This article first appeared in Forum, The Edge Malaysia Weekly on February 21, 2022 - February 27, 2022
People want business to engage more — not less — with societal problems. That’s according to the 2022 Edelman Trust Barometer, which presents findings from a survey of 36,000 people in 28 countries.
According to the survey, people believe societal leadership is core to business. They also believe business is an effective driver of positive change. And yet, respondents don’t perceive business as doing enough to address issues such as climate change, economic inequality, workforce reskilling and untrustworthy information. More than half say capitalism does more harm than good in the world.
At INSEAD, we pay close attention to trends like these, as they help inform our agenda as a global business school. We are particularly attuned to six global trends impacting business and society. These trends, which present both serious risks and impactful opportunities for business, hold implications for our school’s activities in 2022. Here, we offer key insights from leaders and organisations closest to the issues.
Today’s gravest threat to humanity isn’t Covid-19, despite what headlines may imply. Global leaders and experts surveyed for the World Economic Forum’s (WEF) Global Risks Report 2022 cite environmental issues as the biggest global risks in the short, medium and long term. Extreme weather, climate action failure and threats to biodiversity are of the greatest concern.
The urgency of this problem has increased in the last two years, both because the pandemic has stalled progress towards a green transition and countries have met the climate emergency with an inadequate response. For example, while 197 countries signed the Glasgow Climate Pact at the 2021 UN Climate Change Conference (COP26), their commitment is not expected to achieve the 1.5°C goal set by the 2016 Paris Climate Agreement.
Inequality between and within countries is making matters worse. Oxfam International estimates the top 1% of people produce twice as much emissions as the bottom 50%. And yet, the least fortunate will bear the consequences. By 2030, the climate crisis is estimated to kill approximately 231,000 people in poor countries each year.
As the pandemic persists, socioeconomic problems are worsening. Globally, the economic recovery is slowing in the wake of inflation spikes, debt crises, rising commodity prices and supply chain bottlenecks. “Livelihood crises” are increasing among lower-income households, a segment particularly hard hit by higher prices and expensive debt.
By 2024, the global economy is projected to be 2.3% smaller than it would have been without the pandemic. Labour market imbalances, protectionist policies and disparities in education and skills are expected to create more divergence in economies worldwide. By 2024, economic growth in advanced economies is projected to surpass pre-pandemic growth by 0.9%. However, in developing countries (except for China), economic growth is expected to fall 5.5% below pre-pandemic growth. Growth in Latin America and sub-Saharan Africa is projected to slow even more.
Failures to distribute the Covid-19 vaccine equitably have most harmed the world’s poorest countries. Although half of the world’s population has already received two doses of the vaccine, only 7% of Africa is fully vaccinated. Inequality has also worsened in the areas of healthcare, education, digital access and economic growth, which mostly impacts the poor, women and girls, and visible minorities. Since the pandemic began, the timeline for achieving gender parity has slipped a whole generation, from 99 to 135 years.
Wealth inequality continues to rise. Today, the richest 10% of the global population owns 76% of all wealth, while the poorest half owns only 2%. Multimillionaires — representing only 1% of people on Earth — have also captured 38% of all additional wealth accumulated since the mid-1990s.
However, data on income inequality shows different trajectories. Over the last two decades, income inequality within countries has significantly increased while income inequality between countries has decreased. The 2021 World Inequality Report indicates that the gap between the average incomes of the top 10% and the bottom 50% of individuals within countries has nearly doubled, from 8.5 times to 15 times. Yet the gap between the average incomes of the richest 10% of countries and poorest 50% of countries has declined from about 50 times to less than 40 times.
A lack of trust in key institutions has reached critical levels. Nearly six in 10 people say they instinctively distrust something until evidence suggests otherwise. Government and media fuel a “cycle of distrust”, with nearly one out of two people perceiving these institutions as divisive forces in society. Democratic governments are trusted even less than autocratic regimes.
Increasingly, consumers and employees hold businesses accountable for their role in society. They also want CEOs to take a stand on issues. The Edelman survey reports that beliefs and values now guide key decisions such as buying or advocating for brands (58%), choosing a place to work (60%) and investing (64%). Most institutional investors (88%) also scrutinise an investment’s commitment to ESG (environmental, social and governance) factors as much as its operational and financial practices. Meanwhile, activists are taking to the streets to protest greenwashing while litigators are taking corporate giants to court over failures to fulfil climate promises — putting increased pressure on businesses and investors to address climate change in a meaningful way.
For years, ESG reporting lacked rigour and consistency owing to the absence of a single ESG accounting standard. It created difficulties for investors looking to compare companies’ commitments, and also fuelled discontent about the greenwashing of sustainability investments. However, in November, the International Sustainability Standards Board (ISSB) was formed to create a formal set of accounting standards for investors and the general public.
The convergence of metrics for ESG and sustainability will help organisations to firmly commit to these factors and embed them within their business strategy. The new standards will also enable monitoring of large-scale ambitions that have been historically hard to measure, such as contributions to the UN Sustainable Development Goals.
Our dependency on technology, coupled with the acceleration of technology innovation, has increased the need for new regulatory tools and policies. The challenge for policymakers is to develop approaches that protect consumers’ privacy, speech and security without dampening growth or inhibiting innovation. Governments and corporations must also work together to rebuild trust and moderate misinformation in digital spaces. This will require an agile, flexible and transparent approach to governance along with global cooperation and collaboration, particularly to address fast-moving cybersecurity threats.
Due to these and other global risks, 84% of global experts and leaders in the WEF report say they are “worried” or “concerned” about the outlook for the world. We share their concerns. But we also see these risks from another angle. They are reasons to act. They are sharp reminders that responsible business matters. They motivate us to work harder for people and the planet. Ultimately, that leaves all of us in a better position — not just to manage other risks, but to face the next crisis headed our way.
Ilian Mihov is dean of INSEAD, a professor of economics and the Rausing Chaired Professor of Economic and Business Transformation at INSEAD. He is also the academic director of the Hoffmann Global Institute for Business and Society. Katell Le Goulven is executive director of the Hoffmann Global Institute for Business and Society at INSEAD. Mark Stabile is an INSEAD professor of economics, the Stone Chaired Professor in Wealth Inequality and the academic director of the James M and Cathleen D Stone Centre for the Study of Wealth Inequality. He is also the deputy academic director of the Hoffmann Global Institute for Business and Society.
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