22 April 2020 sees the 50th anniversary of Earth Day, a global event to highlight support for environmental protection. Four years to the day from the signing of the Paris climate agreement, this year’s Earth Day has climate action as its theme.
- Earth Day 2020 stresses the urgent need to take decisive action to meet the goals of the Paris accord given the still-mounting challenges of climate change
- Current pandemic is a grim reminder of the cost of humanity’s sprawling environmental footprint
- The transition towards a sustainable world presents both risks and opportunities for investors
The first Earth Day took place on 22 April 1970 in the US. It was a response to growing concerns around environmental issues such as oil spills, air and river pollution, and the impact of pesticides on human health. Twenty million Americans – 10% of the US population at the time – participated, creating unprecedented momentum for environmental legislation. This resulted in the US Clean Air, Clean Water and Endangered Species Acts and the creation of the Environmental Protection Agency (EPA) in December 1970.
In the years that followed, the initiative continued to grow, going global in 1990 with 200 million people in over 140 countries participating. Today, over one billion people are involved in Earth Day activities, according to the Earth Day Network.
COVID-19 pandemic: a grim reminder and a wake-up call for environmental action
While 2020 was set to reach new highs in terms of scale, the COVID-19 crisis has shifted Earth Day 2020 to 24 hours of global digital mobilisation and education around environmental issues.
The pandemic is a grim reminder that environmental issues need to be addressed urgently, as our growing footprint puts us ever closer to wild animals, making us more vulnerable to infectious diseases. Indeed, no less than three-quarters of new and emerging infectious diseases originate in animals, making outbreaks increasingly common.
The first Earth Day boosted environmental awareness and legislation. Today, the challenges are tougher than ever and call for unprecedented action.
Since 1970, the world population has more than doubled to 7.8 billion people, putting increasing pressure on environmental systems. On average today, each person produces 21% more CO₂, uses 47% more fuel and consumes 65% more meat than in 1970. Per capita plastic production increased by 447% to reach a staggering 4.9 tonnes in 2018!
Perhaps even more strikingly, since 1970, annual CO₂ emissions have more than doubled (see Exhibit 1), leading to a 1°C warming of Earth’s surface and a multiplication of extreme weather events. At the current rate, the IPCC estimates that we will exceed 1.5°C of global warming between 2030 and 2052.
To address these challenges, we need to cut greenhouse gas emissions as well as restore and protect natural capital. While the bad news is that there is no more time to delay action, the good news is that solutions not only exist, but also are increasingly being adopted. Since 2000, wind and solar power capacities have grown 32-fold and 400-fold respectively, reaching a combined output of over 1 000 GWh.
For investors, this represents both material risks and emerging investment opportunities
For investors, climate change represents a significant risk. Exceeding 2°C of global warming would have a significant impact on the value of investments across many sectors. Activities such as energy production and consumption, agriculture, transport, insurance and real estate face tighter regulation, higher costs, physical damage and changing consumer preferences.
To protect the current and future value of their investments, investors need to identify and ultimately reduce carbon risks in their portfolios. To do so, they can direct their investments towards sustainable funds, which explicitly and measurably take into account climate and other ESG risks.
These challenges also represent a growing opportunity to invest in companies offering innovative, market-leading solutions in areas such as renewable energy and energy efficiency, water technology, sustainable food and agriculture, waste and resource recovery, and a circular economy.
The recent correction in financial markets may present an opportunity to (re)allocate a portion of investments towards these long-term themes, and hence both contribute to – and benefit from – the transition to the more sustainable economy that Earth Day 2020 is calling for.