Making the Green Transition Work for People and the Economy 2025

Factors affecting the global socioeconomic landscape FIGURE 1 Non-exhaustiveConflict Supply chain disruptionShifting trade patternsCost of capitalGeoeconomic diversificationEnergy security InflationRising inequalityWithin-country inequality has risen in many countries, which may limit economic opportunities and contribute to political divides around key issues. Within-country income inequality is on the rise, representing a growing share of global inequality since the 1980s, and acknowledged by the 10th UN Sustainable Development Goal (SDG): reduce inequality within and among countries. 15,16 In cases where rising inequality is coupled with persistently high inflation – above the rate of income growth of those lower in the distribution – it may drive a range of socioeconomic challenges, particularly around access and the affordability of goods and services for vulnerable populations. As economic opportunities for lower-, middle- and higher-income households diverge, so too may beliefs and voting patterns around key issues. 17 Such inequality growth may contribute to a broader erosion of trust in institutions if people believe their interests are not being served, potentially making socioeconomic development even more challenging. 18 1.2 Climate action needs to evolve to work for people and the economy These contextual shifts and resultant socioeconomic challenges are impacting the feasibility of climate action for a range of stakeholders at multiple levels. 19 Internationally, geoeconomic and geopolitical shifts may impact multilateral collaboration around climate action and global patterns of green investment and consumption. International trade has been a key enabler of climate action to date, offering scale and supply chain integration resulting in dramatic cost declines of green technologies. However, shifts in supply chains, trade patterns and manufacturing may concentrate capacity and skills, and ultimately limit the pace at which we can deploy climate technologies. 20,21 Domestically, national economic challenges may further affect the pace and feasibility of climate action. Countries with reduced fiscal headroom may have to constrain national spending, including climate allocations, while concerns around energy security and competitiveness could lead governments to adjust climate targets, potentially delaying the phase-out of fossil assets and regulatory requirements for other sectors. 22,23 Support for climate action could change for all stakeholders – including businesses, households and individuals – as competitiveness, living standards and economic opportunities are affected. Where there are examples of within-country inequalities widening and the cost of living increasing, lower-income households are often most affected, 24 facing potential trade-offs between decarbonization and living standards.25 Furthermore, per capita emissions of those lower in the income distribution are generally below those of wealthier individuals, 26 which could further change sentiment towards climate action if such variation persists. For climate action to succeed, decision- makers must adapt to this changing context and socioeconomic environment. Both public and private sector decision-makers committed to addressing climate change must now deliver climate Making the Green Transition Work for People and the Economy 7