A quick plunge into top global trends

The newly elected President of France, Emmanuel Macron, has been telling those working on climate change and related innovation in the United States to move to Europe, in particular to France (here), stating “We want innovative people, we want people working on climate change, energy, renewables and new technology.”

In spite of dramatic and highly disappointing indicators of climate change policy change in the United States, opportunities for companies to help solve this global challenge and the other 23 issues identified by the BSL Gap Frame research have never been so diverse, or even so compelling.  But it is not easy to break down the complexity of our volatile, uncertain, complex and ambiguous world into manageable chunks. Let’s look at some of the main trends currently emerging from that complexity and their relevance for business, and also for business students: a quick round up of things to note:

1.The globalization pressure valve: Always controversial, globalization is under pressure as never before. The dream of a liberal, multicultural shiny new world with no trade barriers and unparalleled social equity has simply not materialized. And it will not so long as the top 10% wealthiest on the planet own 90% of global wealth. This has led to severe social inequity pushing a new wave of populism and protectionism with looming trade lockdowns and even xenophobia. As with every new development, there are opportunities for some companies, whilst for others, it may spell impending disaster. On the plus side, what seems certain is that days may be over of companies charging into a community, building it up with the usual positive externalities such as jobs and infrastructure etc., only to switch locations at the drop of a hat…leaving serious negative social and environmental externalities in their wake. Companies are moving from seeking License to Operate (LTO) from local communities to seeking License to Grow (LTG). Strategy-makers in companies should take heed.

2.The SDG fanfare: The Sustainable Development Goals (SDGs) have entered the scene with aplomb yet corporate awareness has not moved substantially beyond senior executive level and, of course, Sustainability Departments. Widespread concrete and tangible commitment to the SDGs is still very far from a tipping point. Because of this, most companies are not yet actually building strategies around the SDGs, setting goals and objectives or building in SDG-friendly targets or metrics to their activities. For companies reading this, think about setting up a corporate learning program so that your executives can start identifying solutions and innovative ways of acting and reporting on your progress towards the SDGs. The opportunity is to start with the SDGs most material to your business.  Then, join key discussions and relevant fora to communicate your company’s contributions, gradually moving to position your company as a pioneer on the forefront of SDG action.

3.The 2 degree tipping point: Climate change is a highly mature sustainability issue – despite the hubris of deniers in the United States. This means that the urgency of addressing it is generally accepted. The question is ….how and how quickly can we go? According to the World Economic Forum, leaders of the world’s most high profile companies recognize climate change as the top global risk in terms of potential and substantial impact. Climate change is also a prominent undercurrent of the SDGs.   For companies, carbon disclosure is increasing rapidly. COP21 produced the hope of a tighter policy environment, long terms goals for global decarburization, and more investor interest in the issue. Participant governments recognized that they had to tackle it together. And then along came the US election. What a massive climate leadership shift in the last year! We are still seeing the new reality play out but who would have thought even two years ago that China would fashion itself as the new climate leader on the world stage?

4.The news is dead; long live the news: “Fake news” proliferation – with the most high profile being around the US election and the Trump administration – is swaying elections and public opinion as never before. Today, personal, institutional, and corporate reputations can be lost in a matter of minutes, even seconds. With billions of $US dollars tied up in their brands, concerned companies have started to put pressure on high tech companies to scrutinize the boundaries of their responsibility for content on sites such as Facebook. I remember school debates back in the day around whether, in must-win battles, “the pen is mightier than the sword”. Today, it appears that “social media is mightier than the bomb”.

5.Grow ’til you pop: The “shop ‘til you drop” mindset of the new millennium continues but on the web! Just how counterintuitive is it that economies are still so bent on growth when resources are so finite? Denying limits to growth is the “emperor’s new clothes” equivalent of modern times.  Everyone knows it is truly madness but no one wants to say it. Virtually no mainstream business leaders are questioning the growth paradigm for now. Hugely growing consumption, facilitated and enabled by emerging E-commerce opportunities, are great news for the Amazons and E-Bays of this world…..but they are also leading to vast environmental damage, with substantial social issues raising their ugly heads too. This is particularly so in emerging economies that lack infrastructure to absorb the massive waste (particularly plastics and Styrofoam) resulting from said consumption. These countries simply cannot keep up with the pace of their own waste.  Meanwhile social pressure has increased on companies to show that they can minimize their impacts everywhere. In this context, innovation hubs are emerging across the spectrum of business and industry to encourage more collaboration amongst technology start-ups, businesses, NGOs, governments, and academia. Why? To find creative and effective solutions to resource challenges and to tackle negative consequences of rapid growth.

