Why should companies be interested in sustainable cities? Here are 3.7 trillion reasons.
The world’s long urban boom shows no signs of abating. Over the next 15 years, nearly all the world’s net population growth is expected to occur in urban areas, with about 1.4 million people — roughly the population of Stockholm — added to cities each week.
Already more than half the world’s population lives in cities. By 2030 the global urban population is expected to reach 5 billion, as more people abandon their farmland in search of better-paid city jobs in manufacturing or services. Africa and Asia, where the majority of the population still live in rural areas, will see the most change.
Cities generate more than 80 percent of global gross domestic product, and the rapid urbanization still to come in Asia and Africa especially will be a crucial driver of economic growth. In fact, no country has ever climbed from low-income to middle-income status without a significant population shift into cities. This is because larger cities generate scale benefits for economies, and wages are typically higher as people shift from farming to urban manufacturing and services.
But the rapid urbanization also generates major social, environmental and health challenges. Many cities in developing countries already are straining under the pressures of population growth. In Indonesia and Pakistan, for example, as many as 60 percent of urban dwellers currently live in substandard housing. Almost a fifth lack access to improved sanitation facilities, such as toilets or latrines.
Traffic is choking the megacities. In Metro Manila, for example, the average daily commute time is two hours, but that can easily stretch to four during the monsoon. The result: frustrated commuters and a loss of economic productivity. Various estimates suggest that congestion can lower the annual economic output of major developing cities by as much as 5 percent, as it burdens businesses with higher costs, lost time and wasted fuel.
Further, sprawling low-density housing on the city fringes only exacerbates the dependence on cars and adds to concerns about health and the environment. By 2050, ambient air pollution is expected to become the top environmental cause of premature mortality. It is currently estimated to lead to 3 million premature deaths each year.
These problems of urbanization are not limited to the cities of the developing world. Affordable housing is a chronic issue in many developed countries, including Australia, Canada and the United Kingdom. Urban lifestyles, associated with unhealthier diets and lack of exercise, are contributing to obesity rates, which are often three to four times higher in cities than in rural areas. The heating and cooling requirements of cities, which account for more than 10 percent of global energy demand, also weigh on our climate.
So how do we square the economic imperative of urban development with the many pressures in the world’s cities? The Sustainable Development Goals (SDGs), agreed by world leaders in 2015, are 17 goals for ending poverty and hunger, transforming health and education, improving our cities and communities, and tackling urgent challenges such as climate change. Collectively, they propose a new development road map that could transform our cities and society, balancing growth with sustainability.
Housing, mobility and more
The challenge of implementing the SDGs in cities is daunting. It is clear that national and local governments can’t do it alone: The private sector needs to play a role in delivering this ambitious agenda.
“We find that worldwide, the SDGs could unlock opportunities for the private sector worth USD 3.7 trillion each year in cities by 2030.”
In a report published late last year by the Business & Sustainable Development Commission called “Valuing the SDG Prize in Cities”, we show that it’s also in their interests to participate. The SDGs will help produce more stable and equitable markets for business to prosper, and the implementation of the SDGs in cities could generate tremendous business opportunities.
We find that worldwide, the SDGs could unlock opportunities for the private sector worth USD 3.7 trillion each year in cities by 2030.
The single biggest opportunity is increasing the provision of affordable housing, which alone could be worth over USD 1 trillion annually by 2030, as substandard housing is replaced and new stock built to meet urban migration. The most significant market will be China, which could be worth around USD 250 billion. Growth in employment from this construction could be massive, with the potential to generate around 70 million new jobs worldwide.
There are also major opportunities for business in reshaping mobility systems in the world’s cities. Public transport, electric and hybrid vehicles, autonomous vehicles and car sharing are major opportunities we identified for the private sector to contribute to the SDGs, and collectively could be worth almost USD 900 billion annually in revenue.
New global giants and regional players are establishing themselves as leaders in this mobility revolution, expanding from car sharing into early trials of driverless cars. These opportunities can improve connectivity and efficiency within growing cities, and can also have a profound impact on public health by reducing air pollution.
Improving the energy and material efficiency of buildings is also a substantial opportunity for business. Energy efficiency alone could deliver resource savings worth USD 770 billion by 2030, through retrofitting existing buildings and installing more-efficient technology in new buildings. An alternative approach is the expansion of district heating and cooling, which could deliver operational efficiency gains of up to 90 percent by linking electricity and heating sectors through cogeneration.
There also are interesting opportunities in the development of more durable and modular buildings, which likewise could support affordable housing. Further opportunities exist around the increased use of timber in construction. Wood-based building materials can be produced with lower emissions than steel or concrete, and they are able to store carbon dioxide through the life of the building.
The greatest barrier to capturing these substantial business opportunities will be mobilizing the capital investment needed, especially in infrastructure.
“The single biggest opportunity is increasing the provision of affordable housing, which alone could be worth over USD 1 trillion annually by 2030.”
Many local governments in developing countries lack the ability to borrow the capital they need. Analysis by the World Bank has found less than 5 percent of the 500 largest cities in developing countries are considered creditworthy in international financial markets. Even in their local markets, only 20 percent are regarded as sound borrowers.
Lifting the financing capacity of local governments, establishing the right regulatory frameworks for investment and improving the design of public-private partnerships will all be critical levers for increasing capital flows.
Cities have never been more important to the performance of the global economy and the livelihoods of people around the world. However, the pressures on our cities are already great and growing fast, as continued urbanization stretches them to their limits. Through the implementation of the SDGs in cities, we need to shift to a more sustainable and inclusive pathway. That transformation will open opportunities that can be good for business and good for cities.