Reflections on Davos 2025

Sustainability is business

From photosynthesis to AI — why we should heed history’s greatest achievements

By Cesar Sanches, SFX CEO

2nd February 2025

Cyanobacteria, also known as blue-green algae, first appeared on Earth over 2.7 billion years ago. The tiny cyanobacteria were set to change the course of our planet’s history since they possessed an incredibly sophisticated ability — they were able to generate energy, clean energy, from sunlight and water ie they were able to perform photosynthesis, releasing oxygen as a byproduct. They were the first to use photosynthesis to generate energy. It is also believed according to scientific evidence that oxygenic photosynthesis only evolved once across Earth’s history. During the Archean Eon 4 to 2.5 billion years ago, Earth would be unrecognisable — an inhospitable, alien world with an unbreathable atmosphere devoid of oxygen and an abundance of greenhouse gases leading to significantly higher temperatures. Estimates indicate that the ocean’s temperatures ranged from 55C to 85C. But things were about to change dramatically. 

The Great Oxygenation Event took place somewhere between 2.4 and 2.1 billion years ago — hundreds of millions of years after the appearance of the cyanobacteria — when the levels of oxygen in the Earth’s atmosphere and oceans rose significantly, fundamentally changing the composition of Earth’s atmosphere. As oxygen levels rose, methane was displaced and temperatures cooled significantly leading to a series of ace ages — probably the first ice ages on Earth — also known as Huronian Glaciation. Whilst those changes unfold and to some extent because of them, another remarkable innovation happened. The mitochondria arose through a fateful endosymbiotic encounter more than 1.45 billion years ago and possibly played a crucial role in helping organisms adapt to the new oxidative environment and glaciation period. 

Moreover, mitochondria enabled eukaryotic cells to be more energy-efficient, supporting the rise of eukaryotic organisms and, consequently, multicellular lifeforms. Like oxygenic photosynthesis and eukaryotes themselves, mitochondria also appear to have arisen only once in all of evolution. Mitochondria are highly efficient due to their unique inner membrane structure called cristae, which substantially increases the area available for the crucial electron transport chain reactions to occur, allowing for a greater rate of ATP production.

The tiny cyanobacteria and mitochondria bestowed upon Earth the ultimate gift — an oxygen-rich atmosphere and plenty of efficient, sustainable energy through unique metabolic processes which could support complex lifeforms, allowing the Cambrian Explosion — the relatively rapid appearance during the Cambrian Period of most major animal phyla — to take place roughly 541 million years ago. Efficient, clean energy has allowed complexity to emerge from the cyanobacteria to eukaryotic cells through the Cambrian Explosion to modern society. It is certainly no exaggeration to say that we are here today thanks to cyanobacteria and mitochondria. Life on Earth is based on sustainable innovation.

Throughout history, energy efficiency has been vital to raising quality of life. The more complex and productive societies are, the greater is the need for sustainable energy to support them.  AI is arguably set to drive a new era of growth since it has the potential to automate routine tasks at an unprecedented scale (even greater than the Industrial Revolution), enhance decision-making and, therefore, free up human capacity to focus on higher-level functions such as relationship-building, creativity and strategic thinking. Hence, individuals and organisations would be able to concentrate on areas that require emotional intelligence, complex problem-solving, and innovation. But this new era of growth must be sustainable. As photosynthesis once played a crucial role in the development of an oxygen-rich atmosphere, nature will be essential to supporting our future, supporting the global economy and helping us tackle the most pressing issues of our time including climate change, pollution and loss of biodiversity.

Moreover, the green economy has the potential to make a significant contribution to the global GDP. Although the GDP contributions by sector  are difficult to pin down with precision since they are dependent on a number of factors including technological advancements, policymaking and geopolitical aspects, estimated contributions by key sectors could be something between 4% to 10% with a significant contribution from countries and region with higher solar irradiation and favourable wind profiles. Biofuels, GH2, biomass, biogas, and other solutions  will also play a very important role in supporting a more diverse energy mix.

Renewable energy is one of the largest and fastest growing sectors. By 2050, the world will need to generate 60-80% of its energy from renewable sources which would require a significant increase in the amount of renewable energy capacity, and a shift in how energy is generated and consumed. Moreover, 85% of global electricity production in 2050 could come from renewable energy sources, eg solar, wind, etc. At COP28 in Dubai world leaders set a very ambitious goal to triple global installed renewable energy capacity by 2030, from a 2022 baseline. This goal will take centre stage at governments and boardrooms worldwide and puts renewable energy at the forefront of upcoming investment decisions and negotiations.

