Over the past decade, attitudes towards the role of business in society have changed dramatically. One example: the decision made in early 2020 by BlackRock, the world’s largest asset manager, to demand more disclosure of environmental risks from companies while expanding its range of sustainable investment products. In addition, the number of “B Corporations,” or companies that have had their commitments to pursuing a social purpose in addition to profits verified, has grown from less than 700 as of 2014 to more than 3,000. Some of this change is undoubtedly due to efforts to avoid reputational risk, but it also signals a genuine response to urgent need.
Measuring progress should involve more than just calculating GDP or profit growth.
It is imperative that our current economic model is transformed in a way that enables growth to start being measured not just through economic and financial indicators, but also by using social, environmental, and governance benchmarks. Such a shift could mean that sustainability is rewarded - rather than penalized - while new opportunities are created for people who have historically been left behind.
Corporate leaders increasingly recognize that sustainably-run businesses can not only help eliminate reputational risk and shareholder anger, but also help to become better positioned to reap financial returns.
The Business Roundtable, an organization representing the CEOs of the biggest companies in the US, expanded its defined purpose for a company in 2019 to include serving all stakeholders, including communities and employees, in addition to just shareholders.
According to an estimate published by the Business and Sustainable Development Commission in 2017, the United Nations Sustainable Development Goals - outlined in 2015 as a way to put the world on a more sustainable footing by 2030 - present $12 trillion in market opportunities in four economic systems: food and agriculture, cities, energy and materials, and health and well-being. The task now is to move beyond merely tacking corporate social responsibility onto a business and instead make it core function. This in turn should help make business strategies more forward-looking - in terms of long-term stakeholder value as well as financial returns. It should also help trigger the broader, systemic change needed to become a more inclusive and sustainable society.
The World Inequality Report published in 2018 by the World Inequality Lab at the Paris School of Economics found that the inequality gap had grown significantly in Russia, India, China, and North America. Inequality across geographical regions varied significantly, according to the report; while 61% of national income was captured by the top 10% of society in the Middle East, the top 10% captured a much smaller share of national income, or 37%, in Europe, for example. In 2019, Credit Suisse’s Global Wealth Report noted that the world’s richest 10% owned 82% of global wealth. There are clear and compelling moral reasons to do more to address this situation. There are also practical reasons; according to an International Monetary Fund research paper published in 2017, excluding people from the benefits of economic growth can undermine the sustainability of that growth.
Even as the global middle class expands, wealth disparities within countries have worsened
The good news is that absolute global poverty continues to decline. But even as extreme poverty rates fall, and the wealth gap between industrialized countries and the rest of the world narrows, the divide separating rich and poor within countries has widened.The WEF’s annual Global Risks Report has illustrated the connections between rising income disparity and profound social instability.
As inequality becomes more persistent, it can become politically toxic; finding ways to slow and reverse this trend must be a widely-shared priority. This is certainly the case if we want to achieve the United Nations Sustainable Development Goals established in 2015 in order to guide the world a more sustainable path by 2030, including the goals related to eliminating poverty and making a quality education available to all.
One particularly important finding in the 2018 World Inequality Report was that national policies and institutions play a critical role in determining the distribution of wealth; inequality is therefore often a product of the ways national policies overlap with global governance gaps. As climate change, technological disruption, and geopolitical fragility threaten to only further worsen inequality, we must address the structures embedded in many of our social, economic, and political systems that aggravate the problem. That means, for example, more proactively confronting the links between corruption, inequality, tax evasion, and human rights.
Pathways to Equality
The onset of Fourth Industrial Revolution has brought with it a rapid evolution of technology, creating tremendous opportunities but also new risks. Social structures and many of our previous assumptions are in a state of flux, as we ponder big questions about the use of data - in terms of ownership, quality, access, and use. This issue has been thrust into the public spotlight by repeated controversies, not least related to the approach of popular social media platforms like Facebook and Twitter to publishing potentially disingenuous and harmful political advertising tailored to users’ personal data. In addition to curbing the use of data to spread of misinformation and disinformation, it is imperative to avoid creating technology-related global inequality.
Technology is evolving quickly, and creating a risk of backlash. The risk of public backlash against technology remains high. More dialogue and cooperation among companies, regulators, investors, consumers, and workers will be necessary to earn and sustain public trust.
