The economic and financial crisis that unfolded in 2008 had such a profound impact that, ten years later, the scars have still not healed. Although global economic activity during 2017 and the first part of 2018 appeared to show signs of robustness, the uncertainty generated by Brexit, the political management within the European Union—which is progressing slowly in the design of some of its pillars (EU budget, banking union, single capital market, etc.)—and, above all, the protectionist bias proposed by President Trump, have affected world trade and called into question the solidity of the recovery.
As the latest International Monetary Fund report points out, global economic activity will see its growth rate slow from 3.6% in 2018 to 3.3% in 2019. But perhaps, as the OECD has highlighted, the global backdrop remains the same as in previous years: a depressed middle class in the most advanced countries facing an uncertain future with fear in the face of digital transformation and globalization, as well as a general population in emerging countries that remains exposed to the ups and downs of the monetary cycle led by the central banks of the most advanced nations.
This is an excessively complex environment in which specific events can lead to a significant shift in the economic cycle. This has occurred, for example, in Germany, where automobile production was interrupted by the introduction of new CO2 emission standards; in France, where the “yellow vests” have challenged economic progress and the reform program; while in Italy, investment decreased as sovereign spreads widened.
This context, however, could worsen if we consider the impact of digitalization on the labor market, low productivity growth, high debt levels, or the aging population. These trends, when not managed properly, are giving way to the continuous emergence of populist leaders. These leaders emerge with protectionist proposals to respond to the frustration of the impoverished middle class. This scenario carries the risk of weakening the economic model upon which Western prosperity was built and, more seriously, hinders cooperation mechanisms between countries. This situation adds a new dose of cooling to the expansion of world trade and hampers the foundations upon which globalization has pivoted, which may slow the development of a more prosperous and just society.
However, since the Paris Agreement on climate change, a global awareness of environmental crises has been building to the point that the World Economic Forum has recognized climate change as one of the most likely and highest-impact risks we face. The result has not only caused public sensitivity to increase, but according to a recent study by Allianz Global Investors, 84% of financial investors in the European Union tend to view climate change and the United Nations Sustainable Development Goals as a fundamental factor in their investment strategies.
Furthermore, 190 countries are already committed to reducing the global temperature increase to 2°C below pre-industrial levels within the framework of a just, orderly, and effective path of change. In fact, at the latest spring summit of the International Monetary Fund and the World Bank, finance ministers from more than twenty countries launched a new coalition adhering to the Helsinki Principles to promote national actions against the adverse effects of climate change through fiscal instruments and the use of public finances. In other words, they have committed to managing the transition toward a low-carbon economy, aware that this is a global challenge requiring global responses.
It is evident that in the agenda for climate change action, which is still in the improvement phase, the international community has expressed its firm intention to cooperate to mitigate risk, capture opportunities, and increase social well-being. Multilateral cooperation has been reborn alongside the climate challenge, which should be seen as an element of optimism since multilateralism, throughout recent economic history, has always fostered periods of growth and well-being.
Of course, much remains to be done in the field of climate change and the energy transition. To progress in accordance with the protocol signed in Paris, more information is needed, along with a solid, credible, and transparent way of reporting; better technical and analytical tools are required to measure the progress of our efforts, as well as new risk management techniques to avoid slowing down the financing that this transition requires. But the world has not stood still. The European Commission is working with determination and speed on each of these fronts and has defined a very demanding Action Plan. Central banks and supervisory bodies have decided to raise awareness and move forward firmly to involve the financial system in this transition, which must undoubtedly be an important part of the solution. Banking entities have understood this and have committed to managing sustainable and responsible financing. This commitment has been formalized by the adherence of 49 banks to the Principles for Responsible Banking defined by the United Nations, including some of the most representative Spanish entities.
In short, despite how much remains to be done, the multilateral response can give—and is already giving—a new impetus to globalization. A globalization with purpose: fighting the adverse effects of climate change through the adoption of innovative, socially just, and sustainable measures. The world is transitioning from a concept of commercial globalization in the nineties toward a type of globalization based on the notion of sustainability. This conceptual shift will serve not only to mitigate the risks derived from global warming but also to capture the intrinsic opportunities of this transition with the aim of generating employment and, above all, ensuring more solid and higher-quality growth worldwide.
Juan Carlos Delrieu, Director of Strategy and Sustainability
