The world can feel on the edge. The political environment seems increasingly characterised by international conflict and domestic division. Concerns around climate change heat up as global temperatures rise, along with disagreement about what to do about it. Economies and markets are under pressure, if not under water. But hope has been detected.
Less than 3 weeks before the terrorist attacks of 7th October and the ensuing Israel-Hamas war, the UN General Assembly met in New York. Discussions focussed on geopolitics, dominated by Russia-Ukraine, economics, and climate change. No one was talking about the Middle East in the same terms as today. Musings on the banks of the Hudson River would have had more to do with the South China Sea.
Markets have been adjusting to fears of a ‘higher for longer’ rates environment and stubborn inflation and asset values across several sectors of the global economy had started to capitulate. Global security concerns were heightened. Then, events in the Middle East added a new dimension, fractured societies, resurrected racism and terrorism, and the world watched another ‘tinder box’ with trepidation. It felt, as one journalist and broadcaster who I admire the most described it, “hopeless”.
It is a brutal time, punctuated with tragedy, sadness and anxiety, and a time for realism. But we can also find kernels of hope and some grounds for optimism.
On geopolitics, the shock of wars in Ukraine and Gaza has been compounded with rising fears of regional or global conflict. But stalemate in Ukraine and deterrence in the Middle East may yet contrive to pull the world back from the brink. We seem to be moving into an increasingly multi-polar world, where China and other nations with different political and value systems will compete with and challenge the United States and the West. But, amidst the tension, China’s President Xi Jinping will still attend the Asia-Pacific Economic Cooperation (APEC) summit this month, hosted by the United States in San Francisco. As White House press secretary Karine Jean-Pierre briefed this week: “Intense competition means intense diplomacy”.
On the economy, interest rates and inflation have been raging, fuelled by energy and food prices, threatening the global economy, asset values and the cost of living. But the United States economy seems to be growing rather than collapsing and this week’s market rally illustrates hope that fear may even have peaked for now. Hope can be powerful. Capital markets rewarded the news of an easing labour market in the United States. Concerns about continued interest rate hikes eased, bond markets rose, and Wall Street’s equities put in their best performance for a year.
On the climate, record temperatures, environmental degradation, insufficient policy, and failed negotiations set the scene for the ‘global stocktake’ at the COP28 summit this year. For all the progress on renewables and clean technology, it seems to be falling short and is not displacing fossil fuels quickly enough. At sea level, the offshore wind market seemed to be collapsing in the United States this week as Ørsted retreated. But in the same week, Taiwan reached financial close on the world’s largest offshore wind farm, illustrating that we can go forwards as well as back.
So too with the political climate. Right leaning politics in the UK and United States has taken a position against climate change in a culture war. The UK’s Conservative Party has been rolling back climate policies and no leading Republican Party presidential candidate in the United States champions climate action. But the right cares about a healthy, safe, clean environment too, and this wins votes from both sides of the aisle. There is furious debate about climate policy and economics, ESG, net zero, carbon markets, greenwash and ‘woke capitalism’. But the need for affordable energy, energy transition, and energy security is galvanising.
Competition for resources is creating climate change and conflict. This is making today’s economic, social, and political challenges ever more inter-connected, and worse. Energy, food and commodity price increases, together with de-globalisation and stimulus, are all inflationary. At the same time as the world is competing for resources, we are wasting so much of them. The world wastes three quarters of its primary energy, around half of its food and a third of its water. But solutions to these problems can be achieved at speed and scale with today’s technology and less money, not more. Efficient and decentralised energy solutions, for example, are the largest, fastest, cheapest, and cleanest sources of cost and carbon emission reductions, energy security, and economic productivity. That there is so much inefficiency, and that this is a solvable problem, offers the opportunity for extraordinary gains in a relatively short space of time and at low cost. As an investor in these solutions for nearly two decades, I see it first hand. That is why, as a realist, I can be optimistic.
My book, ‘The Edge: How competition for resources is pushing the world, and its climate, to the brink – and what we can do about it’, dives into geopolitics, economics and the world of energy and the environment to better understand the causes and scale of the challenges that we face today, and how we can deliver big enough solutions in time. It considers human and natural capital and respect for life. In an analysis that is prepared to challenge convention, it is realistic. But by identifying and assessing solutions through the lens of efficiency, which improves resilience and competitiveness, it is, fundamentally, optimistic.
Illegitimi non carborundum.