new green jobs and withdraw from declining, polluting industries.
Switzerland provides some of the most striking results in this study. Switzerland's competitiveness in the global trade of green products has been declining for 25 years. This is explained by its strategic positioning as a leading green service economy rather than a green manufacturing economy.
In actual fact, Switzerland has become one of the world's leading destinations for capital for the green economy. Sustainably managed assets account for more than 20% of all funds managed in Switzerland and are expanding by more than 30%1 per year.
Renewable energy: untapped potential in Switzerland
The Swiss economy also offers untapped potential in renewable energy. Greater investment here could raise Switzerland's energy security and create potential to export green energy to the European market.
In fact, while gas prices across Europe are soaring, wind and solar costs have fallen by 60% and 80%2 respectively over the past ten years. The transition to renewable energy is therefore not only green but deflationary.
Leaders in exporting green products
Both Germany and the UK are world leaders in exporting green products. If we also consider an above-average green share in their Covid-19 stimulus spend, their prospects are attractive. Italy, Spain and Turkey also have attractive profiles in wind and solar technologies – an interesting discovery suggesting that these countries could eventually eclipse Germany.
China, for its part, enjoys the lion's share of global exports of green products and a huge domestic market. Given China's reluctance to abandon coal, its status as a superpower in renewable energy might seem paradoxical. Thus, the results of the study call for its development to be closely monitored.
On the wider global stage, the future of the green transition of the United States, Australia and Brazil faces risks from trade tensions, coupled with political ambitions that remain overly feeble. We have identified a probable trend in these countries towards shortening supply chains and potentially "deglobalising" trade relations, with a view to ensuring self-sufficiency, especially in energy.
Despite the imperfect results of COP26, the green transition is undoubtedly in full swing and altering the economic and financial order.
1 2021_06_07_SSF_Rapport_sur_l_investissement_durable_en_suisse_2021_F_final_Screen.pdf (sustainablefinance.ch)
2 Predictors of Success in a Greening World by Lombard Odier and the Smith School of Enterprise and the Environment (“SSEE”) at the University of Oxford
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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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