ESG In Pills - November 2024
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Global Economic Outlook: Navigating a World of Structural Challenges
The latest World Economic Outlook paints a complex picture of the global economy in the face of evolving challenges. Supply shocks driven by climate change, alongside geopolitical tensions, and health crises, have reshaped the economic landscape, making policy-making more difficult. Such findings highlighting the need for robust international institutions, such as the International Monetary Fund (IMF), to support global stability.
Global Growth: stable but underwhelming
Global growth projections for 2024 and 2025 sit at 3.2%, consistent with earlier predictions but notably lower compared to pre-pandemic averages. The steady but unimpressive growth masks significant variations among regions. Major European economies are projected with declines, with the United States’ upgrades offsetting the former in advanced economies. In emerging markets, disruptions to productions due to extreme weather events, alongside conflicts and civil unrest, has led to downward revisions to Middle East, Central Asia, and sub-Saharan Africa. In contrast, Emerging Asia benefits from high demand in the semiconductor and electronics sectors, spurred by investments in artificial intelligence.
Over the next five years, projected growth remains at a modest 3.1%, weighed down by persistent structural issues like aging populations and weak productivity across several economies. Furthermore, headline inflation is expected to decline from 6.7% in 2023 to 5.8% in 2024, eventually reaching 4.3% by 2025. Advanced economies are anticipated to reach their inflation targets faster than emerging markets. However, some sectors, particularly services, continue to experience high inflation, underscoring the importance of sector-specific monetary policies.
Risks and uncertainties in the global landscape
Several significant risks loom over the global economy, including fluctuations in financial markets. An intensification of protectionist policies would exacerbate trade tensions, reduce market efficiency, and further disrupt supply chains. As seen in early August, such volatility may restrict investment and growth, particularly in developing nations with high external financing needs. To address these imbalances, policymakers are focusing on the following priorities:
Propelling the green transition
The report finds that addressing climate change and ensuring a smooth transition to a green economy have become crucial priorities as climate shocks and energy market volatility increasingly affect global economic stability.
Carbon pricing, financial incentives for green investments, and carbon border-adjustment measures are powerful tools to drive the green transition, provided they align with World Trade Organization (WTO) regulations. An immediate priority is to restore a fully operational WTO dispute settlement system to provide greater coherence between climate and trade policies, ensuring global alignment on these complex but critical issues. Industrial policy frameworks in major economies such as China, the United States, and the European Union must be structured to support carbon pricing without introducing discriminatory elements, adhering closely to each nation’s international legal commitments.
For regions especially vulnerable to climate impacts, targeted investments in climate adaptation infrastructure are necessary. This approach includes strengthening climate-risk monitoring and risk management systems, as well as bolstering social safety nets and insurance mechanisms to enhance resilience against climate shocks. Significant emissions reductions can be achieved by helping industries with high emissions per output unit to adopt advanced, low-emission technologies. Low-income countries, in particular, will need coordinated financial support for both adaptation and mitigation from international organizations, private investors, government bodies, and donors.
Multilateral cooperation is essential to prevent economic fragmentation, support sustained growth, and address the urgent issue of climate change. Transparent trade policies are needed to manage expectations, minimize investment distortions, and reduce volatility in markets, especially those for agricultural products and critical minerals. Establishing a "green corridor" for essential minerals used in green technologies would secure supply chains for the green transition and reduce market volatility through shared data. Thoughtfully designed industrial policies can address targeted negative externalities and market inefficiencies where broader policies fall short, but these policies must provide clear benefits, support fiscal stability, and avoid protectionist tactics.
Responding to political shifts
This year of elections has seen voters increasingly favoured protectionist agendas, as many nations focus inward to address domestic concerns. This shift reflects public sentiment often perceiving global economic integration as benefiting multinational corporations and elites while leaving vulnerable populations behind.
Rising nationalism and protectionism are however posing challenges for international trade and economic cooperation, with policies that threaten to disrupt long-standing trade agreements and hinder the flow of goods, services, and capital. The cumulative effect of these trends risks further fragmenting the global economy, exacerbating supply chain disruptions, and slowing global growth.