Achieving it will require a step change in financing the transition as well as adequate market infrastructure and policies to remove bottlenecks, particularly those affecting wind, solar and power grids, hydrogen, and electrification across different jurisdictions. Moreover, estimates indicate that renewable energy could make a contribution of 5-10% to the global GDP. Also, the global energy demand is projected to increase by nearly 50% by 2050. In 2023, the total energy investment went up to a record of $2.8 trillion out of which $1.74 trillion were invested in clean energy, partly driven by the post-Covid recovery and the global energy crisis.

The drive towards energy efficiency and green buildings could significantly contribute to global GDP by 2050, potentially creating millions of new jobs and boosting economic growth by enabling a transition to cleaner energy sources while reducing emissions. Energy efficiency improvements and electrification could lead to a reduction of 70% in buildings-related emissions by 2050, with the remaining reduction being supported by behaviour change and on-site renewables. In addition to that, the green steel and green cement sectors — driven by widespread adoption of sustainable building practices, infrastructure expansion, growing demand for low-carbon construction materials, the expansion of clean hydrogen infrastructure, renewable energy, and greater demand for sustainable building materials and transportation solutions eg electric vehicles — could deliver a GDP contribution of 3-5%.

Sustainable Farming and Food Systems including regenerative farming, precision agriculture, and sustainable food production are extremely important in addressing issues related to climate change and food security and could make a contribution of roughly 3% to the global GDP. The primary goal is to ensure that global systems will be able to sustainably feed humanity and at the same time meet the demand for non-food agricultural commodities such as textiles, industrial materials, etc. Feeding a growing global population, projected to reach around 9.7 billion by 2050, whilst addressing the increasing demand for non-food agricultural commodities is a delicate balancing act. To that end, sustainable intensification could help produce more with less. Agroecology and regenerative agriculture could play a crucial role in helping improve production whilst protecting nature, biodiversity, soil health and water systems. Circular economy principles would be able to help reduce waste and reuse by-products. Also, tech advancements, vertical farming, hydroponics, precision farming are extremely important, but all these solutions must be underpinned by appropriate policies, international cooperation, economic incentives and consumer behaviour.

Road transport accounts for roughly one-sixth of the global emissions, which makes Electric Vehicles (EVs) a key element of the Net-Zero 2050 roadmap. Current projections indicate that EVs and clean transport could significantly contribute to global GDP by 2050, potentially adding trillions of dollars to the global economy through manufacturing and sustainable infrastructure development, job creation in the renewable energy sector, and overall economic efficiency gains associated with reduced carbon emissions. However, the speed of adoption will depend upon several factors including policies, economic incentives, cost, charging infrastructure, cultural, social and economic aspects. Nevertheless, the transition from internal combustion engine vehicles to EVs is rapidly accelerating, leading to job creation, technological innovation, and infrastructure development. Charging infrastructure as well as battery production and recycling are expected to expand dramatically. The clean transport sector could make a contribution of 3-5% to the global GDP by 2030 with significant growth in the EV manufacturing capacity and related supply chain.

Measures with a focus on the energy transition can address roughly 55% of the emission whilst the remaining 45% would require efficient circular production systems for a myriad of products including consumer goods, cars, clothes, food, et cetera. Achieving this transformation will require a concerted effort of a number of different stakeholders. No single organisation will do it alone. New business models and sustainable investment solutions will be crucial to put climate, biodiversity, social and the circular economy at the centre of the finance agenda. If a robust circular economy is implemented, it could potentially make a very significant contribution to the global GDP by 2050 with estimates ranging from a moderate increase of a few percentage points to a substantial boost of up to 10% or more, depending on the level of adoption across the globe.

The voluntary carbon markets (VCMs) and compliance carbon markets (CCMs) are growing rapidly. The voluntary carbon market is now worth approximately $2 billion globally and the compliance carbon market is worth over $850 billion across 30+ markets worldwide. Carbon markets have an important role to play in supporting carbon pricing which in turn is vital to speeding the transition to a low-carbon economy. Moreover, carbon markets are an important instrument to transfer capital from developed countries to emerging and frontier economies, helping these economies fast-track their transition plans. VCMs and CCMs are crucial mechanisms in the global effort to mitigate climate change and accelerate the transition to a low-carbon economy. The rapid growth of these markets is a positive signal that there is increasing momentum towards a more sustainable future. Carbon markets are not just a mechanism for reducing emissions — they are a key tool for driving the transformation towards a low-carbon, resilient global economy.

We, human beings, have emitted roughly 2.4 trillion tonnes of CO2e since the beginning of the industrial revolution. We still emit something close to 50 billion tonnes of CO2e every year. Moreover, current policies and commitments put the world on track for an average temperature rise of roughly 3 degrees Celsius above pre-industrial levels by the end of the century. Climate change is one of the greatest challenges of our age and also one of the greatest opportunities humankind has ever had to create a better, more resilient world for this and future generations. It is also history’s biggest investment opportunity.

