Boundless consumption, for how long?

Avocados, mobile phones and teak furniture: these are just a few of the many products from abroad that we can buy at low costs thanks to global trade. National economies have become increasingly intertwined in the past few centuries. The introduction of the standard shipping container since the 1960s made global trade even faster and cheaper. Cooperation of countries within the World Trade Organisation (WTO) and rise of the internet also accelerated trade since then.

Global trade relations have brought us much. Never before have so many things been available to so many people so quickly and at such low costs. But global trade goes beyond the availability of diverse goods at relatively low prices. It created employment opportunities in countries where jobs used to be in short supply. Good trade relations also reduced the risk of conflict between countries. After all, interdependence makes it less attractive to start conflicts. 

Disadvantages also exist. Rising consumption due to global trade has a very negative impact on the environment. The increased production of goods requires more energy and other commodities. It leads to higher CO₂ emissions, which contribute to climate change. Moreover, a significant part of what we buy in Europe is produced in countries with less stringent environmental standards. These companies can offer their products at low costs. Those low prices, in turn, encourage consumers to buy more. Unsurprisingly, economic globalisation is considered to be one of the causes of today’s climate problems. 

For a long time, the environmental damage caused by growing consumption and globalisation was invisible. By moving production facilities to China, for example, we lost sight of the CO₂ emissions stemming from the production of goods. The same applies to the production of much of our food. For example, meat consumption contributes to deforestation in the Amazon rainforest, with large amounts of rainforest being cleared to make room for soy cultivation. Soy is a cheap raw material for animal feed. The high demand for avocados boosts agriculture in Mexico and Peru, but at the same time causes water shortages in certain areas. The good news is that awareness about these environmental issues is growing. The consequences of CO₂ emissions, global biodiversity loss and the dangers of monoculture are increasingly coming into focus.

As consumers become more aware of the negative environmental effects of globalisation, they are increasingly making deliberate choices for locally produced products – even if these products are more expensive. Changes are also visible in the corporate sector. Companies looking to reduce their CO₂ emissions are reassessing their supply chains as a whole, including transport, waste and emissions from production in distant manufacturing countries. Companies are also more aware of the risks of long supply chains and are looking globally for ways to shorten them – a process that has been accelerated by recent trade conflicts, the corona pandemic and the war in Ukraine. As these developments unfolded, dependence on one or more suppliers in another continent proved to be a major risk. Almost 70% of companies in the US S&P 500 Index reported supply chain problems last year, research shows. 

Companies across the globe are delving into their own production processes to secure supplies to their customers. For example, through nearshoring; outsourcing production to a country that is relatively close. They are also looking at resource use. Shipping carrier Maersk reports in a recent report that over 67% of global manufacturers and retailers worldwide have shifted sourcing of raw materials and semi-finished products.

We cannot and do not want to stop globalisation altogether. But by making informed choices, we can reduce the burden on the environment. Investors can support this process by choosing companies that take environmental aspects into account throughout their supply chains. When our analysts assess sustainable investments, companies that seek to minimise their carbon footprint throughout the production chain have an edge. Consumers also initiate change through their spending. By choosing local products more often, for instance. As long as not all market players have to comply with the same requirements, local products currently tend to be more expensive. But this is expected to change. The proposed European carbon border tax, which taxes CO₂ emissions, is one of the measures to properly price products from other countries.

In this new phase of globalisation, companies are encouraged to invest in more sustainable and energy-efficient production processes. Especially for globally operating firms, shortening these production processes can be attractive. This way, companies can reduce the negative consequences of globalisation, such as high costs for CO₂ emissions, production problems due to political unrest, reputational damage (for these companies) and damage to the local environment.

We invest in companies that are at the forefront of the use of renewable energy and sustainable packaging material, that embrace responsible land use and opt for nearshoring. By preserving the good aspects of globalisation and limiting its environmental impact, we can optimise world trade. This does not only benefit the environment, but the whole world.