Why Investors May Be Underestimating The Biggest Risks Of The 2020s

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When leaders gather in Belém, Brazil this November for COP30, they will confront climate change not as an isolated threat but as a driver of wider disruption. From energy volatility to food insecurity and insurance market withdrawal, the effects of a warming world are already cascading through economies. Belém matters because it is an attempt to place guardrails around those shocks — through agreements on forests, adaptation, and finance — before they destabilize markets even further.

The latest 2025 Sustainability Trends Report from Generation Investment Management widens the lens. It argues that the turbulence of the 2020s is not a series of discrete crises but the emergence of a new operating environment where shocks collide and compound. What once might have been dismissed as externalities — extreme weather, food insecurity, or regulatory reversals — now land directly on balance sheets.

As Lila Preston, head of Generation’s growth equity strategy, put it in an interview, “The turbulence of recent years is not a series of one-offs, but a new operating environment where resilience must become a core investment lens.” For corporates and investors, the question is no longer whether any one shock matters, but how these forces combine to reshape the cost of capital, supply chains, and competitive advantage.

The Shock Decade

The 2020s are no longer defined by isolated disruptions. Energy, fiscal, climate, food, and political shocks are colliding into what Generation’s report calls the defining reality of the decade: system shocks are not anomalies but the operating environment.

Russia’s invasion of Ukraine triggered a surge in gas and electricity prices, forcing governments across Europe to spend more than €600 billion on subsidies. Meanwhile China’s focus on cleantech has meant it now controls more than 80% of the global polysilicon supply used in solar manufacturing. That imbalance reshapes industrial competitiveness at precisely the moment investors depend on policy certainty to deploy capital.

Fiscal shocks are straining governments’ ability to act. Rising defense spending, from Germany’s €100 billion special fund to broader NATO rearmament, is diverting money from long-term infrastructure and transition projects. Higher interest rates have sharply increased debt service costs and while these budget pressures may look discrete, together they distort investment flows and erode trust in international commitments.

Insurance shocks are escalating quickly. Global insured losses from natural catastrophes have topped $100 billion for four consecutive years, driven by extreme heat, floods, and storms. Major carriers have withdrawn from high-risk areas in states like California and Florida, shifting costs onto governments and households. The fallout is already visible in housing markets, municipal budgets, and consumer confidence.

Food insecurity is worsening, with 2.3 billion people affected in 2024, up by more than 600 million in a decade. Droughts have driven cocoa and coffee prices sharply higher, exposing supply chains to volatility. Even as Brazil slows deforestation, more than 13% of the Amazon is gone, pushing one of the planet’s largest carbon sinks closer to a tipping point.

Exacerbating all of these are political shocks. Populist governments in Europe and the United States are rolling back climate rules and weaponizing green regulation as a cultural wedge. For capital-intensive industries, that volatility erodes the policy stability required for long-term investment, adding another layer of uncertainty to already fragile markets.

What matters most are the interconnections between these shocks. For corporates and investors, these are not marginal disturbances but systemic shocks that shape cost of capital, supply chains, and portfolio performance.

The growing backlash against ESG has arrived at precisely the wrong moment. System shocks are converging, and investors need reliable information to understand exposures, stress-test business models, and adapt strategy. ESG disclosure is not an end in itself but the data infrastructure that makes this possible. Without it, boards and asset managers are flying blind just as volatility in energy, finance, food, insurance, and politics becomes the new norm.

ESG Backlash Misses The Point

System shocks are converging just as ESG reporting is being reframed as bureaucracy or ideology. Preston believes it would be better if sustainability was a framework for resilience rather than a narrower conversation about ESG which does not capture how a company impacts the world.

The distinction matters. ESG disclosure provides the raw information to identify exposure to physical and transition risks, track supply chain dependencies, and guide capital allocation. Sustainability strategy builds on that foundation, turning data into decisions about how to reduce fragility or capture new opportunities. Strip away the data, and companies and investors lose the visibility needed to manage shocks.

The evidence is clear. Insurers, investors, and banks are already using ESG data to price risk, from setting property premiums in high-risk states to managing exposure to drought-affected commodities or carbon-intensive assets. Remove that transparency, and risks are mispriced, portfolios appear healthier than they are, and systemic fragility builds.

The backlash itself has become a political shock. In the U.S., more than 20 states have passed or proposed laws restricting public pension funds from weighing environmental or social criteria in investment. The Securities and Exchange Commission recently signaled it would not automatically align with International Sustainability Standards Board rules. In Europe, the Corporate Sustainability Reporting Directive is being diluted with exemptions and delays. Across sectors from heavy industry to fast fashion, corporate lobbying continues to resist reforms such as tougher building codes, plastics treaties, and textile standards.

