Sponge Cities - Smart cities for the future

Vincent Magnenat January 02, 2020 13:26

Companies tackling climate-change solutions for urban areas can deliver environmental benefits and higher shareholder returns

Until recently, Wuhan was one of many Chinese cities where a rapidly expanding concrete and asphalt landscape had created severe flooding risk. In 2016, torrential rains hit the city, cutting off entire neighborhoods and claiming 14 lives.

Today, however, Wuhan is undergoing an urban and ecological makeover - from permeable pavements to wetlands and artificial ponds - designed to absorb storm water and even reuse it later.

Wuhan is one of China's growing number of "sponge cities" that are using technology to mitigate the effects of extreme weather caused by global warming. But it is also an illustration of how tackling climate change is creating opportunities for companies to generate shareholder returns while doing good for the planet.

Arcadis, a Dutch engineering group, is behind the project to rethink and help shape policies in Wuhan. SUEZ, another European company, is working in the city of Chongqing where its state-of-the-art urban drainage system provides real-time analysis and forecasting of drainage, reuse of water and exposure to flood risk.

Across the globe, there are multiplying business opportunities in finding ways to decouple economic activity and growth from environmental impact, as part of the sustainable revolution. At present, only five percent of climate change investment is spent on adaptation activities. However, while a vast effort is required, adaptation offers a good return. The Global Commission on Adaptation suggests that investing US$1.8 trillion in strengthening our infrastructure and other key areas of focus would avoid losses and accrue benefits of US$7.1 trillion – a four-to-one return.

Temperatures are climbing at an unprecedented rate, pollution levels are at historic highs and sea levels are on the rise. The C40, a network of the world's megacities committed to addressing climate change, calculates that 1.4 billion people will be living in coastal areas by 2050. At the same time, there are 570 cities, some with populations in excess of 10 million, in areas at risk from rising sea levels.

Many of those cities' natural defenses have been lost due to the use of impervious construction materials, such as concrete and asphalt, which prevent the underlying soil from absorbing water. Some cities are subsiding, due to the destabilizing influence of illegal underground wells and the immense weight of urban infrastructure. Jakarta, the Indonesian capital, is sinking at a rate of 20-25cm a year.

Investment in companies operating in the sustainable revolution is not only needed – to drive change – but doing so also holds out the prospect of higher returns for investors. From companies pioneering technologies in flood mitigation to those working on renewable energy projects and innovating in the field of battery storage, there are myriad possibilities.

Yet only a few of them are Eagles – a term which applies to the winners of the transition to a more sustainable economic model. These companies are forward-looking and realize that adopting intelligent, responsible business practices benefits their bottom-line and can also bring a positive environmental and social impact.

Those without vision are Ostriches: organizations that are failing to adapt to the sustainable revolution, either oblivious to the speed and scale of the transition, or simply in denial. Perhaps surprisingly, many of these Ostriches are the big companies of today. A recent estimate suggested that 200 of the world's largest companies already bear US$1 trillion of risk from climate-change impacts - with much of that impact set to strike within the next five years.

The sustainable revolution is creating structural trends that are already starting to reshape our economies. As the challenges of confronting global warming and finding solutions which can help return the planet to a stable footing become more acute, so many of the companies involved in developing sustainable urban systems will prosper. These will be the winners of the future: the Eagles.

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RC

Vincent Magnenat

CEO of Lombard Odier Group in Asia Pacific