Three Mega Trends Where Sustainable Finance Can Win

There’s no denying that the picture for corporate sustainability has been altered dramatically since last year. Climate pledges that once set the tone for ambition are now being missed, scaled back or abandoned. This turbulence is reshaping the financial landscape, creating real risks but also powerful opportunities. It’s a moment to rethink business as usual so we can move toward what comes next.

Three sectors stand out for their opportunity to adapt and respond to the environmental challenges they face: the unchecked footprint of artificial intelligence, the insurance market being pushed to its limits by climate risk and the depletion of our planet’s natural capital. Each presents profound risks, but also remarkable opportunities to reshape the rules for sustainable investment.

Artificial intelligence can trigger a green boom

The artificial intelligence market is projected to surge to nearly $5 trillion by 2033. This explosive growth will bring skyrocketing energy demands. Data centers consume about 1.5% of global electricity and are projected to account for around 10% of projected electricity demand growth between 2024 and 2030. A single major company’s data centers now consumes more energy than the entire city of San Francisco. By 2028, AI use in just the US could require 720 billion gallons of water annually just to cool AI servers – enough to meet the indoor needs of 18.5 million households.

Will the AI revolution lock us into decades of climate polluting fossil fuels while depleting critical resources, or can it stimulate a true green boom and innovation in materials?

This is where the opportunity lies. Investors can demand that tech companies in their portfolio commit to powering AI and data centers with renewable energy. We can take a page from Environmental Defense Fund’s work with investors to push oil and gas companies to reduce methane pollution, a greenhouse gas more powerful than carbon dioxide, but easier to abate. In a similar manner, investors must push tech giants to power AI with cleaner energy.

If done right, AI can give us the edge to meet sustainability goals, and make money while doing it. 

The insurance industry can stabilize the climate

The insurance sector is being pushed to its limits by climate change. Insurance losses from natural disasters hit $140 billion in 2023, and in the U.S., the number of billion-dollar climate disasters soared from one or two per year to 24 last year. The business model that underpins our homes, infrastructure and entire economy is showing cracks.

Imagine getting a letter in the mail saying that your home is no longer insurable. Without insurance, mortgages become unobtainable and homes become unsellable. Yet this could happen to millions of people in America, with devastating financial impacts for families and the entire economy. Insurers are among the many sectors that have a deep financial interest in ensuring that we mitigate and adapt to climate change.

The good news is that a market in crisis seeks to innovate and evolve. We can use insurance as a lever to stabilize the climate and strengthen people’s ability to thrive. Insurers can drive decarbonization by requiring clients – from oil and gas firms to individual homeowners – to adopt cleaner, more resilient technologies. They can de-risk emerging assets like carbon credits and green infrastructure, accelerating the clean energy transition.

And the investment opportunity is undeniable: the climate adaptation and resilience market alone is expected to grow to up to $1.3 trillion by 2030.

Protect nature, protect your profits

Nature is not considered an asset class, yet nearly half of global GDP – $44 trillion – depends on at-risk natural systems. We are currently depleting resources 1.7 times faster than they can regenerate, with 40% of global land now degraded. We are losing nature worth $368 billion annually.

The pressure is on: we’re witnessing the rapid deterioration of soil quality, contributing to the global food crisis and the destruction of forests that serve as vital carbon sinks. So, where’s the good news? Better nature practices drive better returns. Sustainable forestry funds, for example, deliver 8.6% returns, double those of conventional timber investments. The global blue economy is projected to double to $3 trillion by 2030, as investors flood into ocean-focused funds. Regenerative agriculture, which enhances soil health and biodiversity, can yield up to 120% higher profits for farmers over a decade.

Creating opportunity from crisis

So, three challenges, three sets of opportunities. Unlocking these opportunities will require firms, and people at firms, to take risks and innovate. It won’t be easy, but history has shown us time and again that those who lean into disruption set the pace for everyone else.

AI, insurance and nature are no longer at the margins of finance. Together, this unlikely trio is rewriting its rules,  redefining risk, resilience and return. The question now is who will seize the opportunity to lead under the new playbook.

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