“What we are seeing,” Preston warns, “is a confluence of system shocks, from geopolitical tension to food insecurity and extreme weather.” To dismiss ESG as ideology or treat it as compliance alone is to ignore its function as a risk framework. Weakening it strips away the very guardrails that help stabilize capital in turbulent times. The result is not less bureaucracy but more volatility for investors and fragility in supply chains.

That fragility shows up most clearly in finance itself. Public budgets are stretched, insurers are retreating from high-risk markets, and the cost of capital is rising in regions most exposed to climate volatility. Without credible disclosure and resilient financial architecture, capital cannot be steered toward adaptation, innovation, or long-term value creation.

Finance Under Pressure

Fiscal shocks, from defense rearmament to rising debt costs, are colliding with escalating insurance losses and volatile capital markets. The result is a squeeze on the very mechanisms needed to fund mitigation, adaptation and resilience. Public budgets have less room to maneuver, insurers are retreating from high-risk markets, and the cost of capital is rising fastest in regions most exposed to climate volatility.

Climate finance illustrates the gap starkly. Global flows reached $1.9 trillion in 2023, and early data suggest it surpassed $2 trillion in 2024, nearly double the level of six years earlier. Yet even at that scale, flows remain well below what is required to meet 2030 targets, with adaptation finance accounting for just $65 billion in 2023. In emerging markets and developing economies, international climate finance totaled only $196 billion, almost 80% of it from public sources, underscoring how private capital is still constrained by risk perceptions and cost of capital.

Reforms of multilateral development banks and the wider uptake of guarantee mechanisms could help shift this picture, while convergence around ISSB standards may bring long-overdue consistency to disclosure. Yet without credible fiscal capacity and robust data, capital cannot be allocated effectively.

The implications reach beyond climate projects. As African leaders argued recently at the Second Africa Climate Summit, renewable investment can be an engine of jobs and industrial growth if supported by clear signals and reliable data. Strip that data away — as ESG backlash threatens to do — and investors lose not just the ability to manage downside risk but also the visibility to identify upside opportunities in areas like clean energy, regenerative agriculture, or supply chain innovation.

As Preston notes, “Those who understand that fiduciary duty means considering long-term health are pressing on. The risk is underestimating interconnected shocks and missing opportunities in the resilience transition.”

Resilience As Investable

If shocks define the 2020s, they also highlight where new value will be created. Preston stresses that resilience is not only defensive. “Resilience is investable,” she says. “It is not simply about mitigating risk. It is about companies that are adapting faster, innovating in their supply chains, or finding ways to reduce dependencies that make them fragile.”

Markets are already reflecting that shift. “Even with all the noise in the U.S. and Europe around regulation, the fact is that renewables are now the cheapest source of new power generation in most markets,” Preston notes. “That is also structural. That is not going away.” Clean energy economics are no longer reliant on subsidies or goodwill; they are embedded in cost curves and competitiveness.

Science and finance are converging to make resilience more tangible. Attribution science can now trace the climate fingerprints on extreme weather in near real time. Insurance data is sharper, and investors are incorporating these signals into how they assess exposure. “The sophistication of how markets understand climate shocks has grown dramatically,” Preston explains. That same data not only sharpens risk models but helps identify leaders in adaptation and innovation.

Even in sectors seen as lagging, opportunities are emerging. “We are seeing regenerative agriculture projects that improve soil health and reduce input costs, we are seeing momentum in alternative proteins, and there is so much low-hanging fruit in reducing food waste,” she says. Food and land, among the most exposed to climate volatility, are also proving fertile ground for solutions.

Taken together, these signals show that resilience is not a marginal concern but a defining lens for value creation. The same data that helps investors avoid fragility also reveals where innovation, efficiency, and new markets are taking shape.

Belém And Beyond

COP30 will test whether governments can align on phasing down fossil fuels, financing adaptation, and halting deforestation. It will also test whether global governance can begin to place guardrails around the wider cascade of system shocks, from food insecurity to insurance stress. For investors, these talks are not remote. They shape the rules of trade, capital flows, and corporate operating environments in ways that directly affect portfolios.

The lesson is not that ESG should be dismissed as compliance or embraced as ideology. It is that investors and corporates must evolve from defense to strategy, adopting an investment lens that navigates compounding shocks while unlocking growth. What looks like distant diplomacy or marginal disruption is, in fact, defining competitiveness for the decade ahead.