Earth Overshoot Day for asset managers

Earth Overshoot Day has arrived, signifying the moment when humanity exhausts Earth’s annual budget for resources. In simpler terms, as of 2nd August, we’ve consumed what the Earth can naturally regenerate in a year. This is alarming, especially when considering that the first Overshoot Day was observed as late as 25 December 1971. While there’s a silver lining in that we consumed our resources five days later than in 2022, the broader picture still remains concerning. We are currently using resources equivalent to 1.7 Earths every year.

Crunching the numbers: How is it calculated?

Using data from the UN, the day is calculated based on two key metrics:

  • Ecological Footprint: This gauges the demand humanity places on nature. It encompasses our consumption of resources and the emissions we produce.
  • Biocapacity: This metric reflects the Earth’s capability to regenerate renewable resources and absorb waste.

The Earth Overshoot Day calculation involves dividing the planet’s biocapacity by humanity’s Ecological Footprint and then multiplying the result by 365 (the number of days in a year). The remainder represents the number of days when we exceed the Earth’s capacity, leading to resource depletion and ecological damage.

Driving forces behind the deficit

The vast CO2 emissions resulting from fossil fuel combustion play a pivotal role in this resource deficit, as highlighted by the Global Footprint Network. They suggest that to achieve a significant 43% cut in global emissions by 2030, we’d need to push back Overshoot Day by 19 days annually over the next decade.

Let’s break this down further:

  • Increasing the global uptake of low-carbon energy sources from 39% to 75% could delay the day by 26 days.
  • Cutting food waste in half can earn us an additional 13 days.
  • Reforesting an impressive 350 million hectares of land could grant us another eight days.

Policy changes and their impact

National policies can make a significant difference. Introducing concepts like 15-minute cities, where daily essentials are accessible within a short walk or cycle, or even transitioning to a four-day work week, could collectively push the date back by 11 days. Furthermore, promoting green transportation is crucial. Should a third of all car miles be substituted with walking, cycling, or public transport, we might see the Overshoot Day delayed by 13 days.

Globally, countries have the opportunity to incorporate resource utilisation and waste management strategies as part of their commitments to the Paris Climate Agreement, specifically within their Nationally Determined Contributions (NDCs). As we approach COP28 in Dubai this winter, nations are being prompted to revise and update their NDCs. Furthermore, countries can advocate for robust agreements that emphasise a fair transition away from fossil fuels and support the upcoming UN plastic treaty.

For asset managers, understanding and acting upon the implications of Earth Overshoot Day is pivotal. The date serves as an index of our planet’s health and sustainability, aspects that are becoming integral to investment strategies and risk assessments. As more investors prioritise sustainable and responsible investing, being aware of global resource consumption patterns and their implications can guide more informed, forward-thinking decisions. Moreover, companies and industries that align with practices pushing back the Overshoot Day might present promising investment opportunities in the future.

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