We as a society need to keep a close eye on this potential for technology to further exacerbate inequality (in the form of the digital divide separating those with internet access from those without, for example), reap environmental damage (in the form of carbon emissions related to proliferating data centers, for example), and aggravate social tensions (as has been the case with anger over rent increases related to rampant Airbnb rentals or job losses tied to car-sharing services like Uber).
While inequality has actually been decreasing in many developing countries as digital tools increase financial inclusion in places with limited infrastructure, inequality has been worsening within high- and middle-income countries. In these places, labor-saving technology has begun to replace decently-paid blue collar jobs, as workers who once held those jobs are slotted into retail-related or other roles where the pay is typically lower.
We need to ensure that technology actually improves rather than degrades human and environmental well-being. In response to this need, the concept of agile governance has become increasingly prevalent; it emphasizes policy-makers and regulators working together with private developers, industries, and civil-society organizations in order to exercise more responsible digital leadership, and to become able to more quickly adapt to changing circumstances.
Mobilizing Action, Making Societies Inclusive
The Fourth Industrial Revolution does not have to create the type of inequality wrought by the first. There has never been a better or more necessary time to mobilize technology to unleash human potential and tackle some of our most daunting challenges, while providing greater opportunity. In an address delivered in early 2020, International Monetary Fund Managing Director Kristalina Georgieva warned that in many Organization for Economic Co-operation and Development member countries, income and wealth inequality had reached record highs (in the United Kingdom, for example, the top 10% of earners now control as much wealth as the bottom 50%). Fintech, or financial technology, according Georgieva, can play a role in addressing such inequality - particularly in developing countries - by providing more people with banking services. According to the IMF, there is as much as a three-percentage-point advantage when it comes to GDP growth for financially-inclusive countries relative to their less-inclusive peers.
The twin forces of globalization and technology development are transforming families, work, and entire economies - and not always for the better. In both advanced and emerging economies, decelerating economic growth, industry disruption, rising inequality, and broken social contracts are threatening livelihoods and creating unrest.
According the United Nations Human Development Report published in 2019, the demonstrations sweeping across the world at that point signaled that - despite the unprecedented progress that had been made in fighting poverty, hunger, and disease - many societies were not working as they should. Instead, according to the report, a common characteristic shared by many of these protest hot spots was rampant inequality. In countries including Hong Kong SAR, Lebanon, Chile, Spain, Iran, and Iraq, the causes that had brought marchers flooding into the streets included the high cost of a train ticket, the rising price of petrol, the undermining of political freedoms, and the fundamental pursuit of justice. The report also outlined a stark divide that cut across gender lines, with labor force participation rates far lower for women than for men, and unemployment rates that were far higher for women than those for men.
One potential means to stem rising inequality identified by the UN Human Development Program is to broadly share the benefits of technology development - and ensure that the Fourth Industrial Revolution does not create the same kind of divergence between developed and developing countries wrought by the original industrial revolution.
Accelerating Climate Action
Urgent action is required now to head off the impending climate catastrophe.
Temperatures are now poised to reach 1.5°C above pre-industrial levels - with terrible consequences for millions of people in the form of rising sea levels, agricultural impact and natural disasters - barring decisive action, according to the United Nations’ Intergovernmental Panel on Climate Change.
People around the world are already experiencing extreme impacts of climate change, including drought, floods, and wildfires. In Australia, for example, the worst fire season on record began in late 2019 - killing dozens of people, destroying thousands of homes, and burning an area nearly the size of England. One of the United Nations Sustainable Development Goals, which were established in 2015, calls for taking urgent action to combat climate change. A UN report published in 2019 found that while some progress had been made on the goal, “far more ambitious plans and unprecedented changes” are necessary.
Climate change poses an urgent threat to our existence. 2019 was the second-hottest year on record, according to the National Oceanic and Atmospheric Administration and NASA, and current temperatures are believed to be roughly 1°C above pre-industrial levels due to human activity. World leaders gathered at the UN Secretary-General’s Climate Action Summit in September 2019 in New York to prepare for the critical year ahead. In the wake of this landmark summit and a surge in climate activism on the part of young people all over the world, the Secretary-General has prioritized a set of action portfolios with the potential to effectively curb greenhouse gas emissions.
These action portfolios cover a range of critical areas including energy, industry, nature-based solutions, and urban infrastructure. Building resilience, and increasing financial support, are also high on the agenda.
