Climate change and resource scarcity

As the world becomes more populous, urbanised and prosperous, demand for energy, food and water will rise. But the Earth has a finite amount of natural resources that can be used to satisfy this demand.

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Increased certainty and accuracy about the impacts

Demands of the global population by 2030: +35% Food, +40% Water, +50% Energy
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Climate change is, of course, a very long-term trend. However, the biggest change in this area over the last couple of years has been the increased certainty and accuracy of scientific predictions about the rate and effect of human impact on the climate.

While scientific debate continues, we believe the fundamental analysis of the challenge facing the planet is correct: the planet is unable to support current models of production and consumption. Without significant global action, average temperatures are predicted to increase by more than two degrees Celsius, a threshold at which scientists believe significant and potentially irreversible environmental changes will occur. At the same time, the pressure on resources will increase dramatically.

A growing global population is expected to demand 35% more food by 2030[1]. And the type of food increasingly demanded as populations’ incomes rise – vegetable oils, dairy, meat, fish and sugar – will have a particularly high impact on energy and water. The interconnectivity between trends in climate change and resource scarcity is amplifying the impact: climate change could reduce agricultural productivity by up to a third across large parts of Africa over the next 60 years. Globally, demand for water will increase by 40% and for energy by 50%[1].

In short, the world’s current economic model is pushing beyond the limits of the planet’s ability to cope.


Seas rising faster

There is increasing certainty, too, about rising sea-levels. Even just two years ago the expectation was that sea levels will rise by approximately a metre by 2100. The current prediction makes double that estimate look increasingly possible by the end of the century. And warming the planet by 1.5 degrees suggests an estimate of six to seven metres increase by 2500[2]. That would see a huge proportion of the eastern seaboard of China, for example, underwater.

By the end of this century 150-200 million people could be on the move from land that will be under water by the end of century[2]. The impact is already being felt in low-lying coastal cities. In Dar Es Salaam, for example, water is becoming saline as coastal freshwater aquifers are over used, and sea water intrudes.

150-200 million people will be on the move from land today that will be under water by 2100
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The ‘water, energy, land nexus’

Only 3% of all water in the world is fresh water and only 25% can be accessed
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Only 3% of the world’s water is freshwater – and only a quarter of that is accessible from rivers, lakes or the ground[3]. The rest is locked in to inaccessible stores such as glaciers. The International Water Management Institute estimates that nearly every country south of 35N latitude will experience economic or physical water scarcity by 2025. At present some 11% of the world’s land surface is used in crop production[4].

The demand for energy to increase food production will increase significantly. In the developed world, seven units of fossil fuel energy are needed to produce one unit of food energy. And, overall, the current methods of energy and resource-intensive approaches to agricultural production are a major factor in greenhouse gas emissions, contributing significantly to climate change.

Several countries in the world currently combine high levels of human development alongside a low ecological footprint. Businesses that are already experiencing the direct impacts of the ‘water, land, energy’ nexus are starting to innovate in response. One food processor and manufacturer in South Africa for example, is increasingly becoming a renewable energy producer, using poultry waste and waste water from production facilities to power its plants and to generate profits. 


Policy developments reflect scientific consensus – but do they go far enough?

Advances in scientific understanding have helped support greater political agreement on a global basis. The Paris Agreement agreed under the auspices of the United Nations Framework Convention on Climate Change (UNFCC) in December 2015 saw governments from around the world agree to take the steps required to limit increased warming to an average of two-degrees.

Significantly, they also recognised that this target was inadequate, with an aim of 1.5 degrees suggested instead to reduce the impact[5]. Achieving this would require an almost immediate halt to unabated carbon emissions. The UN’s 193 member states also adopted the Sustainable Development Goals (SDGs) in 2015. These frame 17 goals for sustainable economic development, covering a wide range of activities and their impacts across key areas including economic development, climate change, environmental improvement, water quality, and urban development.

Progress towards the SDGs will shape legislative and regulatory frameworks as well as investment and aid flows. The private sector has been heavily involved in their development, recognising the need to develop (and be seen to develop) a clear social purpose that can confer and strengthen their licence to operate, as well as enabling thriving societies and economies.

To stay within 2°C, the world needs to cut its carbon intensity by 6.5% every year to 2100
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A clearer, harder economic rationale

Only 1/3 of the fossil fuel reserve could be burned without temperature increases exceeding 2°C by 2100
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A further clear development over the last two years has been the hardening of the economic argument for action on climate change. Carbontracker’s has estimated that only one third of the world’s current proven reserves of fossil fuel could be burned without temperature increases exceeding two degrees by 2100, raising the urgency of action to an even greater extent than was thought to be the case even just two years ago when we first outlined the megatrends[6].

