The World Economic Forum’s 50th annual meeting last week in Davos, Switzerland, offered a both concerning and hopeful report card on the state of the world and future prospects – especially in relation to climate change and the challenges of building more sustainable economies.

Indeed, the WEF’s annual risks report survey for the first time listed climate-related environmental threats as the top five global risks likely to have a major economic impact over the next decade. Even President Trump announced a commitment that surprised many: The U.S. will join the “One Trillion Trees Initiative,” which aims to protect and restore one trillion trees globally by 2050.

“The political landscape is polarized, sea levels are rising, and climate fires are burning,” said Børge Brende, president of the WEF. “This is a year when world leaders must work with all sectors of society to repair and reinvigorate our systems of cooperation.”

In a session PIMCO attended, “SDG Ambition: Scaling Business Impact,” UN Secretary-General António Guterres said that too many national governments are failing to lead with competency and accountability, stressing the importance of sub-national and city action in relation to the UN Sustainable Development Goals (SDGs) and challenges. He added that the private sector, including finance, is leading where many governments are lagging.

Global coordination and commitment

So how can leaders in finance embrace the Davos 2020 theme of “Stakeholders for a Cohesive and Sustainable World”? Here are our key observations:

• CFOs have an important role as leaders of corporate finance. There is a growing belief that chief financial officers (regularly outnumbered by chief executives at Davos) must act more broadly to address sustainability challenges. Scott Mather, PIMCO CIO of U.S. Core Strategies and the CIO responsible for overseeing ESG (environmental, social, governance)-focused investing, announced the recent launch of the CFO Taskforce (in partnership with the UN Global Compact), which seeks to mobilize hundreds of CFOs to help tackle the financing needs around the SDGs.
• Asset owners must continue to push ahead with ambitious targets. Leading global institutional investors, including PIMCO parent Allianz, are forging ahead with ambitious emissions targets as part of the Net-Zero Asset Owner Alliance. In a session titled “Averting a Climate Apocalypse,” Allianz CEO Oliver Bäte noted that while financial markets have overall been “weak in supporting the transition” to a low-carbon global economy, investors are accelerating their efforts and “for the first time business is now leading and governments are behind the curve” in terms of strong public policy action. He added, “We need also to move from climate outrage to science.”
• Asset managers must continue to invest in ESG. Many participants agreed that ESG investing has gone from marginal to mainstream. In a discussion featuring business and civil society leaders, Scott Mather stated that the “pace of change is accelerating with more and more investors asking for new sustainable investing strategies.”
• Capitalism itself is under scrutiny. Trust erosion is widespread, according to the Edelman Trust Barometer (which is released each year during the WEF). Perhaps more concerning to the Davos crowd than the collapse in trust in the public sector is the loss of faith in business and markets: According to the Edelman survey, a majority of people around the world now think capitalism is doing more harm than good.

Our final takeaway? We all have a reason to invest in sustainability.

There is no doubt that the geopolitical landscape is replete with tensions and uncertainties, and that climate change is a global threat multiplier. At the same time, the Sustainable Development Goals – featured in Davos as never before – offer a blueprint for human progress and the sustainability of business and markets.

To read our latest thoughts on how fixed income investors can target climate action and the SDGs in their portfolios, see ESG Investing in Fixed Income.

Gavin Power is PIMCO’s chief of sustainable development and a regular contributor to the PIMCO Blog.