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Polycrises World, Climate & Role of ESG Towards Net-zero Transition

The size of ESG-oriented assets under management is heading towards $33.9 trillion by 2026. That’s good – and necessary if we are to have any hope of solving the tangled crises we face, writes Faraz Khan.

The shift to cleaner energy sources is not only a technical challenge, but also a social challenge that affects the lives of workers, families and decision makers, writes Faraz Khan. [Illustration: Dall-E]

By Faraz Khan

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The world, now, is grappling with the issue of Polycrises, a term used to indicate the convergence of global challenges that includes not only the climate crisis but also economic, social, and political upheavals. Of all these, the climate crisis has emerged as the common threat to humanity.  

In an era characterized by the relentless emission of greenhouse gases, the dire forecast from scientists looms large on the horizon: a forthcoming century marred by a climatic shift that could raise the Earth’s average temperature by an alarming 2 to 4 degrees Celsius.

Greater emphasis on GDP growth rates has accelerated use of materials and energy consumptions. This, in turn, is crossing the planetary tipping point resulting in scale and frequency of climate induced disasters. 

Heavy burden on least developed nations

The repercussions of this impending climate change catastrophe bear a disproportionately heavy burden on the world’s least developed nations, whose economies teeter on the brink of calamity. Should we fail to enact substantial measures to combat and forestall this impending crisis, economic losses of up to a staggering 20% of GDP are poised to ensue.

The stark reality, as articulated by the Food and Agriculture Organization (FAO), is that climatic shocks and extremes lie at the root of dire food insecurity, afflicting a staggering 76% of our global population, numbering 124 million souls grappling with “crisis levels” of hunger.

Moreover, as the mercury soars, a haunting specter looms: as many as one billion individuals could find themselves imperiled by deadly infectious diseases, such as chikungunya, dengue, and zika.

In a disconcerting turn of events, recent reports indicate that a child born in the year 2020 is poised to confront a staggering reality: a future marked by an alarming two fold increase in wildfires, a daunting 2.8-fold surge in crop failures, a worrisome 2.6-fold uptick in droughts, a distressing 2.8-fold rise in floods, and an astonishing 6.8-fold surge in merciless heat waves, all when juxtaposed with the experiences of an individual born half a century earlier in 1960.

The World Health Organization (WHO) grimly forecasts an annual death toll surge of 250,000 souls due to diseases like malaria, a horrifying statistic set to materialize between the years 2030 and 2050.

Adding insult to injury, climate mitigation projects, ostensibly designed to aid the world’s vulnerable nations least culpable for this climate crisis, come laced with loans instead of much-needed subsidies.

This duplicitous approach from the global north places an undue burden on the shoulders of countries already grappling with climate-induced suffering.

As revealed by Oxfam, a staggering 80% of climate support to developing nations in 2020 materialized in the form of loans, rendering climate-affected nations indebted to those partly responsible for their harrowing plight. Such a callous and counterproductive approach to climate action cannot stand unchallenged.

The rich countries are the CO2 culprits

In a recent thought-provoking analysis, Jeffrey D. Sachs, director of Columbia University’s Center for Sustainable Development and president of the UN Sustainable Development Solutions Network, has painted a stark portrait of the undeniable role of fossil fuel combustion in exacerbating the global climate crisis.

Sachs boldly asserts that between the years 1850 and 2020, this relentless pursuit of fossil fuels has been responsible for a staggering 1.69 trillion tonnes of CO2 emissions.

Here’s the kicker: the United States, with its 4.2% share of the world’s population in 2021, astonishingly accounts for a whopping 24.6% (417 billion tonnes) of this ominous tally, underscoring a disproportionate burden on our planet. The implications are staggering, as high-income countries, which represent a mere 15% of the global population, shoulder the lion’s share at 58.7% of cumulative CO2 emissions. 

Sachs doesn’t stop there, highlighting the curious case of Pakistan, which, in the same time frame, produced approximately 5.2 billion tonnes of carbon dioxide equivalent (CO2) emissions. Astonishingly, this annual output mirrors that of the United States, despite Pakistan’s modest 2.9% share of the global population. Such revelations prompt a reckoning with the stark realities of historical culpability, emphasizing the urgent need for a concerted global effort to rectify the egregious imbalances that continue to imperil our planet’s climate stability.

