Reflections on Davos: Business as usual no longer exists
AS THE planes take off and the trains carry a steady stream of suited-and-winter-booted participants back home, skiers are returning to the slopes of Davos, Switzerland. Another edition of the World Economic Forum (WEF) has come to an end – but what have we learnt?
Compared with a year ago, the world seems a somewhat different place. Right before the start of the gathering in Davos, WEF released its annual Global Risks Report, effectively a survey of some 1,500 global leaders across business, academia, government and others. Last year, the cost-of-living crisis topped the near-term concerns, alongside nature risks and geo-economic confrontation. This year, the tone is different. “Misinformation and disinformation” led the list of near-term fears, with “societal polarisation” not far behind.
In a year in which some four billion people are eligible to vote in an election, conversations at Davos struck a markedly more geopolitical tone. Among the first to open this year of elections, Taiwan has already gone to the polls to vote through a third term of the ruling government, while the US election will take centre stage later in the year. Markets remain undecided on the outcome, even as discussions on geopolitical conflicts seeped their way into the Davos formal and informal nightcap sessions.
One thing remains unchanged. While perceptions of near-term risks have shifted, nature risks top the 10-year outlook. Extreme weather events, critical changes to Earth’s systems and biodiversity loss head the list of concerns. And with good reason. 2023 was, like the preceding year, the warmest year on record. At a nature dinner organised by Lombard Odier to kick off the week in Davos, Professor Johan Rockstrom reminded the audience that it is now inevitable that the world will overshoot the key 1.5 degree Celsius target, with a best outcome likely seeing increases to at least 1.7 deg C or 1.8 deg C in the coming decades, before we have a hope of returning to the 1.5 deg C target.
On the Promenade, a central road running through Davos, the sustainability billboards have largely disappeared. Instead, discussions on how to tackle transitions to net zero and, increasingly, a nature-positive economy, have moved from the outdoor signboards to panel discussions and fireside encounters.
Virtue-signalling is no longer the name of the game; figuring out who has the right strategy and the right partnerships to quickly adopt cleaner, greener and more efficient business models that can disrupt entire industries is the new play in town. A lone billboard that still declares “sustainability is just a few steps away!” feels eerily out of place. Inside the improvised meeting rooms that transform a skiing village into a meeting place for the global who’s who, it is all too clear that these transitions will be far from easy, but may yet allow those with the right strategy to leapfrog forward.
Outside, other billboards vie for attention. Replacing the proclamations of net-zero commitments are the new signs advertising each business’ respective breakthroughs in artificial intelligence (AI). A year ago, the sudden emergence of generative AI was already the word on the snowy streets of Davos. In 2024, AI and discussions on its myriad disruptive effects were on the agenda everywhere. The shift in advertising focus from sustainability to AI is perhaps a sensible one: one represents the challenge, whereas digitally enabled optimisation and innovation may well be a central part of the solution.
Besides AI, the wooden interiors of the Davos chalets and meeting rooms perhaps provided an appropriate setting for the other topic that ascended up the WEF agenda: nature. From sessions on risks to the global food system, to a heavily over-subscribed “nature positive dinner”, WEF participants sought to come to grips with an inevitable and increasingly clear realisation: for all the maladies and opportunities facing the global economy, the economy is vitally dependent on the ecosystem services provided by natural capital, the world’s single most productive asset.
The solutions too are beginning to emerge. Recognising the not-so-hidden value of nature is but a mere first step. Encouraging markets to adequately value and allocate capital to its preservation and restoration is the much greater challenge. Shortly before Davos, the Taskforce on Nature-related Financial Disclosures announced that an initial cohort of 320 businesses had signed up to its much-awaited framework aiming to drive the disclosure of nature risks and opportunities. In other roundtables, financial institutions looking to engage on nature recognised that allocation capital to nature-based solutions at scale, in fact, requires us to reconsider asset allocations – with nature emerging as a new asset class.
At Lombard Odier’s own “re-nature” dinner, speakers and the audience explored opportunities to put theory into action, highlighting investment opportunities around the development of regenerative value chains. Coffee is a US$225 billion example, dominated by production from tropical monocultures, often characterised by falling yields and degraded soils, and with as much as half of all coffee production at risk from climate change. Transforming extractive models to ones based on agroforestry and rewilding, and a shortening of value chains to consumers, may be part of the solution to begin to drive more capital to nature at speed and scale.
So in the end, did Davos 2024 change the world? Perhaps that would be too high an expectation. The world is moving quickly, and perhaps the business community assembled at Davos was struggling to keep up. But, in a year where concern over misinformation and societal cohesion is rife, this year’s theme of Rebuilding Trust appeared well-chosen. According to the Edelman Trust Barometer released just before the event, global levels of trust in institutions and leaders have been on the decline, but businesses today are more trusted than government leaders. With innovation and new global challenges facing business leaders and investors, maintaining that trust requires a balancing act.
To investors, there are plenty of takeaways. Transitions to a decarbonised economy are accelerating. Parallel concerns over energy security, energy affordability and clean energy all point to the single solution of a further ramp-up in investment in new energy systems. Transformation of value chains to more regenerative alternatives will drive investment to new technologies, business models and nature-based solutions. AI will accelerate all of these transitions, enabling solutions that outcompete existing alternatives in terms of efficiency, environmental impact and financial returns. The transition is in motion, and investors on board the Davos trains appeared to be on board.
The writer is head of sustainability research at Lombard Odier Investment Managers
