If chasing GDP and consumption is bad for the climate, what are the alternative economic models?

When even the fashion industry seeks new metrics, it’s time to look at alternatives – from green growth’s clean energy transition to ‘agnostic’ growth’s ignoring of GDP

Chris Iggo

Published: 9:30pm, 22 Mar 2023

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Fashion is one of the biggest industries in the world, generating around US$2.5 trillion in annual sales. It is also thought to be responsible for a sizeable 10 per cent of annual global carbon emissions – more than all international flights and maritime shipping combined, according to a McKinsey report.

No surprise then that it was high on the agenda at the COP27 UN climate change conference. At the event, the Global Fashion Agenda, a non-profit organisation for sustainability in fashion, launched an industry consultation, together with the United Nations, on climate targets – with one of its aims to create a range of measurable metrics.

Fashion is also one of the many areas where a lot of unnecessary, even wasteful, consumption goes on, making profits for companies and returns for investors – even defining national success. For the last 70 years, we have measured the prosperity of countries using gross domestic product – how much the total sales of goods and services has grown, without acknowledging the social or climate impact from economic activities.

The earth and its resources are finite. If solely chasing GDP growth has been damaging to our planet and threatens our ability to thrive in the future, what could be the alternative economic models?

Green growth is the closest to our current path. And it seeks to align with the warming commitments made in the Paris Agreement.

Green growth is all about transitioning energy to renewable sources and capturing emissions with technology and carbon sinks. It focuses on shifting to less energy-intensive consumption without necessarily seeking to reduce demand.

Under this approach, growth linked to increased consumption can be justified. And so, electric vehicles are a green growth solution that aligns with how our economies and markets work, and which perhaps draws our eyes away from the more environmentally effective option of simply drastically reducing the production and use of cars.

Clean technology has become a growth area, as have biodiversity-focused investments, and those seeking to improve social outcomes or address specific UN sustainable development goals.

Ultimately, the green growth ambition is to decouple economic expansion from resource use. Although there are some signs of validity in the most developed markets, it would require a truly massive increase in the adoption of renewable technologies if it were to succeed worldwide.

Meanwhile, degrowth advocates accept the notion that reducing production and consumption, most notably in the developed world, may shrink economies. This can be an intimidating thought. However, policymakers are increasingly open to degrowth ideas – such as a four-day work week – because data shows that countries may be unable to hit emissions reduction targets with green growth alone.

The ideas has also broken through into mainstream thinking, with Wall Street investment banks starting to alert their clients that the concept may gather steam. It remains a fluid debate – some of its champions argue it should be solely about reducing energy and resources use, rather than seeking to shrink GDP.

There are many unanswered questions, not least about the impact on manufacturing-based developing economies if richer nations rapidly cut their consumption of imported goods. There are also doubts about how developing nations can “develop” without growing their own economies.

08:42

The surprising hurdle slowing China’s switch to green energy

And then there is “agrowth”. Sometimes known as the “agnostic growth”, this sister model to degrowth envisages an approach to economic development that prioritises social and environmental outcomes. GDP is effectively ignored while other goals such as improved air and water quality, increases in leisure time, better healthcare and equality dictate policy and define success.

This is where the idea of the circular economy may find its home, a place where the life cycle of goods is managed in a way that seeks near zero waste while minimising energy usage. This should bring positive impact on the natural world and biodiversity as well as emissions control.

China must sacrifice GDP growth to rebalance its economy

It won’t be a surprise that we’ll probably end up with a hybrid approach – all these models bleed into each other to some extent. Green growth is deeply appealing as it feels familiar – a tweak to our economic orthodoxy. But in truth, as we head towards the middle of this century, it may not be enough to ensure societies can thrive if it fails to directly tackle the fundamental question of absolute resource consumption.

At best guess, our future economic reality will be drawn mostly from the green growth model, incorporate key elements of the agrowth, circular philosophy with a nod to the idea of degrowth in the active moderation of excess consumption and waste.

Chris Iggo is chair of AXA Investment Managers Investment Institute and chief investment officer of AXA IM Core