To safeguard global stability, policymakers and international institutions must navigate these political shifts by fostering growth that is inclusive and resilient to the challenges of climate change, health crises, and geopolitical tensions. As protectionist tendencies rise, transparent trade policies become even more critical to mitigate the risk of isolationist policies. Creating an economic environment that is fair, inclusive, and supportive of both developed and developing economies can help allay public fears of globalization. Furthermore, support for low-carbon technologies and investments in clean energy will help countries transition away from fossil fuels, reducing economic dependence on volatile energy markets. The IMF, along with other international bodies, must continue to assist countries in developing carbon pricing mechanisms, funding green infrastructure, and building climate resilience.
Tacking stock and looking ahead
In conclusion, the path to sustainable global growth lies in a cooperative approach that adapts to political realities while preserving the fundamental principles of economic integration and mutual benefit. By supporting transparent and inclusive policies, fostering a green economy, and strengthening the institutions that enable global economic cooperation, the IMF and other international organizations can help navigate this new era of economic nationalism. The global economy faces both structural and immediate challenges, but with a balanced and coordinated approach, there is potential to drive sustainable growth that benefits all.
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Chart of the Month
Countries that have submitted their new National Biodiversity Strategies and Action Plans (NBSAPs) “by” COP16 – the biodiversity COP – which occurred between 21 October-2 November. NBSAPs submission is part of Parties’ commitment to the Kunming-Montreal Global Biodiversity Framework to reverse biodiversity loss by 2030.
Environment
Devastating Floods in Bangladesh Cause Increased Rice Imports
Bangladesh, the world's third-largest rice producer, normally produces close to 40 million tons of rice annually for its population of 170 million. However, frequent natural disasters have been disrupting this production, pushing the nation towards a greater reliance on imports. The country’s agriculture ministry just announced catastrophic crop losses, including approximately 1.1 million metric tons of rice, and over 200,000 tons of vegetables, with total agricultural losses estimated at around 45 billion taka ($380 million). The interim government, which assumed power in August after upheaval, faces the challenge of stabilizing these escalating prices. The government is urgently moving to import 500,000 tons of rice and is expected to authorize private sector imports to manage the crisis and combat soaring food prices, which have risen nearly 20% in recent months. Experts advocates for the development of crop varieties that are more tolerant to floods and droughts, including those that mature quicker, to enhance food security and help farmers adapt to changing weather patterns, ensuring stable yields even under adverse conditions.
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Rio Tinto's Strategic Acquisition of Arcadium Lithium
Amid a slow electric vehicle (EV) market, Rio Tinto has agreed to acquire the US-based Arcadium Lithium for $6.7 billion, positioning itself as a major player in the lithium production industry alongside giants like Albemarle and SQM. The purchase price of $5.85 per share represents an almost 90% premium over Arcadium's closing price just before the deal's announcement. This acquisition grants Rio Tinto access to significant lithium resources across Argentina, Australia, Canada, and the US, crucial for the battery manufacturing sector. Notably, this includes a customer base featuring prominent automakers such as Tesla, BMW, and General Motors. Despite the current downturn in lithium prices due to oversupply and decreased EV sales, notably from China, Rio's move is seen as an investment in the lithium market's long-term potential. The automotive industry has experienced a marked deceleration in EV growth, with major companies like Toyota and Ford postponing their production timelines. In contrast, diesel car registrations in the UK saw a significant increase last month. Nevertheless, Jakob Stausholm, Rio Tinto's CEO, describes the acquisition as a countercyclical expansion that aligns with their strategic capital allocation, aiming to capitalize on the market at an opportune cycle. Peter Coleman, Chair of Arcadium, highlighted the deal's benefit of providing shareholders with financial certainty amidst market volatility. The transaction not only bolsters Rio Tinto’s position but also underscores its commitment to steering the energy transition through strategic investments.
