In this year’s report (1), the top four most severe long-term risks relate to environmental issues: 

The report highlights that most economies are unprepared for environmental impacts which could trigger a global shock. Possible implications include extreme weather events, involuntary migration, chronic health conditions, infectious diseases, and wider economic downturn. 

The report also underscores the importance of government intervention. Given the scale of possible socioeconomic impact, there’s increasing regulatory focus on supporting adaptive and mitigating measures.

Dual benefits

Climate change adaptation and mitigation efforts can have the potential to fuel economic development, while also addressing long-term global risks.

The infrastructure and construction sector is a good example. Demographic shifts and urbanisation are increasing pressure on existing infrastructure and demanding expansion. Yet despite a substantial increase in investment, the UN environment programme estimates that the buildings and construction industry contributes nearly 40% of direct and indirect CO₂ emissions (2).

Taking advantage of policy changes

In response, the US, Europe and China have all initiated stimulus plans to respond to demand pressures and resilience needs. This represents an opportunity for businesses, and therefore investors, to take advantage of policy changes and support real-world transition efforts while targeting investment returns.

The significant emissions created by infrastructure construction and development, biodiversity considerations, natural resource demands, and other environmental impacts have also attracted increased regulation and stimulus packages.

The need for technical expertise

Against this backdrop, technical expertise on climate change adaptation and mitigation across the development, construction and management stages of an infrastructure investment is essential. Such expertise can support resiliency efforts and generate savings.

One estimate suggests that better management of existing infrastructure could yield savings of up to 15% on infrastructure investments. Raw materials represent up to 60% of total costs for infrastructure assets(3). Consequently, more resource-efficient practices can effectively lower the costs for development and enhance investment returns.

Investors are recognising the value of nature-based infrastructure solutions and the companies with the capability to provide them. Not only are such solutions more sustainable, they can also cut costs. Leveraging existing wetlands and reed beds can help treat sewage and wastewater, while looking after forestland can enhance flood protection and reduce soil erosion. And urban green infrastructure can improve air quality, reduce water pollution from natural runoff and even sequester carbon.

Engineering for the environment

One company with an eye for sustainable opportunities is Canadian engineering services firm WSP. The business caters to transportation, infrastructure, building, energy and industrial clients across the world.

WSP offers a variety of professional services throughout all project execution phases, from the initial development and planning studies through to the project and programme management, design, construction management, commissioning and maintenance phases.

The business is increasingly focusing on environmental management, helping clients to reduce the environmental impact of their infrastructure projects while also maximising efficiency.

This includes services that help clients respond to emerging environmental issues like new modes of transport, decarbonisation, air, water and land quality, biodiversity, green energy and climate change. The company also helps clients with risk mitigation and management of impacts related to sustainability, global warming, energy use, resource extraction and the environment.

Marine life example - Køge Bay, Denmark

WSP recently carried out work in Køge Bay, Denmark. The project aimed to restore biodiversity following the removal of an estimated 8 million cubic metres of stones since 1900 during local construction work (4).

WSP helped prepare holistic and ecosystem-based solutions. Seven reefs were constructed to benefit the marine environment. This included stone, concrete, educational, and biogenic reefs as well as artificial fish hotels to support indigenous species and facilitate microalgae filtration. These reefs also supported natural rejuvenation of kelp forests which benefit wider species diversity in marine habitats. 

Over the last five years, WSP has spent more than $3 billion to build out its environmental practices. This underlines the company’s commitment to being a partner of choice on climate change and sustainability solutions. It also signals that the firm’s recognising the climate resilience opportunity.

Moreover, WSP’s focus on supporting transition efforts has contributed to exceptional operational delivery. Over the last 15 years, the company has delivered consistent organic growth each year, aside from 2020 when the Covid pandemic hit.

Challenges and opportunities

Given the pace of change, next year’s WEF Global Risks Report will likely continue to highlight the increasingly negative potential socioeconomic impacts of environmental risks.

However, greater regulatory focus on these issues should be seen not as a cost burden, but as an opportunity to drive efficiency, leverage new technology and achieve material savings. We believe directing capital to businesses that use sustainability as a lens for returns generation opens up very real opportunities for investors.

Here at abrdn we’re keen to explore impactful solutions and help our clients contribute towards building a more resilient world.  Visit our website or contact us if you’d like to hear more. 

Companies are selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance. Past performance is not a guide to future results.