The private sector is successfully driving sustainable economic growth – the plan only bolsters those efforts.

There is a growing understanding that the deepening crises facing the world come from trends in our societies and economies that are becoming unsustainable. We must tackle the basic structural problems at their source.

The challenge is to recover and rebuild in a way that creates sustained economic growth and transforms our economies while tackling the social and ecological stresses caused by our current economic models. It is also clear that there is now a new and feasible approach to development across the world, which is much more attractive than the dirty and destructive paths of the past. But the world must invest and act quickly to get there.

The wars and hardening geopolitical divisions we are witnessing underscore the precious opportunity to act together, globally, on an agenda in which all countries have an overwhelming interest.

Net-zero and nature-centred transformation, investment-driven growth and innovation, an inclusive approach to tap human talent while managing insecurity, and a process of international collaboration that fosters common goals – this will be the economic growth story of the 21st century. The private sector will take centre stage, with global investment being 80-90% private. And much of the private sector has, with rapidly increasing scale, committed to sustainability, responsibility, and net-zero emissions.

We described the path forward in a briefing paper to help frame the debate at the World Economic Forum Annual Meeting in Davos in May 2022. Here, we focus on the centrality of investment, innovation, policy, and finance in driving a new economic growth model.

1) Investment in the right kinds of capital and infrastructure

The future of people and the planet will be shaped by the capital investments realized over the next 10-20 years, capital that can drive clean, green, job-rich and much healthier economic growth than what came before. To drive the low-carbon transformation, global investment must increase by around 2–3% of GDP per year above pre-pandemic levels. This investment will be primarily in the private sector, but public investment must complement and catalyse this.

Why do we believe that this is possible? Because investment ratios are far below potential, the energy transformation opens up vast new markets, technology is yielding increasingly high returns, and the world continues to produce excess savings that can feed investments. Investments should not be misperceived as costs. They can propel more efficient, cleaner, and inclusive economic growth and create further private sector opportunities, along with many other significant co-benefits (see Table 1).

Economic growth benefits of climate action

Economic growth benefits of climate action Image: LSE

2) Innovation and systems transformation

Much of the fundamental structural change needed lies in transforming the key systems of energy, transport, industry, cities and land. All require combinations of institutional change, standards and regulation, design and good policy. Fortunately, revolutions in digital and AI enable the management of these systems in new ways.

The potential is immense: By 2030, low-carbon solutions could be competitive in sectors accounting for nearly three-quarters of emissions, compared to one-quarter today (mainly in electricity) and no sectors only five years ago (see Figure 1). Public-sector support and partnership will be crucial for technologies that face high upfront costs and uncertain returns; initiatives such as Mission Innovation, the International Solar Alliance, the Climate Action Platform and the Glasgow Breakthrough Agenda are powerful examples.

Low carbon solutions might help us transition on the path to sustainable economic growth.