Takeaways from the World Economic Forum discussions

By Rich Nuzum, CFA , Global Chief Investment Strategist, and Cara Williams , Global ESG and Sustainability Leader

Funding challenges – and knock-on impacts on climate transition and innovation – have been part of nearly every discussion at Davos this year. Across government, corporates and investors, leaders are seeking to maximize the impact of capital commitments across climate, technology and food security.

Following landmark commitments at COP28, it’s been interesting to see a more pragmatic approach both to and from traditional energy companies, recognizing them as pivotal players in advancing the transition. These organizations can be pivotal players in accelerating climate solutions but require capital to transition revenue streams and innovate to decarbonize operations.

The private sector is getting to work

While we still need less talk and more action on climate finance, the private sector is putting money to work and driving progress in catalytic investments. We’ve reached that critical tipping point where high-impact clean energy and sustainability investments offer meaningful risk return advantages and capital markets are responding. Investment volumes into green infrastructure soared in 2023, with a record quarter for fundraising into green and clean scale ups during Q2, at a time when venture capital fund raising was way down on its peaks, according to the IEA.[1]

Profit motive is key to scaling capital commitments – and the scaling opportunity is vast. Globally, there is over US$100 trillion of unleveraged[2], according to PWC, long-term oriented institutional investment capital seeking better risk adjusted returns. Against a backdrop of funding challenge, this critical shift in the math is reason for optimism.

Renewed hope on global standard setting

China has shown up in a big way this week and there’s been a real sense that a new axis of global cooperation and coordination could support progress on key issues.

One of these is food standards. A lack of global standardization has led to a proliferation of competing rules – one delegate spoke of 520 sustainable food standards in Europe alone. It’s become increasingly difficult for companies and nearly impossible for investors to differentiate the sustainability of food products and supply chains, meaning that sustainable leaders are not yet being appropriately rewarded.

Collaboration between China and Europe – two of the top three largest global economies - on new food standards, could deliver a new common standard for food and supply chains. ?

Governments want more bang for their buck through climate policy commitments

Indebted governments are seeking to maximize the impact of climate commitments and investment.

The shift comes as macro-economic tightening and large post-pandemic balance sheets ?drive up the cost of capital for many nations, limiting the funding available for government priorities.

Integrating multiple UN Sustainable Development Goals (SDGs) into policy setting and decision-making ?might help governments mobilize financing in relation to local or regional needs but present complexities for investors deploying capital in pursuit of potentially divergent objectives. We are yet to reach consensus on this debate.

Reporting against transition objectives is a nut that has yet to be cracked

The shift to incorporate multiple SDGs into climate financing reinforces the need to standardize impact reporting and we’ve heard a range of views on how to move this forward.

While robust frameworks for greenhouse gas reporting exist, SDGs and broader impact objectives lack comparable metrics – with goals such as social impact requiring broader contextual analysis.

As policymakers seek to maximize the reach and efficacy of climate policies, a careful balance needs to be struck between emission reduction objectives, societal benefits and positive returns. ?

Important Notices and Disclosure??

[1] Source IEA: World Energy Investment 2023

[2] According to PwC: Asset and wealth management revolution 2023