Achieving the economic empowerment of the world’s population and reaching the goal of net zero emissions by 2030 will require a significant increase in investment during this decade, up to 8% of global GDP each year, according to a new study from the McKinsey Global Institute ( MGI).
The research, titled ‘From Poverty to Empowerment: Raising the Bar for Sustainable and Inclusive Growth’ and published in the context of the G20 Summit to be held in early September in New Delhi, looks at economic growth, inclusion and the path to carbon neutrality as elements of a connected system.
In a separate document, the consultancy McKinsey & Company examines what the G20 countries can do to make faster progress in these areas. The MGI affirms that this is a decisive decade for the world population and for the planet, since in 2030 the deadline for meeting the UN Sustainable Development Goals ends and it is estimated that that year the global budget for limiting the global warming to 1.5 degrees Celsius by 2050 compared to pre-industrial levels at the current rate of emissions generation.
Anu Madgavkar, MGI partner, has pointed out that the challenge for world leaders is how to prioritize two “existential” issues such as the economic empowerment of the population and net zero emissions while maintaining growth and gathering “the enormous amount of resources it would take to meaningfully close both gaps.
37 trillion dollars to achieve empowerment
“Economic empowerment”, a term used by McKinsey in its report, marks the level of purchasing power that is needed for all people to meet their basic needs in areas such as housing, energy, food, health care or education, plus a little extra margin in the form of savings to reduce the risk of slipping back into poverty.
Full empowerment allows people to increase their participation in the productive economy and develop their full potential, according to the consultancy, which specifies that currently some 4.7 billion people are below that threshold. This figure includes about 2 billion people in sub-Saharan Africa and India and up to 300 million in countries with advanced economies.
For all people to achieve empowerment, those currently below the limit must have increased their purchasing power by 40%, in means, by 2030. This represents 37 trillion dollars, of which 57% would correspond to the G20 countries.
40 trillion dollars to reach ‘net zero’
On the other hand, there is the problem of climate change and the objective of carbon neutrality, which consists of cutting greenhouse gas emissions until leaving them as close as possible to zero emissions, with some residual emissions that are reabsorbed from the thanks to different measurements of atmosphere).
The study by the McKinsey Global Institute says that an additional 41 trillion dollars would have to be allocated to technological investments that seek to reduce emissions, cumulatively until 2030 and from 2020 spending levels. 85% of that investment would correspond to G20 countries .
According to the report, accelerated productivity growth and company actions could fill two-thirds of the empowerment gap; mainly, generating better paid jobs and improving the training of people so that they can occupy those positions. In this way, 2.1 billion people can be empowered and 600 million out of poverty.
In addition, growth and innovation could cover a third of the gap to reach net zero emissions even without a policy change, according to the MGI, which also indicates that, in this decade, the falling costs of at least key technologies could make low-emission alternatives valued at nearly $10 trillion viable for private actors.
Beyond what the market can achieve, some gaps remain. The MGI estimates that the economic gap does not result in 4% of annual GDP worldwide, some 13 trillion dollars in terms of empowerment and 26 trillion in investments to achieve net zero emissions, cumulatively up to 2030. Developing countries concentrate almost two thirds of these amounts.
encourage innovation
The study center concludes that a greater effort could be made, since making more profits in housing, health care, education and food could obtain better results and 3 trillion dollars in benefits for those who have not yet achieved empowerment .
In addition, greater societal engagement can foster innovation and change the risk and cost profiles of investments seeking to move toward carbon neutrality, unlocking an additional $17 billion in private capital, according to the report. However, the MGI cautions that these large investments carry an opportunity cost and some unknowns, including the risk of distorting the baseline economic scenario.
Sven Smit, senior partner and president of the McKinsey Global Institute, believes that “it is difficult to overestimate the importance of boosting productivity to accelerate economic growth, which raises incomes and broadens the financial capacity for the transition to net zero.” Another crucial factor, in his opinion, is that innovation is focused on favoring affordability. “Lowering the costs of low-emission technologies is key to prevent vulnerable families from facing higher costs and to reduce the cost of the entire transition,” he commented.
Regional analysis by MGI shows that in India, for example, 77% of the population is currently below the empowerment threshold, and that accelerated growth and corporate actions could reach 700 million people. exceed that limit. At the same time, India faces an investment gap of $5.6 trillion, cumulatively over this decade, to achieve net zero.
The role of business and economic growth.
The study underlines that bolder innovations are needed in the economic, technological and industrial fields, as well as in policies. Possibilities include creating multilateral financial vehicles, integrating low-income countries into international trade, developing sustainable cities with large houses, and designing effective carbon markets.
Mekala Krishan, Partner at MGI, has stated that “even without major commitments, growth and performance by companies can drive real progress that can change lives.” “Continuing with everything the market can do would already be a tremendous increase. At this scale and with this additional momentum, it creates a fertile environment for breakthroughs and changes that we cannot yet foresee today,” he added.
