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Davos 2024: A window into the reorganisation of large-scale flows of capital around the transition
Article published in Milano Finanza, 12 January 2024
The new year is well and truly underway, the mountains around Davos have turned a snowy white, and the 2024 edition of the World Economic Forum is about to begin. What can investors expect?
As in previous years, somewhere between 2,000 and 3,000 official guests will attend – many from the business community, as well as government and NGO representatives. Innumerable unofficial participants will round out the crowd, flocking to the countless satellite events taking place throughout the week.
Following on from last year’s theme of “cooperation in a fragmented world”, in 2024 participants will be asked to concentrate on “rebuilding trust”, with a focus on four key themes: opportunities to promote security and cooperation in a win-win manner for all stakeholders, growth and jobs, artificial intelligence, and the complex nexus of climate, nature and energy.
For investors, there is much to discuss for those on the ground, and much to pay attention to for those looking in from the outside.
Read also: Ten Investment Convictions for 2024
The business implications of the energy transition
The common thread running through the themes at Davos is their global nature and the need for joint solutions. In a context of increased geopolitical tension, reshoring of supply chains and increased talk of “de-globalisation”, many have questioned the Forum’s ability to retain its relevance. Yet on the flipside, perhaps against this backdrop of instability and “polycrisis”, one might argue that the need for this type of discussion has never been greater.
The conversation around these topics in Davos follows closely on the heels of COP28, which took place just weeks ago in Dubai. Despite widespread scepticism ahead of the event, and notwithstanding geopolitical turmoil, for the first time the outcome of the conference recognised the need to transition away from fossil fuels. While much of the challenge will be in the implementation, at Davos the discussion is likely to focus more heavily on the business implications of the transition to a clean energy system.
How Davos differs from COP28
Whilst some of the stakeholders present at COP28 resemble those at Davos, the character of the two conferences is markedly different. The COP meetings are closely supported by the work of the Intergovernmental Panel on Climate Change (IPCC) – a scientific body backed by an organisation comprised of government representatives. The World Economic Forum, in contrast, has traditionally had a more business-focussed membership, and remains a prime opportunity for investors to see the way the winds of large-scale capital flows are blowing.
Read also: re-NATURE Hub – putting nature at the heart of climate action
From the agenda, that direction is increasingly clear. Environmental and economic agendas have converged, as has been clear for many years from the WEF’s annual Global Risks Report, where intensifying climate conditions, threats to biodiversity and other nature-related risks have steadily climbed the rankings of top risks perceived by 1,200 multi-stakeholder respondents.
Accordingly, the focus on climate, nature and energy ranks highly on the list of topics for attendees to discuss. Here, we believe the strong participation of investors and the business community should be seen as highly welcome. Based on the estimates of the International Energy Agency (IEA) and other bodies, at least USD 3-5 trillion of investment per year is needed in energy and nature-related transitions during this decade, necessarily involving not only public but also substantial private sources of capital.
Environmental issues are now at the heart of the global economy
Davos, for us and other likeminded investors, will be an opportunity to take stock of the many ways in which environmental transitions are triggering much wider disruptions of our economy and investment landscapes:
- Nature themes appear throughout the agenda and list of events, as a topic much broader than climate issues alone. Participants are likely to consider newly emerging risks, but also new opportunities for public-private partnerships in nature-based solutions and the need to rethink value chains. Nature, the Forum participants could conclude, may need to be considered a new and productive asset class in its own right.
- Conversations on the energy transition will take a palpably different tone, on the back of the COP28 outcome. Peak energy emissions are now expected in 2025, and even the IEA (which is typically conservative in its projections) now predicts a peak in overall fossil fuel use this decade. At Davos, conversations are likely to shift from whether the transition will happen, to how investors and other stakeholders might stay ahead of it.
- Artificial intelligence returns as a more explicit topic for discussion, not just in its own right, but as a further accelerant and driver of the transitions discussed above. New digital developments are unlocking a technological revolution and enabling widespread optimisation of existing business models. That optimisation drives improved efficiencies, resulting not only in environmental benefits, but also enhanced economic profitability.
Read also: AI in financial services: is this the new dotcom bubble?
An economic transition is unfolding
As system changes around energy, nature and climate gain unstoppable momentum, the number of platforms where these economic transitions are discussed is also proliferating. Each offers its own perspective and tone, but all might be said to add to the overall momentum.
Davos, seen in this light, has a distinctive business- and investor-oriented view. Rather than seeing that as a weakness, it is also an opportunity to recognise that the transitions unfolding around us do not just make environmental sense, but a good deal of economic and financial sense too. That, at least, is at the heart of our investment conviction.
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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