The latest research from global consultancy Deloitte, launched at Davos in May 2022, warns that failure to act on climate change could cost $178 trillion in the next fifty years. If there is a united approach to a net-zero transition, however, the global economy could receive a boost of $43 trillion – a boost to global GDP of 3.8% in 2070.
According to the Global Turning Point Report, if temperatures increase to around 3°C toward the end of the century, there are likely to be impacts that would include a loss of overall productivity and employment, driven by food and water scarcity, worsening health and well-being.
Wildfires and storms are expected to continue to have an impact on infrastructure; not only will this result in an overall lower standard of living globally, but it will have a disproportionate effect on the most vulnerable.
Net zero report warns of global economy losses
The report, from the Deloitte Centre for Sustainable Progress (DCSP), was released at the World Economic Forum’s annual meeting and warned that – if left unchecked – climate change could cost the global economy $178 trillion over the next 50 years, or a 7.6% cut to global gross domestic product in the year 2070 alone. To put this into context, global GDP in 2020 was $84.75 trillion.
The report adds to a growing body of research which suggests that no matter the concern about the short-term cost of action, the long-term consequences of inaction will prove far more costly. This brings back into focus the importance of the time horizons under which investment decisions are made, and the implications of the long-term impact of those decisions.
Another aspect of the research is that the technologies and business models that can tackle these challenges already exist and can be scaled rapidly, if the funding can be aligned with political will to make it happen.
The cost of climate change inaction
Historical economics framing has always ignored externalities and the associated costs pushed on to society and the environment.
Leading climate economist Sir Nicholas Stern argues that the majority of current economic literature doesn’t yet grasp either the nature or the pace of change required for low-carbon transformation and that because of this, it has an innate bias against early action.
Speaking of the Global Turning Point Report, Deloitte Global CEO Punit Renje said it showed that a significant realignment of capital from every sector will be required, but that inaction will prove far more costly than action – based on the data from analysis of 15 geographies across Asia-Pacific, Europe and the Americas.
He said: “What we have before us is a once-in-a-generation opportunity to re-orient the global economy and create more sustainable, resilient and equitable long-term growth. In my mind the question is not why we should make this investment; it’s how can we not?”
No one-size-fits-all approach to net zero
Transforming the economy for a low-carbon future will require extensive co-ordination and global collaboration throughout industries and geographies.
Governments will need to collaborate closely with the financial services and technology sectors – leading the charge on sustainable progress through global policymaking, greater investment in clean energy systems and a new mix of low-impact technologies across industries.
What is apparent from the research is that no one-size-fits-all approach will work. It is likely that every region will take a different path, dependent on societal and political structures, exposure to climate change and risk profile, as well as domestic and regional strengths and weaknesses.
Each region is also expected to have its own unique turning point, acceptance of which may prove helpful in addressing how economies can develop over time – a core aspect of discussions of climate justice and development.
For example, Asia-Pacific is expected to see the benefits of a low-carbon transition as early as the 2020s, while Europe will not see returns on investment until the 2050s. While the transition is anticipated to play out at varying speeds, if rapid action is taken all regions are expected to achieve their turning point by 2070 and continue to reap the benefits long after.
A healthy global economy requires international cooperation on climate change
Overall, the research supports the increasingly mainstream position that pivoting from an economy reliant on fossil fuels to an economy primarily powered by renewable energy will drive new sources of growth and job creation.
In order for this transformation to be successful, a new approach to global co-operation and regulation will be needed. While there usually talk of co-operation at international meetings like the annual World Economic Forum in Davos, it has been a challenge to translate this into action.
Lack of transparency and accountability has resulted in little follow-through, whether that’s in G7 commitments to removing fossil fuel subsidies, which have yet to appear, or decarbonisation commitments at COP26.
Despite difficulties arising from concerns about the economic impact of the pandemic, growing conflict, political polarisation and global inflation, the urgency of such action continues to increase.
That makes greater clarity on transparent, accurate data critical in supporting net-zero global economy goals. While the arguments may continue around ESG data as they stand versus the importance of impact data, no one disagrees with the need for more granular, decision-useful information.