Economic developers routinely pivot and adapt to changing economic, social, and political landscapes; economic developers must now also pivot to incorporate the growing threat of climate change into their practice, as it will be a defining issue of the coming decades. The threat to the tax base and quality of life in communities impacted by climate change necessitates that we do so as economic developers. The disproportionate and unequal burdens caused by climate change call us to action as fellow humans. The economic developer’s power to convene leaders and spur action will prove a vital ally in the fight to prepare for and respond to climate change. Many efforts that are under way across various sectors offer insights into how we can engage our constituents and businesses and begin to shape climate-smart economic development solutions.
The trend of larger, more powerful, and more frequent climate events is only increasing, and thus the role of economic developers in responding to and proactively planning for these events will continue to grow.
Earlier this year, IEDC published Economic Development in a Changing Climate, a primer on what economic development organizations (EDOs) should know about climate-related trends. The guide provides a series of important framing questions to drive economic development discussions and lays out a series of recommendations that every EDO should consider:
- Understand the physical risks to the region and smaller areas within it, as well as to industries, individual businesses, and the workforce.
- Learn about the business and industry trends that will affect existing employers and investment growth and attraction.
- Get comfortable talking about climate change impacts on the economy (even if you don’t use the words “climate change”).
- Incorporate climate risks and opportunities into economic development strategic plans.
- Connect, align, and leverage to create partnerships and spur action.
Emerging trends among various institutions and actors—from corporations to the federal government—indicate the enhanced position that climate change is occupying in decision-making, and all with a direct connection to economic development.
Major corporations are acting. More than one-third of the world’s largest 2,000 corporations have made net zero commitments, and that number continues to rise. The big players in new location siting—companies such as Amazon, Google, and Meta—all insist on clean energy for new data centers and warehouses.
Investors are acting. According to Deloitte, in 2021, close to 40 percent of all professionally managed assets globally were in ESG (environment, social, and governance)-screened investments that amounted to $46 trillion of $117 trillion in managed assets. Climate tech private equity has been by far the fastest growing VC sector over the past few years. More than $40 billion was invested into climate tech companies in 2021.
Insurers are acting. If investment is the carrot, rising insurance costs are the stick. Commercial insurance prices are rising at historically high rates throughout the world—but the increases are not equal. In places prone to natural disasters, many property and casualty insurers have simply stopped writing policies due to increasing weather-related losses. With the insurers that remain, premiums have skyrocketed while coverage levels have declined. As one example, Florida has seen insurance rates nearly double over the past five years due to high insured losses, increases in reinsurance costs, and increased insurance claim lawsuits. The cost of insurance will play an increasingly important role in business expansion decisions—especially for sites with large physical footprints—as well as where workers decide to live. Housing is an increasingly big part of location decisions for families and individuals, and disaster insurance is becoming a more difficult and pricier factor.
Workers are acting. Workers of all ages, and particularly younger workers, consider climate change to be an important issue. Many are making job choices based on it. A 2021 Pew Research survey found that 76 percent of Gen Zers consider climate change among their biggest societal priorities, and more than one-third call it their leading concern. In a 2018 Deloitte survey, 77 percent of Gen Z respondents said it was important to work at organizations whose values aligned with theirs. This means that if a firm or community wishes to attract the workforce of the future, it should address climate issues as part of its talent attraction strategy.
The U.S. government is acting. Over the past two years, Congress has passed bills that will unlock at least $500 billion in economic incentives and direct climate investment. In particular, the 2022 bipartisan Infrastructure Investment and Jobs Act, and the 2022 Inflation Reduction Act have substantially shifted the economic playing field. Together they will radically shift the U.S. economy toward low-carbon industries, companies, and activities. There are major incentives for the decarbonization of existing industries and the further development of low- and no-carbon energy sources. These laws have the potential to significantly reorder the nation’s economic pillars.
While the changing climate certainly brings challenges, the required shift to a low-carbon economy also represents a massive opportunity for job creation, profits, economic growth, and the development of new regional economic hubs. The Global Commission on the Economy and Climate found that the transition to a low-carbon economy globally could unlock $26 trillion in economic benefits by 2030.
Existing renewable energy industries such as solar, wind, and geothermal power production are set to scale massively. That expansion will require massive investment in new energy infrastructure that will drive new job opportunities even in the face of declining fossil fuel industry employment. Brand new domestic industrial operations will expand in sectors such as critical minerals, solar panel manufacturing, carbon capture and storage, and EV charging technology. We’re talking significant economic transformation here—the kind of change that demands attention from all business and civic leaders.
We believe that the recommendations provided in IEDC’s report, combined with efforts under way across industry sectors and government, are a great place to start. As we move deeper into the 21st century, it is likely that the entire field of economic development will be reshaped by the changing climate. To serve the economic development community, we must prepare for these major changes—not just respond to them—and set families, communities, and companies up for opportunities that will lead to more equitable economic outcomes.
Nathan Ohle is the President and CEO, International Economic Development Council. This opinion article was originally published on the International Economic Development Council website.