"Global investors now view climate change risks not as uncertain variables, but as constants that must be addressed."
Kwon Dae-wook, Associate Partner at McKinsey Korea, shared this insight during a pre-interview for the 13th E-Daily Strategy Forum, scheduled for June 15-16 under the theme "Climate Crisis: An Invitation to a Possible Future." He assessed the global investment industry's perspective on climate change.
Kwon noted, "Investors are already imposing clear penalties on companies that fail to respond to climate change," citing the global automotive industry as a prime example. Currently, the market capitalization of Tesla, a U.S. electric vehicle company, is three to four times that of Japan's Toyota. In terms of vehicle production, Toyota produces more than ten times as many cars as Tesla. He explained, "This isn't merely about which company will sell more cars, but about a broader judgment that encompasses future government subsidies, regulatory advantages, consumer preferences, and the ability to attract young talent who will drive future growth."
He particularly noted that there is a global shift in how we approach climate change. Kwon explained, "In the past, the focus was primarily on reducing carbon emissions to delay a 1.5-degree Celsius temperature increase. Recently, however, there's been a growing emphasis on finding ways to adapt to the changes brought about by climate change." This includes investing in infrastructure in areas that are vulnerable to disasters such as rising sea levels, heatwaves, and wildfires, to enhance the capacity to live in a new environment. An example in South Korea is the planned construction of a floating city in Busan.
It's true that responding to climate change requires significant investment. McKinsey recently estimated that achieving global carbon neutrality by 2050 would require a total investment of $275 trillion. The world would need to invest $9.2 trillion annually, which is four to five times South Korea's annual GDP of $1.7 trillion. A significant portion of this investment would go towards transforming existing infrastructure and assets, including transportation, power generation, and buildings.
However, Kwon pointed out, "Even though the upfront costs are high, these investments should be seen as opportunities to reduce electricity and gas bills through energy efficiency, cut carbon emissions, and eventually reap various benefits." He also added, "The economic effects of job creation as a result of these expenditures cannot be overlooked."
In the short term, the transition to carbon neutrality and energy transformation will inevitably lead to the decline of certain industries and some negative side effects. Kwon predicted, "After an initial growth cycle driven by investment, there will come a period where we must overcome economic challenges and the side effects that arise." Nevertheless, he is optimistic that, in the long term, new countries and companies will emerge as leaders in the global economy based on a new energy framework, generating returns on investment. He concluded, "By investing now while also considering how to address the social, economic, and technological challenges that arise during the transition, we can minimize negative impacts and achieve growth simultaneously."
Visit E-Daily for original article published in Korean.