FT Rethink
The transition to a sustainable economic model
Our current global economic model is wildly unsustainable. If we take a birds-eye view of the economy, we see that we live in a linear, take-make-waste economy. But we are already transitioning to a more sustainable model.
We are living WILD. We are wasteful. We extract about half of Mount Everest every year to power our economy. We burn most of this for energy, and the majority of this other material is only used for a short period of time. Only 9% of all the material we extract today is recycled.
Our economy is idle. Cars sit unused for over 90% of the time1 and offices and government equipment is not always in use.
It is lopsided. Large groups are unable to reach their economic potential. And it is a Dirty economy. We burn fossil fuels, contributing to climate change and we are poisoning our ecosystems.
We believe our economy is moving from a Wasteful, Idle, Lopsided and Dirty (WILD) model and transitioning towards a model where growth decouples from its social and environmental footprint. There are market, regulatory, consumer and technological forces driving us towards rapid change that are pushing us into a new and more sustainable economy.
This future economy will be Circular, Lean, Inclusive and Clean. We call this the CLIC™ economy and the transition is rife with opportunities
There are two challenges that we face today, that are connected. The first is our failure to price carbon.
The lack of a price on carbon pollution has allowed our economy to evolve in a way that sees pollution as a mere regulatory issue. This is not the case. We need to recognise that our failure to meet climate targets is already changing our climate and will continue to undermine our productivity and pose mounting physical risks. Today, current policies are estimated to lead to scenarios associated with as much as $550 trillion in climate damage– a Net Present Value that is larger than all of the value of all physical and financial assets on Earth today.
Secondly, our economy also fails to take appropriate stock of natural capital. Natural capital includes all of the resources from nature that have value but no price - and that we wrongly assume exist in infinite quantities. Our impact on the biosphere is slowly undermining the productive quality of our soils, ecosystem processes such as pollination, and the natural protection that forests and other ecosystems provide to us.
This transition to a CLIC™ economic model, in a nutshell, represents a move from a value-destroying economy, to a value creating economy. This economy seizes hidden value and accounts for the value of the resources it relies on as well as the impact that its products generate.
A circular economy sees the opportunities in recycling. We must recognise the regenerative and renewable limits of natural processes and ensure our economic process is aligned with these, rather than in conflict with them.
We need to move to an economy that is leaner, and emphasises outcomes (getting from A to B) rather than personnel possession (of cars for example). In this new economy, we produce fewer but higher-quality products, using a fraction of the resources we do today.
Today, we waste vast amounts of resources through our societal systems. An inclusive economy is not only fairer, but as a result, also more secure from social and political unrest. A society like this proves much more resilient when inevitable shocks do occur, such as climate events, or a global pandemic.We must clean up our economy, both in terms of our carbon emissions, but also other forms of pollution. This requires a dual effort, as it is evident that some forms of climate change are already upon us. Thus as we work to mitigate the worsening of the climate crisis, we must already take action to adapt to this changing
At Lombard Odier, we believe sustainability is a key driver of returns and risk mitigation. The CLIC™ economy thrives on efficiency and innovation to boost growth, in synergy with the wider environment, and we focus on companies who are transitioning to this CLIC™ model.
We believe in investing, not only in low-carbon and clean-tech strategies, but also in those companies in more carbon-intensive industries that are finding solutions to the problems their sectors face.
Similarly, we understand that the transition to net zero emissions and zero waste cannot be achieved without rethinking our relationship with nature. We seek out companies that recognise the value of our natural world and that invest in a circular bio-economy and a leaner form of industry.
The financial industry can pave the way in creating a better future for all that focuses on a triple bottom line: planet, people and profit.
1 LOIM White Paper CLIC™ Mobility - A climate transition for transport in a post-COVID world
Important information
This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.
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