6…and grow ’til you drop: Obesity, diabetes and other related medical risks have finally surpassed hunger as a global health crisis and issue. Furthermore, as emerging economies increasingly adopt meat-based diets, animal protein is under scrutiny for both its negative health impacts and the devastatingly huge carbon footprint of livestock rearing (a full 18%, and rising, of global greenhouse gas emissions). There is an opportunity for companies to focus on the inevitable fact that in the future we will all be eating much less meat, more vegetables, less sugar and less salt. Time to get creative with diets! Discussions around health care in the US show us that access to medicine is increasingly a developed world issue also, not just a developing world conundrum (where already some 2 billion people still lack access to medicine). These facts present opportunities for plenty of disruption. We will see the emergence of new business models to serve these massive markets.

7.The global transparency fishbowl: Despite pending deregulation in the US, financial disclosure expectations and regulations have actually increased substantially globally, and with this, transparency. And it is really good news is that investors are taking environmental and social criteria much more seriously than before.  Stock exchanges which long avoided public scrutiny on environmental and social risk are now under the investor spotlight to review disclosure requirements. In 2016, who knew that more than one out of 5 dollars under professional management in the US – yes the US, and that’s almost $9 trillion – was invested according to some kind of sustainability screening? Companies are under pressure to disclose sustainability risk data to shareholders and increasingly undergo stress tests.

8.The big shrink: Finally, as a message to business students, what is happening out there as your local supermarket store replaces people with machines (it happened me the other day, to my chagrin), is a worldwide phenomenon going “from farm to fork” (production to retail). As artificial intelligence and robotics irreversibly move into the mainstream across industries and sectors, we can say goodbye to the world of work, as we once know it! With the social consequences of these massive shifts is in mind, Finland is currently pilot testing the idea of providing universal baseline income (unconditional) in the expectation that automation will massively do away with jobs.  Other countries – such as Canada and Italy – are also testing the waters. Switzerland held a tentative referendum in 2016 but people were not yet ready to vote “yes”; too much of a mind bending change for conservative Switzerland. So what kind of job will YOU do in the future, students?  Make sure a robot cannot easily replicate it. Note that many initially risk averse firms are boldly outlining digital strategies and fostering the right skills and capabilities in their managers to embrace the business world of tomorrow. Soft and subtle human skills, ethics, values, imagination and conceptual intelligence re-enter the picture again as the greatest benefit humans can contribute to business of the future. This may be good news for sustainability.

Ionescu-AileenPICTURE-150x150Author: Dr. Aileen Ionescu-Somers

Active in thought leadership, consulting, applied research, teaching and supervising DBA candidates in sustainability & responsibility.

A discussion on Systemic Sociopathic Arbitrage

Mr Scott Williams (Twitter: @scott42195), Adviser at PwC Switzerland, addressed the course on Sustainable Corporate Finance at BSL on 14th January about systemic sociopathic arbitrage (Twitter: #systemicsociopathicarbitrage) and the need for full pricing of risk in the global financial system. Scott’s goal is to connect global catastrophic systemic risk information to investment evaluation. This is based on research on the rise of catastrophic global risks, the need to build resilience and invest in adaptation, and most particularly trigger a shift away from prevailing thinking that financial systems are disconnected from nature. Scott asked the audience to consider the question “what constitutes success?” as a way of framing his presentation.

Scott opened open the discussion by sharing his experience in driving sustainable change in PwC and the shock of personally experiencing the Great East Japan Earthquake. This brought clarity in his mind about the reality of unpriced catastrophic risk, the need to accelerate systemic change at the highest level, and the imperative to shift the global financial markets which underlie the economic fabric of society.

The primary measures of success remain short-term financial indicators, and a disconnect remains for the wider use of so-called non-financial information. This gap is rapidly closing as the number, and severity, of dramatic events rise and as the quantification and measurement of uncertainty of non-financial information improves. In particular, the adoption by all of the world’s governments of the three universal agreements (the Sendai Framework for Disaster Risk Reduction in March 2015, the Sustainable Development Goals in September 2015, and the Paris Agreement at COP 21 in December 2015) should see momentum continue to build to change the way financing and investment decisions are made.