The Climate Action Tracker’s latest assessment serves as a stark reminder of the European Union’s faltering efforts in addressing the urgent climate crisis by 2030. Regrettably, the EU 28 member states have fallen short of delivering a comprehensive strategy to combat climate change and adapt to its relentless impacts. This failure is reflected in the disheartening fact that merely half of these member states have managed to submit final draft plans or demonstrate sufficient ambition in their climate action commitments by 2020. 

What exacerbates this predicament are the deep-seated divisions plaguing Europe’s political landscape, cleaving the continent along various fault lines, be it between Western and Eastern Europe or between Northern and Southern Europe.

This fragmentation impedes rational decision-making, with populist forces actively obstructing necessary reforms. In this precarious climate, the EU’s customary approach of depoliticizing contentious issues through protracted technocratic negotiations seems destined to yield unproductive results.

Preserving the foundation of democratic consent demands a different path — one that involves garnering widespread public support for an equitable climate transition and bolstering democratic engagement.

The influence of ESG cannot be overstated

The influence of Environment, Social, and Governance (ESG) factors in our journey towards a net-zero economy cannot be overstated. In a world where financial dynamics are increasingly intertwined with ethical considerations, the ascendancy of ESG investing is a testament to changing sensibilities.

Recent projections from PwC indicate that ESG-oriented assets under management (AUM) are poised to scale the lofty heights of $33.9 trillion by 2026, constituting an impressive 21.5% of total assets under management.

This tidal wave of ESG investments isn’t merely a financial fad; it mirrors the clamor for transparency, disclosures, and socially responsible leadership from the corporate realm. The seismic shift in investment preferences holds the promise of steering substantial reform in corporate behavior and practices.

A noteworthy revelation from a collaborative study conducted by Bain & Company and EcoVadis underscores the multifaceted benefits of ESG prioritization.

Companies that champion ESG initiatives not only contribute to the well-being of our environment and society but also reap tangible business rewards. Identified as ESG leaders in the study, these companies manifested elevated levels of employee contentment, leading to a turbocharged surge in business growth and profitability.

The report underscores that businesses fostering contentment among their employees achieved three-year revenue growth rates outshining their less employee-centric counterparts by up to 5 percentage points.

Furthermore, their profit margins soared, eclipsing those of their less employee-focused peers by as much as 6 percentage points. This compelling evidence underscores the premise that ESG endeavors don’t merely generate value in terms of sustainability but also cast a positively radiant glow on the bottom line.

For a successful transition to a net-zero economy, societal buy-in and endorsement are non-negotiable requisites.

The shift towards cleaner energy sources isn’t just an intricate technical challenge but an equally formidable social one, impacting the lives of workers, households, and decision-makers alike.

Striving to ensure that this transition is equitable and inclusive is of paramount importance, considering the potential ramifications for those who may be adversely affected by the abandonment of fossil fuels. Enter ESG, with its indispensable emphasis on the “S” (Social) and “E” (Environmental) facets of sustainability.

In the pursuit of net-zero goals, it becomes imperative to uplift livelihoods and bolster ecosystem health, making certain that no one is left stranded on the sidelines. This all-encompassing approach to ESG not only propels environmental progress but also tackles the formidable social hurdles accompanying this transition, ultimately weaving a tapestry of a more just and sustainable future.

The transition facing our cities and regions is substantial, structural, and systematic.

We need to map out a new landscape of constrains and abundancies that will shape our new economy.

We need to aim for the collective approach, rather than working in silos to transform our cities and bioregions.

We need to identify and outline the capacity needed for innovation across sectors, encompassing legislation, finance, civic structures, and engagement with key stakeholders.

Faraz Khan MBE  is the ceo & Partner of Spectreco & founder seed ventures. He is a visiting professor of social policy and Impact at University  of st.Mary’s UK and on the advisory board of University of Lincoln UK.

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