Projections indicate that a total investment of approximately $270+ trillion would be needed to finance the transition to net-zero by 2050 with an annual gap of $4-5 trillion. Global ESG assets are on track to exceed $50 trillion and the ESG debt market could swell to over $10 trillion by 2030. Now is the moment for collective action and team spirit. It is crucial that we deliver a step change in financing the transition to a more resilient future. It will take a significant financial push to develop the infrastructure needed to transition to a greener, more resilient economy.

The efficient allocation of resources, ie capital, labour, natural resources, and technology is crucial to sustainable economic development. Successful businesses drive growth, create jobs and pay the taxes that finance services and investment. Therefore, it is essential that we deliver a step change in financing the transition. In that context, a robust sustainable infrastructure will lead to long-term growth, resilience, job creation, and better quality of life for all.

Projections indicate that a total investment of approximately $270+ trillion would be needed to finance the transition to net-zero by 2050 with an annual gap of $4-5 trillion. Global ESG assets are on track to exceed $50 trillion and the ESG debt market could swell to over $10 trillion by 2030. Now is the moment for collective action and team spirit. It is crucial that we deliver a step change in financing the transition to a more resilient, just future. It will take a significant financial push to develop the infrastructure needed to transition to a greener, more resilient economy. That is why sustainable finance has a crucial role to play in unlocking the flow of sustainable capital at scale towards investment opportunities in line with the Global Goals.

It is extremely important to develop a more diverse portfolio of sustainable investment solutions including green, social, sustainability and sustainability-linked (GSSS) bonds, indices, catastrophe bonds, ESG funds, trusts, PPPs, Blended Finance, IPOs, listing rules and segments for clean tech/sustainable start-ups, comprehensive Data & Analytics platform, green & transition equity, carbon credits, energy trading, biodiversity credits, plastic credits, insurance solutions, currency hedging, investment management  tools, risk assessment, portfolio optimisation, decision-making, trading, market prediction, sentiment analysis, blockchain, AI, surveillance, et cetera. Hence, sustainable finance could potentially make a contribution of 7-10% of the global GDP by 2050. It would be especially significant in sectors related to clean energy, sustainable agriculture, carbon markets, and sustainable infrastructure.

Currently, it is estimated that algae — especially phytoplankton — are responsible for producing about 50% to 90% of the Earth's oxygen through the process of photosynthesis. That is no small feat in biological or engineering terms or, as a matter of fact, in any way you look at it. We would be wise to heed the ancient and very consequential lessons that the little cyanobacteria and mitochondria have taught us for billions of years — in order to build a sustainable, intelligent and prosperous future, we need sustainable innovation.

To learn about SFX, send an email to cesar.sanches@sfx.finance or contact me at +5511994587852

Pension funds as sustainable investors

By Cesar Sanches, SFX CEO

14th January 2025

Roughly half of the Brazilian population do not have access to proper sanitation. Hundreds of millions of individuals including children who don’t have access to services many may take for granted such as drinking water, clean shower facilities, hygiene services, sewage systems, rainwater collection, et cetera. It is hardly a surprise that children under these circumstances will struggle to go to school, to concentrate on their studies, to develop themselves physically and mentally. It is surely unacceptable from a humanitarian point of view that this situation continues, but it is also nonsensical from an economic standpoint. We are losing those talents. Future physicians, lawyers, engineers, nurses, CEOs and so on who may never be due to the lack of the most important and basic infrastructure. This is one example of many. Investing in sustainable infrastructure is key to delivering on the Global Goals. Sanitation, education, health care, clean power, clean tech, nature-based solutions, sustainable farming, biofuels, circular economy, biogas, green metals, green cement, GH2, carbon markets, the list goes on. These are investment opportunities that can affect the country’s GDP significantly. It is not one or the other. It is the current production plus an entire new green economy of hundreds of billions of dollars. You don’t have to believe in sustainability as I do. You just need to look at the numbers. Look at the business opportunity. Profitability and sustainability do go hand in hand. We need to fast-track investments in the infra needed for the transition.

Brazil hasn’t grown significantly compared to other economies for over 10 years. Brazil’s current GDP growth rate is still similar to the country’s growth rate in 2014, something close to 3% — the country's average GDP growth rate over the last 10 years is around 0.6%. One could argue that we live in a country that has a significant part of its production related to commodities ie industries such as oil & gas, mining, agribusiness and services which are certainly success stories. However, interest rates are arguably high in order to ensure that inflation is reasonably under control due to economic pressures that partly stem from fiscal issues. Economic models can show that high interest rates in an economy which is heavily dependent on commodities will skew investment decisions towards fixed income which in turn tends to stifle innovation under these circumstances. In other words, fiscal issues may lead to high inflation which in turn leads to high interest rates, concentration on debt instruments, lower diversification, lower innovation, lower growth and maintenance of the status quo. We need to replace this vicious circle with a virtuous one. Therefore, it is extremely important that we devise strategies that will enable market participants to consider diversifying their investment portfolios with a focus on the country’s strengths ie the development of a strong green economy.