Our own analysis further shows that continuing to burn fossil fuels in line with current levels would exhaust the world’s 2 degree ‘budget’ by 2036[7]. There will need to be urgent and significant action. In practice, we expect policy actions to be unpredictable and inconsistent. Policy makers are likely to be driven by short-term reactions to natural events. We believe that businesses must play a leading role in mitigating environmental damage, while making their organisations more agile and resilient to the changes that an unpredictable climate and policy environment will inevitably bring.


Growth in alternative energy

Employment numbers in the renewables industry are increasing at the same time as the numbers in the fossil fuels sector are declining sharply. They increased sharply in 2014/15 as jobs in oil and gas dropped significantly.

Major oil companies are now talking actively about the transition to a low-carbon economy. Others outside the traditional energy sector are also taking a significant interest in alternative energy, creating opportunities for many others to enter a fast-growing market. The largest players, in contrast, are not moving as fast. In fact, the largest global investor in alternative energy behind China and Saudi Arabia is Google. The latter’s mission to solve the largest global problems is a clear driver of Google’s interest, alongside its own considerable energy consumption. Some countries are also beginning to see the positive results from their efforts to decarbonise energy supply. 

In 2016, for example, for one day, the UK generated all of its electricity without using any coal –the first time that’s happened since coal was first used to generate power in 1855[8]. In the Spring of 2016 Portugal generated all of its power for a week using only renewable sources.

A fifth of worldwide energy consumption could be saved through energy efficiency measures.
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"The expectation on business today is increasingly recognised as needing to go beyond maximising return to shareholders. Companies must understand and measure wider concerns and understand impacts on society and the environment. This will require new ways of measuring things, and longer time frames for return on investment."


The role of business

As initiatives such as the Sustainable Development Goals achieve greater prominence, there will be a growing expectation on business to engage with this global framework. The purpose of business is increasingly recognised as needing to go far beyond the narrow definition of maximising returns to shareholders. A reframing of the imperative to operate as a responsible business will involve both understanding and measuring a wider set of concerns that reflect broader reflection of companies’ impacts on society and the environment. This will require new ways of measuring things, and longer timeframes for return on investment. For example, IKEA has removed all high–energy lights from its stores and by 2020 aims to be more than 100% renewably powered across its entire global estate, selling excess energy back to the grid, thus removing energy from its risk register[9].

It’s an example of the longer-term thinking (and the investment horizon) that is required to deliver positive financial, social and environmental results. The IEA estimates that efficiency measures could save nearly a fifth of worldwide energy consumption. A growing number of indexes show that businesses with strong environmental, social and governance (ESG) attributes consistently outperform the market. As well-run companies they understand the risks – including environmental and social risks – that they face and manage them well.

Corporate Social Responsibility used to be a ‘luxury’ businesses liked to speak about, but were often a veneer. Not anymore. Sustainability is becoming the lens through which a business is judged by its consumers, workforce, society and increasingly its investors.


References:

[1] National Intelligence Council, [2] Climatecentral.org, [3] Water: challenges, drivers and solutions, PwC analysis (based on the data from Pidwirny, M), [4] Food and Agriculture Organizations of the United Nations, World Agriculture, Towards 2015/2030, [5] Paris2015 and Beyond, http://www.pwc.co.uk/services/sustainability-climate-change/paris-2015.html, [6] Carbon tracker http://www.carbontracker.org, [7] PwC Low Carbon Economy Index 2016, http://www.pwc.co.uk/lowcarboneconomy, [8] Guardian.com, UK energy from coal hits zero for first time in over 100 years, 13 May 2016, [9] Guardian.com, Can you power a business on 100% renewable energy? IKEA wants to try, 8 April 2016, https://www.theguardian.com/sustainable-business/2016/apr/08/renewable-energy-ikea-walmart-google-mars-hp-wind-solar-power

Contact us

Will Day
Sustainability advisor
Tel: +44 (0)20 7804 0222
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Leo Johnson
Partner, Sustainability & Climate Change
Tel: +44 (0)20 7212 4147
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Jon Williams
Partner, Sustainability & Climate Change
Tel: +44 (0)20 7804 3978
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Celine Herweijer
Partner, International Development
Tel: +44 (0)20 7213 5703
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Emma Cox
UK Leader Sustainability & Climate Change
Tel: +44 (0)20 7213 8150
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