If the “degrowth narrative” had a share price, it would make Tesla’s year-to-date look like a growth stock.
It is hard to think of a time where politicians were more obsessed with growth than now (Hi, Rachel Reeves!). Similarly, the responsible investment industry has for the most part turned its back on degrowth in favour of a “green growth narrative”.
In the 50-odd years since the Club of Rome published Limits to Growth, the global economy has grown five times.
As I write these words, the S&P 500 is hitting a new record and AI evangelists are mapping a future of unlimited intelligence and productivity.
Let’s just say degrowth doesn’t have the best brand, nor the best moment. If degrowth was a meme, it would be the Drake Hotline Bling meme turning away in disgust.
At the same time, it seems like a decent share of policymakers these days could not do more to damage growth if they tried. They may preach water (growth), but best I can tell they are all drinking wine (degrowth).
Even if the original vision of degrowth as a collective political and societal choice to reduce production and consumption to conserve nature and minimise our environmental footprint is passé, we are careening towards what one might call “accidental” degrowth.
The long-term drivers of growth are all pointing in the wrong direction.
According to the Global Peace Index, the number of conflicts is at its highest level since the Second World War. Political instability is weighing on economies in France, UK and around the world. Public debt levels will at some point have to come down, either through inflation or historic levels of fiscal drag. Population growth will at some point turn from a tailwind to a headwind.
As if that is not enough, insufficient climate action over the past two decades has seen climate impacts accelerating, just as ecosystem services deteriorate.
Did I mention the trade war?
We may even (finally) begin to see a cultural shift. When President Donald Trump suggested in April that American children could make do with “two dolls instead of 30 dolls”, I couldn’t help but think that a lot of parents would agree.
Of course, I live in an affluent bubble. But people, whether rich or poor, are exhausted by both the pressure and product of consumption culture, and it has from what I can tell very little to do with sustainability.
The one thing we seem to be able to hang our hat on is AI. Capex in the sector over the past six months has contributed more to the growth of US economy than all consumer spending combined, according to Renaissance Macro Research – but even here, Nvidia’s forecast is sparking fears of a slowdown.
With the IMF projecting 3 percent global growth this year, I realise this op-ed may be five years too early (which to be fair, would be somewhat on-brand for my writing, as is the superfluous bluster of this aside).
Ok, fine, let’s just agree that we may be headed towards zero growth. For all intents and purposes, investment challenges will be just as pronounced.
So how does one invest in such an environment?
Does one simply “take the elevator down” and live with a passive strategy? Is there a way to navigate degrowth through active approaches or are those constrained by radical uncertainty? There is a clear imperative to revisit asset allocation decision in a different growth environment, but how compatible are such shifts with liability management for different asset owners?
The responsible investment industry needs to have answers to these questions. Not just in order to stay relevant but also because, while the responsible investment industry may not have been at the forefront of the degrowth narrative, its sustainability brethren have.
To be fair, a review of degrowth implications quickly highlights that the issue at hand is not just the levels of growth.
Degrowth or zero growth after all won’t mean that we just will have the same economy with less of everything in equal amount.
The economy of tomorrow will have a different resource profile as the economy decarbonises and demand for metals and minerals evolves. It will also have a different ecosystem profile as certain (often free) ecosystem services will disappear and will need to be replaced through alternatives or be paid for.
Geopolitical considerations will likely increase onshoring. This will not only change prices but also consumption choices. Consumers will increasingly vote with their money when it comes to purchasing goods from abroad (US asset managers seeking to win European mandates are by all accounts starting to see that spectre on the horizon).
It will have a different geospatial footprint, as climate change leaves its mark on agricultural commodity prices, on production profiles, on where we live and travel, and on population distribution and densities.
Social and political instability will increase risk premia, increasing the cost of investment.
And even if you are not an AI evangelist, the capital sunk into AI will leave its mark.
This isn’t just a question of risk-return management either. Zero growth or degrowth, for all the potential benefits in terms of climate and the environment, will have significant sustainability implications – for poverty, for development, for social cohesion.
We have no experience in designing a capitalist system that serves the many without growth.
We need a plan for how to navigate what may soon be a reality – how to, to paraphrase the title of the seminal Mercer climate report from a decade ago, “invest in a time of zero growth”.
Somebody has to make a plan. And in the words of US civil rights leader John Lewis: “If not us, then who?” After all, if the sustainability community invented the concept of degrowth. We should do our best to make it work.
Jakob Thomä is co-founder of Theia Finance Labs (formerly Two Degrees Investing Initiative), research director at Inevitable Policy Response and professor in practice at University of London SOAS.
