Climate change requires deep, structural transformation of every sector

Published: 4/10/2022
Climate change requires deep, structural transformation of every sector

Speech by Deputy Governor Sandra Švaljek at Startup Europe Regatta 2022 on 4 October 2022.

In 2010, I have spent ten days in Japan, participating in Japanese government's programme called Partnership for 21st century. Back then, Japan was engaged in compiling country's long-term strategy of which I have learned quite a lot, visiting several ministries, corporations and research institutes. Like most strategic documents, Japanese strategy identified current strengths and weaknesses, as well as future threats and opportunities. There was a widespread understanding that decline in population size and the ensuing ageing of the population is one of the major threats to country's future growth. However, to my surprise, it was at the same time considered a great opportunity, bringing a potential for the rise in demand for elderly care, robotics, mobile health services, electric appliances and housing adapted to the needs of elderly. It is then that I have discovered a unique but powerful philosophy, according to which the inconvenient circumstances should not be considered as curse, but could be embraced and turned into building blocks of progress.

The world we live in is characterized by many challenges, one of them being climate crisis, which is lately showing in many different forms – heatwaves, floods, droughts, wildfires, hurricanes and unprecedented storms. Human activity and the way we use the natural resources have devastating consequences for the planet. According to the Stockholm resilience centre, four of nine planetary boundaries have been crossed and large, irreversible changes might soon become unavoidable. Accumulation of greenhouse gasses in the atmosphere, causing climate change is one of them.

Global community is therefore united in a determination to prevent global temperatures to rise more than 1,5 degrees Celsius above the preindustrial levels. Growth of global temperatures by 1,5 degrees is consistent with the level of CO2 in the atmosphere of 2.700 Gt (this is often called carbon budget), and there are already 2.400 Gt of the excess CO2 in the atmosphere. With the current annual emissions, the carbon budget will be reached in only 8 years. In other words, if 2.700 Gt would be one hour, we would have exactly 7 minutes to stop emitting and prevent rise in temperatures by more than 1,5 degrees. This to my opinion is a major wake up call. But (equipped with my Japanese experience), I would as well considered this is as one of the greatest opportunities of all times.

Climate change requires deep, structural transformation of every single sector of the entire economy – from farming to transportation, from how we produce shoes and clothes, to how we build and warm up our houses. No business will stay unaffected by this change – the incumbent business will have to adapt, pressured by the expectations of their employees, customers and investors to take steps towards incorporating climate and environmental concerns into their businessmaking. At the same time, many new business may arise as well, stimulated by the demand for sustainable products and services and a hunger for decarbonizing solutions. Interestingly, it is proved that start-ups have been the first to scale-up so-called climate tech business, like renewable energy and electric vehicles.

The state of the environment is surely worrying; however, the prospects for economic prosperity are not grim. We know that there are already technological solutions available, which could be profitable, and have great abatement potential. Technologies such as solar power, wind power, food waste technology, green hydrogen production and alternative foods have the potential to reduce GHG emissions by 80 percent. New business reaping the potential of such technologies could nowadays receive external funding from financial institutions across the risk spectrum – from green angel investors and green venture capitalists, to institutional investors and banks. According to McKinsey, investing in climate tech (businesses in the area of renewable energy, electric vehicles, carbon removal, food waste, agriculture and the decarbonisation of the built environment) already accounts for 1/8 of all VC investments. In 2021 there were 78 unicorns across eight climate tech challenge areas. The intensity and speed of development of digital economy we saw in recent decades might be followed by the equal development in decarbonisation economy.

Banks as well are prone to including the financing of sustainable projects into their lending portfolio. Since 2017 central banks have been agile in rising banks' awareness of the climate and environmental risks they have been exposed to. The latest climate stress test carried out by the ECB on 104 European significant banks showed their overreliance on carbon-emitting sectors - almost two-thirds of banks’ income from non-financial corporate customers stems from greenhouse gas-intensive industries. In the future, the banks may therefore intend to restructure their portfolio and replace gradually the loans to carbon intensive sectors with loans to sustainable business and thus lower their exposure to climate risks.

At the end, let me encourage those of you that are considering starting up a climate-tech business or having already established a business in this area – I am very exciting about what the future brings to you. As I see it, there are all the important ingredients for your success. There is a growing demand for sustainable products and services, there are various policy measures implemented by the governments in order to support decarbonisation, there are already available profitable new technologies and there is an appetite of the financial sector to provide financing. Make use of the climate crisis, and in the same time make our planet healthier!