Definitions of mega trends: A ” mega trend ” is a global subject that influences and conditions the world of sustainable finance. By definition, these trends are bound to change over time. A mega-trend spans at least a decade, and generally affects the world at all levels: human, market, national and global. It generally determines the guidelines to be followed in the decades to come. Mega trends shape consumer and business behavior, and lead to the introduction of new laws and regulations at government level. In the current context, we can distinguish 4 of them.
- The digital transition
- The energy and ecological transition
- Demographic and social transition
- Growth in emerging economies
- The digital transition
With today’s technological advances, it’s not surprising that the digital transition is one of the most important trends. All industries and sectors (such as agriculture, construction, chemicals, etc.) are affected by the digital transition. This encompasses new technologies, cybersecurity, personal data privacy and usage, e-commerce, automation, nanotechnologies and, of course, the inescapable subject ofArtificial Intelligence. Technological advances present a multitude of opportunities for many sectors (and even the creation of new core businesses), but they also bring with them exposure to new risks. Let’s take the automotive sector as an example of the opportunities: new technologies are making it possible to improve the efficiency of means of transport, reduce fossil fuel consumption, increase vehicle safety, etc. On the other hand, if we look at the financial sector, dependence on technology exposes this sector to significant risks compromising the stability of the financial system, such as general breakdowns or cyber hacking. The digital transition also accentuates inequalities, as not all regions of the world have access to the same technologies, further widening the gap between different economies.
- The ecological transition
This mega-trend covers climate change, energy transition, clean energy, pollution, biodiversity, waste management and resource scarcity. The ecological transition represents a real challenge for emissions-generating industries. It requires significant investment in research and development, a readjustment of the economic plan, and sometimes the implementation of costly solutions that are not always profitable. Today, environmental issues are unavoidable. Indeed, global warming, access to resources and the more frequent occurrence of natural disasters represent a real risk for almost all sectors. Action plans drawn up by supranational bodies and the introduction of new targets by governments can place severe constraints on companies, and jeopardize their business (if they fail to adapt), particularly with the introduction of new regulations to be complied with. Indeed, companies that fail to implement the necessary measures run a real risk, which can go as far as aban on operating, and therefore a significant financial risk. Take, for example, the oil company Shell, which was condemned by a Dutch court in 2021 for failing to take sufficient measures to align its activities with the objectives of the Paris Agreement. The court ordered Shell to reduce its CO₂ emissions by 45% by 2030 compared with 2019 levels, a decision that heavily impacted the company’s reputation as well as its projects.
- Demographic and social transition
Demographic and social transition covers the following themes: an aging population, agrowing population, social inequalities,urbanization, changing consumer habits… These issues are very important for governments, businesses and investors alike. Indeed, an ageing population means higher public health spending, coupled with a shrinking working population and a consequent drop in productivity. The increase in the number of inhabitants and the scarcity of resources (as seen in the previous section) reinforce inequalities and threaten the health of the poorest populations. What’s more, the habits and preferences of today’s generations are different from those of their grandparents. Over-consumption, new ways of saving, new investment methods and new spending channels mean that industries have to adapt to meet different needs. Some industries are threatened by these changes, such as cinema, which could be replaced by streaming.
- Growth in emerging economies
The growth of emerging economies is an important issue, since it concerns 86% of the world’s population (figures from April 2024). Indeed, developing countries are booming, both demographically and financially. This growth is accompanied by accelerating urbanization and a growing need for infrastructure. This in turn requires considerable investment on the part of these countries. By 2022, for example, China will have invested nearly $275 billion in renewable energies, representing 50% of global investment in this sector. Brazil, for its part, has invested around $10 billion, mainly in wind and solar power. The emergence of these countries is creating new cities that are competing with the major capitals of developed countries, notably through the creation of new technological hubs. What’s more, globalization is reinforcing the co-dependence of developed and emerging countries. This change gives greater weight to decisions taken by the latter. If these economies become richer, that is to say, their consumption patterns will also change and evolve, so companies will once again have to adapt to the emergence of a new clientele.
Conclusion:
Mega trends are closely linked, and the evolution of one has a direct impact on the evolution of the others. We have identified four of them, but there are many others. It’s important to understand that these trends present as many opportunities as they do risks (see article on mega-trend risks and opportunities). Virtually all industries are concerned by these trends, which help to draw up guidelines for meeting the new challenges and needs of people, businesses and governments.
Sources and useful links:
ESPAS – Global Trends to 2030 (europa.eu)
World Economic Outlook (April 2024) – Population (imf.org)
MEGATRENDS: The forces shaping our future – Sumana Manohar (Blackrock)
https://www.bbc.com/news/world-europe-57257982
https://www.iea.org/reports/renewables-2023/executive-summary
https://www.weforum.org/agenda/2022/07/global-renewable-energy-investment-iea/
https://www.frontiersin.org/journals/energy-research/articles/10.3389/fenrg.2024.1419583/full