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Global Summit Reaches Deal on Digital Sequence Information
Concluding the CBD COP16 in Cali, Colombia, on November 2, global leaders secured an expected agreement on the use and conservation of Digital Sequence Information (DSI). DSI, the genetic blueprint extracted from nature and digitized for global accessibility, plays a crucial role in driving innovations in medicine, agriculture, and conservation, affecting everything from vaccine development to climate-resilient crops. The new agreement introduces the Cali Fund, a voluntary initiative encouraging businesses to contribute to biodiversity conservation whenever they leverage this digital genetic data. The fund promises support conservation and sustainable use of nature, with a significant proportion flowing to Indigenous People and local communities. The new plan is the only international tool to fund conservation that is almost entirely drawn from private sector money and is seen by advocates as correcting a longstanding imbalance of power. On the other hand, its voluntary nature makes it prone to scepticisms. The EU is expected to adopt the decision and potentially incorporate it into its regulatory framework, providing opportunities for multinationals operating in Europe to engage. More generally, with over half of the global economy linked to natural ecosystem services, this agreement marks a significant stride toward recognising benefit-sharing in biodiversity conservation. COP16 also marked significant progress in integrating Indigenous Peoples and local communities, while the need for further action and resource mobilization remains urgent, and without consensus.
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Social
Boeing Workers Continue Strike Amid Company Turmoil
Boeing faced a significant setback late Wednesday when its 33,000 workers, members of the International Association of Machinists and Aerospace Workers, overwhelmingly rejected the latest contract offer, continuing a strike that has been ongoing for over a month for better compensation and pension plans. Despite a proposed contract that included a 35% wage increase over four years, the reinstatement of incentive bonuses, enhancements to the company's 401(k) match, and a $7,000 ratification bonus, 64% of the union members voted against it, still pushing for the return of previously lost pension benefits. The strike has inflicted substantial economic damage, with the Anderson Economic Group estimating a direct loss of $7.6 billion, including significant losses to Boeing and its suppliers. On the same day as the vote, Boeing's new CEO, Kelly Ortberg, announced intentions to "fundamentally" transform the company’s internal culture and revealed that quarterly losses had escalated to nearly $6 billion, causing the company's shares to drop 2.7% in pre-market trading the following day. The ongoing strike has added to the uncertainty surrounding Boeing’s financial stabilization efforts and its broader recovery from past crises, impacting its reputation and operations severely. Analysts, including Nick Cunningham of Agency Partners, have suggested that Boeing will need to make a more generous offer to resolve the standoff, as it is not in a position to prolong the conflict with its workforce. Even before the workers' vote, the company’s CFO, Brian West, had indicated that Boeing would continue to face financial challenges into 2025.
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Bill Gates’ Paradox of Increased Livestock Farming
Recent remarks by Bill Gates highlight the urgency of addressing child malnutrition, which he identifies as a trigger for economic losses amounting to trillions of dollars globally. Gates emphasizes the potential roles of gut bacteria research and suggests that investing in increased productivity in cows is the winning solutions to improve child health outcomes. However, this perspective sits in paradoxical contrast to the latest findings from the Intergovernmental Panel on Climate Change (IPCC), which advocates for a reduction in animal farming to mitigate climate change.[1] The IPCC reports underscore the necessity of transforming our food systems to reduce greenhouse gas emissions, particularly methane from livestock, which is a significant contributor to global warming. The reports suggest that shifting towards plant-based diets and sustainable agricultural practices could reduce emissions by up to 70% by 2050, alongside providing health and environmental co-benefits. Gates' proposal for more productive livestock, while aimed at boosting food security, seemingly overlooks the broader implications of increased animal farming on climate change and ecosystem degradation. Perhaps a more systemic approach, where food security and climate resilience go hand in hand, would be better suited. This includes promoting diets lower in animal protein, improving land use through agroforestry and crop diversification, and reducing food waste, particularly from animal products. The focus on enhancing livestock productivity as a solution to malnutrition may need re-evaluation in light of the potential for exacerbating climate change, which in turn could undermine long-term global food security and health outcomes.
