The race to net-zero

Have you heard about the Pareto Principle? Also known as the 80/20 rule, it merely states that roughly 80 per cent of consequences come from 20% of the causes for many outcomes. Can this principle apply to what we are currently observing in the number of countries and companies setting up science-based emissions reduction targets to reach net-zero status? (A net-zero status means we are absorbing as much emissions as we are emitting).

As of November 2020, six countries had enacted laws to reach net-zero status by 2050. These are Sweden, United Kingdom, France, Denmark, New Zealand and Hungary. Another six ( European Union, Canada, South Korea, Spain, Chile and Fiji) have tabled legislation to achieve net-zero by 2050. Two countries Suriname (in South America) and Bhutan(in South Asia) have already achieved net-zero status in 2020. Altogether these countries represent about 12 per cent of global carbon emissions. A lot more action is needed.

While some countries evaluate their options, businesses, on the other hand, are moving fast. Five years ago, 52 companies had science-based emissions reduction targets. By 2020, this number grew to 1106, a twentyfold increase. A back of the envelope calculation indicates that the number of companies setting net-zero targets could reach 1800 by the time of COP26 in 2021 and almost 5500 by the time of COP30 in 2025. And these are conservative estimates. Could companies start to tip the scale and drive 80% of the emissions reduction for a net-zero global economy? We shall see.

Source: Science Based Targets initiative (SBTi), Authors’ calculations.

Effective coordination, collaboration as well as innovations will be required to keep this momentum going. There is much good work in the pipeline. The International Institute of Finance’s Task Force for scaling up voluntary carbon markets is one example. Launched by Mark Carney, Bill Winters and Tim Adams in September 2020, the Task Force anticipates an explosion in demand for carbon offsets to meet companies’ net-zero targets. This initiative will help to unleash private capital flows, particularly to developing economies. We may not have reached the tipping point yet. We must keep going. That 20 per cent is within reach.

Systemic innovation

Linear or systemic model of innovation

Twenty-five years seem like a long time ago. You could buy an Apple share for a dollar and a Microsoft one for eight dollars. Google and Facebook were not even listed on the stock market. Much has changed in those 25 years. Yet the scholarship on sustainable development at the time, was already advocating the kind of thinking that is emerging today. One that caught my attention was a paper by Chris Freeman¹ in 1996.

Professor Freeman argued for a new systemic model of innovation to enable large-scale techno-economic transitions. He claimed that in a systemic model of innovation, “feedback loops and interdependencies are important at every stage so that networking between research institutions and firms should be continuously encouraged.” Today these interdependencies are also discussed in the ‘systems approach’ to leadership and change management. In contrast, a linear model of innovation focusses on discovery in basic science, an invention and ends with a new process or product, i.e. the innovation. Both models require significant R&D (Research and Development) expenditures.

Although not explicitly mentioned in the paper, the notion of a circular economy was evident in the articulation of the steps needed to avoid catastrophic environmental damages. Presciently, Professor Freeman referred to the potential impact of information and communications technologies (ICT) on work patterns:

They offer even more radical possibilities through “telecommuting”, enabling people to work at home, avoiding the journey to work for at least some days in the week.”

Back then, Professor Freeman further observed, “It must be said, however, that these possibilities have been slow to materialise.” There were such high expectations from ICT. There are a lot more interesting insights in the paper.

After reading the paper, I find myself questioning why transitions take so long to happen? What are the essential factors that must interact with each other promptly to support significant large-scale change? Of the many factors, I believe that leadership (personal, organisational) has a strong influence on the direction of change, but by itself is insufficient.

R&D expenditure is another necessary ingredient in the soup of required factors to support large-scale transitions. Professor Freeman pointed out in 1996, “ despite the important advances in wind power and solar power, it( meaning the renewable energy transition) will not be possible either without some far greater R&D commitment in the public and private sector as well as procurement policies.” Between 2000 -2017, the R&D intensity ( R&D per unit of GDP) has been mostly flat for the US, France, and the UK. In contrast, China and South Korea have steadily increased R&D spending relative to their GDP.

