One CLIC™ away from a sustainable recovery and a prosperous future

rethink sustainability

One CLIC™ away from a sustainable recovery and a prosperous future

Dimitri Zenghelis - Project Leader, The Wealth Economy, Bennett Institute, University of Cambridge

Dimitri Zenghelis

Project Leader, The Wealth Economy, Bennett Institute, University of Cambridge

There is a growing body of economic evidence1 which suggests that pulling the world out of recession requires framing a clear vision of the benefits of a sustainable economy. An economy, based on circular, lean, inclusive and clean (CLIC™) activities, can vastly reduce natural capital exploitation, stimulate innovation, eliminate inefficiencies and generate new value by creatively disrupting outmoded and redundant business models.

There is a growing body of economic evidence which suggests that pulling the world out of recession requires framing a clear vision of the benefits of a sustainable economy

A sustainable, inclusive and resilient growth story is the only growth story. All the others will sooner-or-later snuff themselves out. Our future prosperity cannot be secured by extending today’s ‘WILD’ economy, defined as ‘wasteful, idle, lopsided and dirty’. At the same time, massive opportunities await visionary leaders in business and government who will shape the next century.

A recovery package based on ten sustainability dynamics is necessary to build a CLIC™ economy and purposefully decouple economic growth from materials use, environmental degradation and greenhouse gas emissions. Such a package can generate durable jobs2 and, ultimately, higher tax receipts to help tame and reverse the growth in public sector debt3. Properly managed and implemented, it can simultaneously reduce existing welfare inequalities, which have been exacerbated by the pandemic, and improve economic and social resilience to future shocks.

It is impossible to look at global environmental indicators without worrying that our economy is on borrowed time

Whereas other productive4 assets like physical and human capital may be growing, natural capital is generally in decline. The erosion of natural capital5, which provides us with the basic building blocks of all other forms of capital, poses grave risks to wellbeing6. GDP growth derived from depleting natural capital, which includes water, air, soil, minerals, and vital renewable capital7 such as forests or marine ecosystems which are prone to system collapse, cannot endure. It is impossible to look at global environmental indicators without worrying that our economy is on borrowed time. The ‘WILD’ economic model is based on the destruction of foundational assets, including underinvestment in natural, regenerative systems. Indeed Covid-19 has reminded the world of the urgent need to strengthen the quality and resilience of natural assets8.

The CLIC™ approach highlights the importance of social capital to deliver effective and functional government, with popular support harnessed to rebuild trust in the social contract9. This means growth must be inclusive by tacking inequalities, not just in income but in wealth and in ‘access’ to goods and services such as health, housing, transport, education and justice by ensuring equal opportunities.

This means growth must be inclusive by tacking inequalities, not just in income but in wealth and in ‘access’ to goods and services such as health, housing, transport, education and justice by ensuring equal opportunities

 

Investments in renewable infrastructure, energy efficiency, avoiding destructive land use practices and restoring natural capital do well against key criteria for stimulus. In many cases they can be implemented quickly10, are labour-intensive11 and not susceptible to offshoring or imports and consequently have high growth multipliers12. There are many examples of green investments that can start quickly13 and investment in productive, sustainable and resilient physical, human, social, intangible and natural capital is necessary to sustainably expand productive capacity. The latest IMF Fiscal Monitor (September 2020)14 makes a strong case for increased public investment15 in the clean economy in spite of growing public debt, and suggests a dollar of targeted public investment can generate $2.7 of GDP16.

There are many examples of green investments that can start quickly

Switching to a CLIC™ economy can be expected to cause disruption and valuation losses across the economy, but it will also generate opportunities and new value. Public policy and national regulators are increasingly implementing and enforcing action (including regulation and more stringent environmental and carbon pricing) that incentivise or force businesses to improve resource efficiency, preserve renewable ecosystems, reduce their carbon footprint and positively contribute to greener growth. This means policies which not only prevent locking into resource intensive infrastructure with limited productivity potential, but also public investment in human capital to provide jobs that are future-proofed because they are more resilient, productive and sustainable. This requires retooling and reskilling workers to enable17 those affected by change to participate in the new economy.

Public policy and national regulators are increasingly implementing and enforcing action (…) that incentivise or force businesses to improve resource efficiency, preserve renewable ecosystems, reduce their carbon footprint and positively contribute to greener growth

At the same time, new technologies and processes are beginning to competitively undercut old ones and render them redundant. This has the potential to transform the competitiveness of markets, especially as significant R&D and deployment shifts to CLIC™ sectors. But it will be this innovation that will determine our ability to get more out of the resources we have and improve factor productivity, the ultimate source of wealth generation.

Studies, such as the New Climate Economy18, and LSE research19, have outlined near term opportunities20 associated with low-carbon, resource-efficient growth. Important co-benefits of decarbonisation21 often include reduced waste22 and inefficiency, reduced urban congestion23 and improved health outcomes24, resilient biodiversity25 and ecosystem sustainability26. It affords significant commercial opportunities associated with deploying, fabricating and exporting increasingly competitive clean technologies and developing the services and ideas that go with them. The notion that there is a tension between economic growth and environmental sustainability is no longer tenable27.

The notion that there is a tension between economic growth and environmental sustainability is no longer tenable

It is important to recognise that business ambition and supportive policy28 have played a vital role in reaching this point. As seen with the ambition loop29 model, business action, decarbonisation commitments and investments in a low-carbon future provide governments with the incentive to advance CLIC™ policies, which, in turn, creates the business environment for further investment30 in climate solutions.