To that end, pension funds can play a very important role as sustainable investors. Historically, pension funds have gravitated towards bonds and equities with a long-term investment horizon in line with the time frame of their liabilities and considerations about financial performance, risk mitigation including ESG aspects, regulation, reporting, transparency, fiduciary duty with a focus on long-term return, ethical and climate issues, extreme weather, adaptation, mitigation, opportunities related to sustainable infra, clean tech, clean energy, etc. But over the past decades pension funds have been able to successfully diversify their portfolios by allocating resources to alternative asset classes such as private equity, real estate, infrastructure and hedge funds. Hence, pension funds would arguably be well suited to deliver a step change in financing the transition. The total assets of Brazil's pension funds are roughly $256bn which is equivalent to 11.4% of the country’s GDP approximately. Therefore, there is a significant opportunity to devise policies, incentives, MRV systems and bespoke financial products for large asset owners and money managers which could lead to a small change in asset allocation towards opportunities in line with the Global Goals, supporting the development of a robust green and sustainable economy. Even a small change in the allocation strategy of these large organisations would be extremely significant. SFX aims to build the market infrastructure and financial products that will enable these investors to carry out these new strategies, unlocking the flow of sustainable capital at scale.

Brazil can and should play a very important role in helping the world decarbonise, raising the quality of life for communities significantly. The Eco Invest Brasil is a flagship programme of the Brazilian Government which aims to increase the flow of capital towards the country's ecological transformation plan. The objective is to support innovation using financial products that take into account ESG aspects. The first auction took place on the 11th of October 2024. Banks raised $1.1bn locally and $6.2bn internationally, approximately a total of $7.3bn to be allocated over the next 24 months with a focus on clean power, circularity, sanitation, sustainable agriculture, blended finance, infrastructure and hedging. By investing in sustainable infrastructure, Brazil could play a leading role in fast-tracking the transition, transforming its production systems from linear to circular, decarbonising its economy, and exporting clean power as well as scaling up sustainable products. This new green economy could add over $100bn to the country’s GDP by 2030, creating over six million jobs. Brazil’s emissions are 2.2 billion tonnes of CO2e approximately, being 50% from deforestation, 21% from agribusiness, 21% energy, manufacturing and transport, 7% waste, 1% buildings.

Brazil’s GHG emissions by sector

Total installed solar and wind power capacities in Brazil are now over 45GW and 20GW, respectively. Currently, Brazil’s electricity capacity breakdown is as follows: 84.62% of Brazil's electricity capacity comes from renewable sources, including hydro (53.88%), wind (15.22%), biomass (8.31%), solar (7.2%). The percentage of wind and solar in the mix could go up to almost 50% representing an opportunity of more than $10bn. Brazil’s natural advantages in the renewables space - favourable solar irradiation and wind profiles - could support the production of low-cost GH2 which could be an extra $20bn annually. E2G and SAF together with biogas and other biofuels would add up to $50bn approximately. In addition to that, Brazil has the potential to become one of the world’s largest suppliers of voluntary carbon credits with a potential of nearly 2 billion tonnes of credits which could be worth over $20bn depending on market conditions. Moreover, Brazil can lead the way on many other fronts including critical and transition minerals, circular economy, CCS, electrification, plastics, green metals, green, cement, biomass, biochar, et cetera. Brazil’s total opportunity related to the green economy including nature-based solutions (conservation, reforestation, afforestation), sustainable agriculture (regenerative agriculture, biofertilizers, sustainable livestock farming, AFL), clean power (renewables, biofuels, GH2, biogas, biomass, clean tech) and green products (green metals, cement, minerals, circularity, and other products) could attract investments worth something close to $3tn by 2050.

Sources: BCG, Poder360, McKinsey, B20’s Energy Transition and Climate Task Force

Climate change is probably the biggest challenge the humankind has ever faced.

But it is also history’s biggest investment opportunity.

Government action is crucial, but we also need the private sector to deliver a step change in financing the transition. Businesses are the engines of sustainable economic growth. It is important to remind ourselves that our actions will eventually affect the lives of individuals in communities across the globe. The financial industry has a fundamental role to play in unlocking sustainable capital at scale, helping Brazil become a green powerhouse.

To learn more about SFX please contact me on +5511994587852 or send an email to cesar.sanches@sfx.finance or visit www.sfx.finance