2020 marks a crucial inflection point for the Paris Agreement on climate change, which entered into force in 2016 and aims to limit warming this century to well below 2°C above pre-industrial levels (though the US, the world’s second-biggest emitter of greenhouse gases, said it began the process of withdrawing from the deal in 2019) - because participating countries are being asked to submit their next set of climate commitments. It is now more vital than ever that climate efforts being made by states, businesses, cities, and regions are consolidated, in order to ignite sufficient change and halt the climate crisis.
Financing Sustainable Development
New Economic Thinking
Most people live in places committed to the Sustainable Development Goals, but funding remains elusive. More capital needs to be mobilized through innovative methods like blended finance (combining funds from public and private investors in a way tailored to each party’s risk appetite) and aggregation vehicles (which pool multiple development projects into a single investment vehicle) - and it needs to be better allocated. Urgent action is necessary at the country level in particular, where key public and private stakeholders have an opportunity to work together and establish benchmarks for success.
More than 80% of the global population lives in a country that is dedicated to achieving the United Nations Sustainable Development Goals, outlined in 2015 in order to help put the world on a more sustainable footing by 2030. However, 70% of these national SDG-integration plans fail to clearly identify a financing strategy that includes both private and public funds. Greater public-private cooperation is key to reversing this trend, and addressing an estimated $2.5 trillion annual gap between what is on hand and what will be needed to achieve the goals in developing countries.
According to a report published in 2019 by the Overseas Development Institute, the poorest of these countries may have to come up with an entirely new approach to tools like blended finance in order to bridge the nagging financing gap; while every $1 invested by multilateral development banks and development finance institutions in lower-middle-income countries mobilizes on average $1.06 in private financing, that figure falls to just $0.37 for low-income countries, according to the report.
It is important to enable the people behind existing country-level efforts to exchange ideas, share best practices, and explore ways to cooperate in the future. The efforts of developing countries in particular will be crucial for the achievement of the SDGs - not least in terms of establishing the healthy regulatory environment, rule of law, and political stability necessary to create an attractive investment climate. United Nations Integrated National Financing Frameworks have now been introduced in dozens of developing countries, in a bid to help governments there better identify funding gaps and develop strategies for financing the SDGs.
The global geopolitical landscape has shifted to a multi-conceptual framework - where traditional, singular ideas about how best to look after world affairs have splintered into multiple approaches and conflicting agendas.
While there are significant disparities in life expectancy in various parts of the world, no country currently has a life-expectancy rate lower than the highest rate as of 1800. Economic growth has made life better for millions, but trouble is on the horizon.
Other signs of progress: the global population living in absolute poverty has declined from 82% to just 9% during the past century, while the number of functioning democracies has increased to 123 from 16, and the global literacy rate has jumped to 85% from 32%. Economic growth has fueled these improvements, but lately there have been a number of troubling signs. According to the Lancet Commission on pollution and health, an initiative started by the medical journal The Lancet, the Global Alliance on Health and Pollution, and the Icahn School of Medicine at Mount Sinai, environmental pollution has reduced annual global economic output by 6.2%, and caused roughly 9 million premature deaths. Workers in some cities now spend an average of one to two work weeks per year stuck in traffic jams, wealth inequality is increasing, and personal, corporate, and sovereign debt levels are reaching new highs.
The increased prevalence of protectionist trade policies, and a broad decline of commitments to rules-based multilateralism are upending the global order established after World War II. As the institutions at the core of that order, such as the World Trade Organization (ongoing US-China trade conflict crippled the WTO in 2019 due to disagreements over its appellate body) lose their authority, new institutions are needed to fill the gaps. The innovation fueling the Fourth Industrial Revolution, in addition to threatening to create new social divisions, is also raising questions about traditional economic assumptions related to productivity, work, education, and the means to adequately gauge our progress. As a result, we must explore ways to update our economic models and systems, in order to ensure they can deliver positive outcomes for the largest possible number of people for the foreseeable future.
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Every day, new evidence emerges of humanity’s negative impact on the environment - and of growing inequality. Nearly a third of the global population lacks access to clean water, global warming is creating deadlier weather patterns, hundreds of millions of children are being deprived of access to education, and income inequality is on the rise as some 3.4 billion people are forced to live on less than $5.50 a day.
The United Nations’ Sustainable Development Goals and the Paris Agreement provide an architecture for addressing these challenges, by fundamentally shifting the ways that societies produce, consume, and operate. Realizing related opportunities to pursue the Sustainable Development agenda, however, will require closer cooperation between the public and private sectors.