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Governance
Disproportionate Spending on Fossil Fuels Among G20 Nations
A recent study by the International Institute for Sustainable Development (IISD) reveals a stark imbalance in the financial support extended by G20 governments to different energy sectors. Over the last four years, a cumulative total of at least USD 168 billion was allocated to renewable power, grids, and storage in 2023 alone. In stark contrast, fossil fuel subsidies for the same year reached an estimated USD 535 billion, more than three times the support for renewables. This disparity occurs despite the G20's commitment in 2023 to triple global renewable energy capacity—a goal that remains elusive as projections indicate only a 2.5-fold increase by 2030. G20 nations, which accounted for about 90% of the total installed renewable capacity in 2023, are crucial to achieving the Paris Agreements. The fact G20 subsidies for fossil fuels remain disproportionately high suggests a need for a strategic reallocation of financial flows. For example, in 2023, every dollar in public support for renewable power leveraged over six dollars in additional investment, in contrast to the fossil fuel sector where three dollars in subsidies only generated one dollar of additional investment. Immediate action and refined policies are essential for G20 countries to realign their energy priorities and ensure the 2030 renewable energy targets are within reach, thereby promoting a more sustainable landscape.
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German Meat Producers Linked to Human Rights and Environmental Violations
Germany’s top meat producers may be facing legal consequences under the new Supply Chain Due Diligence Act, following revelations from a recent study linking soy used to feed their livestock to severe environmental and human rights abuses in Brazil’s Cerrado. Over half of the soy imported from Brazil for German livestock reportedly comes from this fragile savannah, with links to deforestation, land-grabbing, and violations of Indigenous rights. NGOs are urging Germany’s BAFA agency to probe meat giants T?nnies, Westfleisch, and Rothk?tter, whose supply chains may rely heavily on soy trader Bunge—linked to deforestation on lands spanning over 2,500 football fields. With up to 740,000 tonnes of soy used in German pig feed in 2023 alone, these allegations underscore a significant governance challenge for the meat industry, emphasizing the necessity for stricter oversight to align corporate practices with global environmental and social justice standards. Furthermore, The destruction in the Cerrado is, conversely, detrimental to soy yields. Data shows that disruptions to rainfall, higher temperatures and strained soils have lowered production in intensively farmed areas in the Amazon and Cerrado by up to 12%. More widely, this plays into an issue that too many companies are not addressing yet: biodiversity loss as a material financial risk.
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Starbucks Innovates to Safeguard Coffee
Starbucks Corp. has acquired two new research farms, located in Costa Rica and Guatemala, set to pioneer advanced agricultural technologies to bolster the resilience of coffee crops against increasing climate threats. With arabica bean prices reaching their highest since 2011 due to extreme weather conditions, these research initiatives are more crucial than ever. The Costa Rican farm will focus on mechanization and the use of drones for precision agriculture, while the Guatemalan site will delve into soil restoration and productivity enhancements. As Starbucks sources 97% of its coffee from small farms, these efforts are not just about protecting its supply chain but also about supporting over 450,000 farms worldwide. This strategic investment aims to develop and disseminate climate-adaptive farming practices, ensuring the sustainability of coffee production and the livelihoods dependent on it in the face of global warming. Starbucks eventually plans to open test farms in Africa and Asia, according to a spokesperson. The company has 10 support centers around the world where agronomists work with farmers on research and best practices. “If we don’t build resilience today, the reality is the availability of coffee will continue going down,” said?Roberto Vega, vice president of coffee agronomy at Starbucks.
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Events
United Nations
Nov. 11-22
Baku, Azerbaijan
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Impact Europe
Nov. 22-24
Torino, Italy
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G20
Nov. 18-19
Rio de Janeiro, Brazil
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World Economic Forum
Jan. 20-24, 2025
Davos, Switzerland
November 2024, issue 35. Previous editions can be found on LinkedIn or the Oxford Business Review website. All information in this article is personal and does not represent the viewpoint of any organisation.
[1] The IPCC is a United Nations body responsible for assessing the science related to climate change. Its reports provide a scientific basis for governments at all levels to develop climate-related policies, and they are a key input into international climate change negotiations. The IPCC assesses research on the human impact on climate change and the natural processes and implications of climate change. It does not conduct its own research.