THE BIG THINK
By David Crosoer, PPS Investments Chief Investments Officer
The same month the United Nations Secretary-General announced that the world is no longer on track to limit global warming to below 1.5°C above pre-industrial levels, the Nobel Prize in Economic Sciences was awarded to three economists whose work demonstrates how technological innovation from industrial machinery to artificial intelligence (AI) has historically driven productivity and economic growth.
This celebration of innovation sits uneasily alongside the environmental consequences of that progress. While technology has powered global growth, it has also accelerated emissions, resource depletion and pressure on ecosystems.
Humanity often draws comfort from past examples of misplaced pessimism. Lord Kelvin underestimated the sun's longevity and Thomas Malthus predicted food shortages that never came to pass. Yet today's warnings differ. The Planetary Boundaries Science Lab recently confirmed that seven of the nine systems essential to sustaining life on Earth have been breached, with ocean acidification added to the list this year. The planetary boundaries framework assesses the stability of critical ecological systems, including climate regulation, freshwater availability, biodiversity integrity, land use and the chemical balance of the oceans. When these thresholds are crossed, natural systems lose their ability to absorb shocks, increasing the likelihood of abrupt, irreversible environmental change. These findings represent practical assessments of ecological stress rather than hypothetical projections.
A SHIFTING NARRATIVE IN MARKETS AND POLICY
Despite this, public anxiety remains subdued. A "make everything great again" narrative has gained traction and assumes that technological ingenuity, particularly AI, will ultimately outpace or neutralise global risks. Financial markets continue to rally, regulatory momentum is weakening and a growing number of corporates have quietly moved away from climate commitments in favour of short-term profitability.
This raises a broader question: are we witnessing a return to a form of unfettered corporate capitalism in which governance principles such as those embodied in King V™ are sidelined? Considerable uncertainty persists around the future trajectory of the global economy, yet markets appear largely unfazed by climate-related risks.
The International Monetary Fund (IMF) estimates that the cost of adapting to climate change will be substantially higher than the cost of mitigating it. If climate change is now an unavoidable reality, why do markets appear content to ignore its implications?
One possibility is that the optimists are right. The AI revolution could spark a new wave of productivity and innovation. In this scenario, technology solves problems faster than they accumulate, allowing society to advance without confronting difficult trade-offs.
"To navigate what lies ahead, investors must remain agile."
Others argue that economic competitiveness requires lighter regulation or the active promotion of national champions, as exemplified by leaders such as Donald Trump and Xi Jinping. This approach disagrees with the view that major contributors to climate change should bear the societal costs of their actions and that global challenges require coordinated global rules.
A more cautious view is that markets have not priced in the longer-term consequences of climate change. Current corporate results have exceeded expectations and near-term strength continues to command investor attention.
In response, the Prudential Authority recently issued its climate-risk roadmap for financial institutions, advising firms to rigorously assess their climate-related exposures and strengthen resilience to such risks. Yet, at the same time, the US is retreating from several climate commitments, giving its companies latitude to prioritise financial outcomes without weighing environmental impacts. This shift places other countries under competitive pressure, potentially undermining their own climate objectives.
WHY THIS MATTERS
For investors, these contradictions can feel dispiriting. Nonetheless, despite continued fossil fuel subsidies, market forces are increasingly favouring cleaner energy as costs fall and adoption rises.
Despite worsening planetary boundaries, earnings forecasts have improved, recession fears have eased and central banks expect to keep interest rates low throughout 2026. The Nobel laureates' research reminds us that innovation often emerges at unexpected moments.
To navigate what lies ahead, investors must remain agile to capture the benefits of innovation while reconciling the escalating costs of climate inaction. Agility is essential because regulatory frameworks continue to shift, climate shocks have become increasingly unpredictable and technological breakthroughs can rapidly alter competitive dynamics.
In this environment, a long-term strategy requires constant recalibration. Regulatory shifts can reshape entire sectors with little warning, while climate-related disruptions can erode asset values or impair supply chains in ways that are difficult to foresee. At the same time, innovation continues to accelerate, offering new tools for efficiency and risk management but also introducing unfamiliar exposures. For investors, maintaining a flexible stance is therefore critical, as resilience will increasingly depend on the ability to interpret complex signals and adjust allocations at speed.
Positioning portfolios for both opportunity and risk are not merely prudent but imperative.
* Note that none of the articles in this publication constitute financial advice, medical advice or legal advice.