For example, in the United Kingdom energy sector, coal has gone from being a significant source of power to only generating 8% of the country’s power in 2018, while this figure continues to decline31. Policy was a key driver in this, as the UK Carbon Price Support influenced energy costs by taxing the carbon emitted by power generators. Similarly, Norway is the world’s largest market for electric cars with penetration of around 50%. Supportive infrastructure, low road tolls, free parking and large tax breaks all contributed32 to this transition. Global regulations and bans on incandescent lighting have helped LED lighting go from less than 5% of the global lighting market to 56%33 since 2014. These transitions are reflected in a doubling of global climate laws34 to more than 2000 over the last five years or so.

Sustainability, once seen as a peripheral issue for business appealing to niche ESG markets, is increasingly taking centre-stage in government policies and strategic business planning, as the scale of economic transformation and the associated risks and opportunities become apparent. Companies that plan ahead strategically and invest in flexible and diversified assets have the potential to generate a comparative advantage in resource efficient and circular forms of production. 

Companies that plan ahead strategically and invest in flexible and diversified assets have the potential to generate a comparative advantage in resource efficient and circular forms of production

It will require a new breed of leader. Leaders with the confidence to influence every step of the transition to a thriving CLIC™ economy by moving beyond the old model of growth that has proved insufficiently productive35, environmentally unsustainable and socially and regionally divisive. It is leaders in business working with governments who will design and build this cleaner, more resilient and productive future. The CLIC™ model offers them the blueprint to do so.
 

Statistic source “~75% of the genetic diversity of agricultural crops was lost in the last 100 years“
1 https://academic.oup.com/oxrep/article/36/Supplement_1/S359/5832003
2 http://www.ukerc.ac.uk/publications/low-carbon-jobs-the-evidence-for-net-job-creation-from-policy-support-for-energy-efficiency-and-renewable-energy.html
3 https://lsecloud-my.sharepoint.com/personal/d_a_zenghelis_lse_ac_uk/Documents/0000AAA%20LSE%20exchange%201603/00%20Blogs%20articles/Lombard%20Od/7%20Oct%202020%20Circular/zenghelis%20forthcoming
4 https://www.bennettinstitute.cam.ac.uk/publications/valuing-wealth-building-prosperity/
5 https://www.bennettinstitute.cam.ac.uk/blog/natural-capital-100-trillion-missing-economy/
6 http://www.lse.ac.uk/GranthamInstitute/wp-content/uploads/2014/06/Working-Paper-159-Dietz-and-Stern-2014.pdf
7 http://www.nature.com/nature/journal/v471/n7336/full/nature09678.html
8 https://ipbes.net/covid19stimulus
9 https://read.oecd-ilibrary.org/view/?ref=119_119674-tbcxotkmhb&title=Coronavirus_(COVID-19)Joint_actions_to_win_the_war
10 https://www.peri.umass.edu/publication/item/292-green-recovery-a-program-to-create-good-jobs-start-building-a-low-carbon-economy
11 http://www.lse.ac.uk/GranthamInstitute/publication/green-growth-economic-theory-and-political-discourse-working-paper-92/
12 https://core.ac.uk/download/pdf/6603341.pdf
13 https://www.aldersgategroup.org.uk/latest/detail:rebuilding-to-last-uk-must-not-go-back-to-the-old-normal#rebuilding-to-last-uk-must-not-go-back-to-the-old-normal
14 https://www.imf.org/en/Publications/FM/Issues/2020/09/30/october-2020-fiscal-monitor
15-16 https://blogs.imf.org/2020/10/05/public-investment-for-the-recovery/
17 http://www.lse.ac.uk/GranthamInstitute/wp-content/uploads/2019/09/Financing-inclusive-climate-action-in-the-UK_An-investor-roadmap-for-the-just-transition_POLICY-REPORT_56PP.pdf
18 https://newclimateeconomy.report/2018/the-new-growth-agenda/
19 http://www.lse.ac.uk/GranthamInstitute/publication/building-21st-century-sustainableinfrastructure-part-1-time-to-invest/
20 http://www.lse.ac.uk/GranthamInstitute/wp-content/uploads/2018/12/Sustainable-Growth-in-the-UK_Full-Report_78pp.pdf
21 https://www.tandfonline.com/doi/full/10.1080/14693062.2020.1724070
22 https://link.springer.com/article/10.1007/s10018-014-0083-0
23 https://www.unescap.org/sites/default/files/bulletin82_Article-2.pdf
24 https://academic.oup.com/icb/article/50/1/143/732759
25 https://www.nature.com/articles/nclimate2874
26 https://www.sciencedirect.com/science/article/pii/S0167880913003502?via%3Dihub
27 https://academic.oup.com/oxrep/advance-article/doi/10.1093/oxrep/graa015/5832003
28 http://cep.lse.ac.uk/_new/publications/abstract.asp?index=7108
29 https://ambitionloop.org/
30 https://www.lombardodier.com/on-off
31 https://www.power-technology.com/features/no-coal-uk-power-great-britain-transition
32 https://www.climatechangenews.com/2020/07/02/norway-sets-electric-car-record-battery-autos-least-dented-covid-19-crisis
33 https://www.grandviewresearch.com/industry-analysis/led-lighting-market
34 https://climate-laws.org/
35 https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2015/secular-drivers-of-the-global-real-interest-rate.pdf

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