As a certified accountant, Scott put the spotlight on the reliability of figures being generated by banks and corporations alike using generally accepted accounting principles such as IFRS. He argues that the interpretation by preparers and users of financial information currently fails to adequately incorporate the value of social and environmental externalities. So what then is the basis of valuation models? Looking at a chart from the Global Footprint Network and the UN Human Development Index made it clear that most of humanity is living below the line of basic human dignity and that the high-income countries are living beyond the Earth’s capacity. Scott suggested that it was time to abandon the notion of developed and developing nations as, effectively, no country on the planet has developed sustainably.

Change needs to happen – massive, not incremental, change. The time to focus on mitigation only has now passed. The days of believing that CSR is enough are over. Humanity is adapting to the changes in the world, but the UN Global Assessment Report on global risks concludes that the worst earthquakes, tornadoes, climate shifts – and the associated financial and economic shocks – experienced to date are but a taste of what is expected. Our decisions, particularly those of the Davos elite who are either incentivised not to consider, or are intentionally ignorant of, the impact of their (in)actions, will decide the degree of suffering that the majority of humanity will experience as we respond to global scale change.

Scott defies the gloom with unrelenting optimism. Through various initiatives and at the highest levels, he interacts with financial and industrial leaders to share the message of growing disasters, coupled with major global initiatives which are creating frameworks to enable a safer transition to a new financial, social and environmental reality.

As an example of the shift occurring among global leaders, he cited Mark Carney, the head of the Financial Stability Board, (which has oversight across the global financial system)– who in a contentious speech at Lloyd’s in London in September 2015 recognized the systemic risk to the global financial system – financial, social and ecological alike. Scott pointed to the following initiatives and developments as positive examples of change:

  1. The Taskforce on Climate Related Financial Disclosures, sponsored by Carney and Mike Bloomberg, to develop a common global standard for disclosure of the implications of climate change
  2. The Climate Summit commitments by a broad consortium from the global financial ecosystem on Integrating Disaster Risk and Resilience into Financial System and the development of the Smart Risk Investment Framework by the global insurance industry
  3. S&P quantitative Sovereign disaster risk ratings
  4. Development of Green Bond and Natural Catastrophe Bond markets
  5. Integrated systems models such as Resilience IO
  6. Sophisticated multi-stakeholder scenario analysis such as the Food System Shock work supported by Lloyds

The COP 21 Paris conference made it explicit that no investor can now neglect or deny their broader fiduciary duty to consider the environment or society. Changes are coming from the investor side, from rating agencies, companies and other actors in the financial world.

The information that until recently was thought of as immaterial or impractical is becoming increasingly relevant and its inclusion in the accounting procedures and world of finance will only increase.

Towards the end of the talk we had a look at the overall scheme of things and the wider patterns of change already under way:

  1. Signals are here: the quantitative revolution is happening, we are moving towards multi-dimensional data sets and open source science with silos between different disciplines rapidly breaking down
  2. Smiles: change in the business and political landscape following suit – it is happening now. It may take a big shock, a tragedy of huge proportions to act, but preventive measures are starting to emerge even now with new never-before-seen binding accords agreed to by world leaders and supported by investors and CEOs in 2015
  3. (More) Smiles: investors’ rationale is changing as well – from ‘risk-blind’ to ‘risk-informed’. The alignment between the financial and natural systems is now being recognized because this link is reality, it’s just not yet quantified properly by finance.

The final message was that of choice. The world is changing, it changes from the fact that real effects of our actions on the planet’s life-giving systems catch up with us, which triggers the feedback change in the government policies and investor perspectives. The choice is now whether to embrace the change and help shape it, to find a new link between money and how it relates to real issues, the real measures of success and a sustainable quality of life. Or do we resist and stick to our financial world of numbers and making even more money (and persisting with centuries old thinking that we can control the environment)? Can our current financial systems be aligned with reality through our existing lens of accounting, reporting and regulation? If so, for how long? We were left with the open question…what constitutes success?

Twitter: #systemicsociopathicarbitrage

Written by Scott Williams, contributor Sergey Skotnikov

The Economic Empowerment of Women in the Post 2015 Development Agenda? Why not?

The OECD defines economic empowerment as “the capacity of women and men to participate in, contribute to and benefit from growth processes in ways that recognize the value of their contributions, respect their dignity and make it possible to negotiate a fairer distribution of the benefits of growth. Economic empowerment” says the OECD “increases women’s access to economic resources and opportunities including jobs, financial services, property and other productive assets, skills development and market information.” Continue reading