A systems approach to change is arguably more likely to result in the effective management of the complex relationships between elements that are required to drive a sustainable transition. Yet it is not clear whether countries such as China and South Korea are using a linear model of innovation rather than a systemic model. Perhaps a combination of approaches is required with elements from both the linear model and the systemic model of innovation.

There is much uncertainty over the path of sustainable development over the next 25 years; keeping an open mind to a multitude of strategies seems like a good bet. One thing is sure to happen though: you will not be able to buy a share of Apple for a dollar.


[1] Freeman, C. (1996). The greening of technology and models of innovation. Technological Forecasting and Social Change53(1), 27–39.

Invisible threat and a rare opportunity

Photo by Pixabay

For the first time in several decades, people in Kathmandu Valley, Nepal were able to get a rare glimpse of Mount Everest. Lower air pollution levels due to the pandemic allowed the smog to clear to reveal the magnificent peaks of Mount Kang Nachugo, Mount Everest and Mount Chobutse. 

In April this year, climate researchers estimated that daily global carbon emissions level were 17% lower compared to the same period in 2019. The International Energy Agency estimates that 2020 carbon emissions will be lower by 8% as a result of Covid-19 restrictions. Such an annual drop in emissions has not been seen since World War II. These are indeed good news for the planet. Now stay tuned for the challenges…

A UN report last year indicated that global emissions need to fall around 8% every year from 2020 to 2030 to limit global warming to 1.5°C. Cynics might say the world needs a pandemic-type event every few years to jolt policymakers and businesses to take action on climate change.   

Researchers at King’s College London found that falling incomes, as a result of the pandemic, could push 80 million to 580 million people into poverty, depending on the size of the income contractions. That would effectively wipe out several decades of progress against poverty.

I mention these extreme outcomes to illustrate the challenging tradeoffs that society must make. Upon reflection, I find that ‘society’ is a nebulous concept. There is no homogeneous society. I should perhaps say the tradeoffs that individual leaders must consider. This realisation then leads me to ask questions about the type of leadership we are observing today.

Collectively, the developed economies have found creative ways to channel trillions of dollars into the pandemic fight. I am curious, as are many others, as to what factors led to this outcome? The immediacy of the invisible threat and the survival of humanity come to mind. Yet, I believe leadership played a crucial role in delivering this result. Indeed some future studies will surely explore which leaders did well and which ones did poorly during this crisis. And importantly, the question remains as to why a similar level of leadership( and funds) does not exist to pursue the sustainable development of our economies.

Much has been written on the opportunities presented by the current Covid-19 pandemic to steer the trajectory of economic growth towards development that is consistent with the permissible planetary boundaries. Let us build back better is the chorus we hear. This chorus, I suspect, resonates with millions of people around the world. However, everyone should raise their game; from individual consumers to businesses and governments. Otherwise, there is a good chance that once this episodic crisis is over, we will revert to business as usual and miss a rare opportunity for meaningful change.

Consumers: the sleepy giant of the sustainable finance revolution.

How many of you know where your pension money is invested?

Sustainability information for consumers
Photo by fauxels on

You are not alone.

In my last blog, I mentioned the USD 2.5 trillion annual investment gap that is hindering achievement of the UN sustainable development goals. Pension funds assets amounted to almost USD 33 trillion in 2018. A reallocation of less than 10 per cent of the pension assets towards sustainable investments will go a long way towards reducing the investment gap. Why is this not happening at a faster pace?

Governments and businesses have a critical role to play to reduce the financing gap. But so do consumers! Yet consumers are not pulling their weight. Most consumers are unaware of where their money is invested. A 2018 study by the Defined Contribution Investment Forum(DCIF) found that two-thirds of pension savers in the UK have low levels of knowledge of where their pension money is invested, and they are not confident in making investment choices.

