This isn’t just our own opinion. At the recently concluded Group of 20 summit, leaders of some of the world’s largest economies issued a declaration affirming that “no country should have to choose between fighting poverty and fighting for our planet.” Soon after, the World Bank unveiled an expanded mission: “To end extreme poverty and boost shared prosperity on a livable planet.”
The McKinsey Global Institute’s latest research puts dollar figures against these existential and converging objectives. And there’s no denying that those figures are daunting. People who cannot meet all of their basic needs sufficiently today would need an additional $37 trillion in spending power, cumulative over the decade. Simultaneously, the world needs to invest $41 trillion more in low-emissions technologies by 2030, over and above current spending levels.
Economic empowerment
We arrive at that estimate for poverty eradication by applying a new metric. Now that a billion people have crossed over the World Bank’s $2.15 a-day extreme poverty line since 2000, the next stage of development calls for a higher bar. To define this new threshold, we use the concept of “economic empowerment.” The empowerment line is calculated as the point at which people can meet all of their essential needs, including nutrition, decent housing, quality education, health care, and more, plus a small margin so they can begin to save. This point varies by country, reflecting costs of living.
By this measure, about 4.7 billion people worldwide are not yet fully economically empowered. Sub-Saharan Africa and India are home to more than 40% of this population. Many in middle- and higher-income countries have some of the calling cards of a middle-class life, but they lack any buffer to weather emergencies. They may not be formally counted as “poor,” yet they struggle to afford housing and health care and are at risk of slipping into poverty.
The net-zero transition
The needs of this enormous segment of the population have to be addressed alongside climate change. The clock is ticking on the drive to get to net zero: At today’s level of emissions, the world’s carbon budget for holding to a 1.5 degrees Celsius path is likely to run out around the end of the decade.
Yet the net-zero transition needs broad public support and participation, which could erode if people feel that their hopes for better living standards are being postponed because of it. It is not tenable to leave more than half the world’s population struggling to make ends meet. The Sustainable Development Goals have a 2030 target date, and there’s a long way to go to fulfill them.
The combined empowerment and net-zero investment gaps amount to an enormous 8% of global gross domestic product annually over the decade, with significant variations by region.
Raising minimum living standards and a path to net zero
All of this can seem overwhelming, but there is good news at the core of our research. We find considerable optimism in the idea that economic growth, business-led innovation, and technological advances can unlock tremendous progress on both fronts and could potentially get the world halfway to the combined goals.
This won’t be as easy as simply riding current momentum. It will involve protecting baseline growth from headwinds and doubling down on productivity through investment in technology, new businesses, and skills development.
With accelerated productivity-driven growth comes better-paying jobs. If employers train people to take them on, almost two-thirds of the global empowerment gap could be eliminated. This translates into just over 2 billion people moving above the empowerment line and 600 million more out of poverty, which would constitute historic progress.
Meanwhile, almost $10 trillion of low-emissions spending should become viable for private players in this decade. Growth and technology advances could unlock almost 40% of the step-up needed in net-zero spending.
Going even further to close both gaps in full would require a departure, however. On the empowerment side, this could involve more investment in affordable housing, health care, and education, as well as direct support to vulnerable households. On the net-zero side, higher public support and bolder policies could activate an even larger wave of private capital, further driving down the costs of low-emissions technologies. Overall, closing both gaps in full could involve boosting societal commitments by around 2% of GDP annually over the decade.
Even for high-income countries, these choices would involve difficult trade-offs with other priorities. And the road is steeper for lower- and middle-income countries. These would need a mix of solutions that could include new financing mechanisms from multilateral institutions. The world’s financial system would need to find creative ways to accommodate large cross-border flows.
The costs and the work ahead may appear overwhelming, but they could produce a tremendous, long-horizon payoff in the form of a more prosperous, stable world. Meanwhile, the first order of business is protecting growth and focusing the world’s innovation machinery on making low-emissions technologies affordable. What we do in this decisive decade will determine what kind of world the next generation will inherit.
This article originally appeared in Devex.