Part of the problem is that information is not available in an easy to understand format to help consumers make decisions. There are thousands of mutual funds in the market. It is costly for consumers to search and identify the sustainable investment funds they want. A recent study by the Cambridge Institute for Sustainability Leadership showed that the availability of sustainability information does influence investment choices. Interestingly, the study found that savers are willing to sacrifice financial returns and choose sustainable funds when they are presented with clear sustainability information. Researchers at the European Corporate Governance Institute recently demonstrated in a comprehensive study that sustainability information increase money flows into high-rated sustainable funds.

In short, consumers, when presented with the right information, can dictate where their hard-earned savings are invested. That said, consumers should take a hard look in the mirror and use their wallet power. Consumers are at the core of the upcoming sustainable finance revolution. It’s time to wake up!

O Finance, where are you?

UN sustainable development goals took decades to develop

Getting a consensus to achieve global cooperation on any issue is challenging. It took several decades for the United Nations(UN) to get its members to adopt the 17 sustainable development goals(SDGs) in 2015. The process started years earlier with the Earth Summit in 1992 in Rio de Janeiro where 178 members agreed to an action plan to protect human lives and protect the planet. Eight years later, in September 2000, the UN adopted the Millenium Development Goals with the explicit goal to reduce extreme poverty by 2015.

Fifteen years later, in September  2015, the UN 2030 Agenda for sustainable development was adopted by the UN General Assembly.  A few months earlier in July 2015, the Addis Ababa Action Agenda was formally launched by the UN. The plan stressed the importance of long-term investment and the need to align all financing with sustainable development.

No sense of urgency

During the 2008 financial crisis, almost 426 billion dollars were mobilised within two years to ‘save’ the US  financial system.  There is no sense of urgency to mobilise funds to implement the UN sustainable development goals. Yet the investments required are huge.

Recent OECD estimates indicate that around USD 6.9 trillion of infrastructure investment is needed each year to 2030 to meet the sustainable development goals and meet the goals of the Paris Agreement. The current annual spending on infrastructure is between USD 3.4 – 4.4 trillion, depending on the measurement metrics used. An investment gap of between 2.5 to 3.5 trillion dollars per year exist today.

There is clearly a large and significant investment gap to reach society’s desired sustainable development goals. The availability of capital does not seem to be the problem. According to the Financial Stability Board, global total financial assets stood at  382 trillion dollars as of 2017. Pension funds and insurance corporations’ assets were close to 65  trillion dollars. The core challenge is to incentivise the flow of a bigger share of this capital towards sustainable investments. To do this, strong leadership is a must.

EU leads the way

To address some of these issues, the European Union High-Level Expert Group on Sustainable Finance produced a set of recommendations to accelerate the flow of capital towards sustainable development objectives. The European Commission(EC) adopted an action plan on sustainable finance in March 2018. Among the various actions, the Commission highlighted the limitations of existing sustainability benchmarks. Accordingly, it proposed an initiative to create a designated category of benchmarks comprising low-carbon issuers.

To prepare for the creation of these benchmarks, the European Commission had to clarify what exactly constitutes sustainable investments.  In June 2019, the European Commission produced a taxonomy of sustainable investments.   According to the European Union,  the Taxonomy is an implementation tool that can enable capital markets to identify and respond to investment opportunities that contribute to environmental policy objectives.   In October 2019, the  European Union launched the International Platform on Sustainable Finance(IPSF) to strengthen international cooperation and scale up mobilisation of capital towards environmentally sustainable investments.

There is hope that the development of the EU Taxonomy, the new carbon benchmarks and the IPSF will enable the private sector to increase their capital allocation towards sustainable investments. The result could be substantially more funds to achieve the UN sustainable development goals. And Finance will finally show up.

Change, we must.

Yesterday I was clever, so I wanted to change the world. Today I am wise, so I am changing myself.


The global challenges we face will necessitate an unprecedented level of international cooperation and leadership if there is to be hope of implementing timely solutions.  It is easy to feel powerless to make and lead change that will ultimately move the needle. Yet, change we must. Through this blog I hope to make a small contribution to the discussion on the leadership that is required for our journey towards a sustainable economy. I welcome your comments and feedback.