People want companies to engage more, not less, with societal issues. That’s according to the Edelman Trust Barometer 2022, which features the results of a survey of 36,000 people in 28 countries.
According to the survey, people believe that societal leadership is at the heart of business. They also believe that business is an effective driver of positive change. And yet, respondents believe companies are not doing enough to address issues such as climate change, economic inequality, retraining of the workforce and unreliable 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 pay particular attention to six global trends impacting business and society. These trends, which present both serious risks and impactful opportunities for business, have implications for our school’s activities in 2022. Here we offer key insights from the leaders and organizations closest to the issues.
The climate is the top priority
Today’s most serious threat to humanity is not Covid-19, despite what the headlines may imply. Global leaders and experts interviewed 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, failed climate action and threats to biodiversity are of greatest concern.
The urgency of this issue has grown over the past two years, both because the pandemic has stalled progress towards a green transition and because countries have responded to the climate emergency with an inadequate response. For example, while 197 countries signed up to the Glasgow Climate Pact at the 2021 United Nations Climate Change Conference (COP26), their commitment is not expected to meet the 1.5°C target set by the Paris climate agreement of 2016.
Inequalities between and within countries make matters worse. Oxfam International estimates that the top 1% produce twice as much emissions as the bottom 50%. And yet, the less fortunate will suffer the consequences. By 2030, it is estimated that the climate crisis will kill around 231,000 people in poor countries each year.
Socio-economic risks are increasing
As the pandemic persists, socio-economic problems are worsening. Globally, the economic recovery is slowing due to inflation spikes, debt crises, rising commodity prices and supply chain bottlenecks. “Livelihood crises” are on the rise among low-income households, a segment particularly affected by rising prices and high indebtedness.
By 2024, the global economy is expected to be 2.3% smaller than it would have been without the pandemic. Labor market imbalances, protectionist policies, and education and skills disparities are expected to create further divergence in economies around the world. By 2024, economic growth in advanced economies is expected to outpace pre-pandemic growth by 0.9%. However, in developing countries (excluding China), economic growth is expected to fall 5.5% below pre-pandemic growth. Growth in Latin America and sub-Saharan Africa is expected to slow further.
Inequality is rising in most countries
Failures to equitably distribute the Covid-19 vaccine have hurt the world’s poorest countries the most. Although half of the world’s population has already received two doses of the vaccine, only 7% of Africa is fully vaccinated. Inequalities have also widened in the areas of health, education, digital access and economic growth, which mainly affects the poor, women and girls and visible minorities. Since the start of the pandemic, the timeframe to achieve gender parity has moved back an entire generation, from 99 to 135 years.
Wealth inequality continues to rise. Today, the richest 10% of the world’s population own 76% of all wealth, while the poorest half own only 2%. Multi-millionaires – who make up just 1% of Earth’s population – have also captured 38% of all the additional wealth accumulated since the mid-1990s.
However, data on income inequality show different trajectories. Over the past two decades, income inequality within countries has increased significantly while income inequality between countries has decreased. The 2021 World Inequality Report indicates that the gap between the average incomes of the richest 10% and the poorest 50% within countries has almost doubled, from 8.5 times to 15 times. Yet the gap between the average incomes of the richest 10% of countries and the poorest 50% of countries has shrunk from about 50 times to less than 40 times.
Distrust of key institutions is growing
Lack of trust in key institutions has reached critical levels. Nearly six in 10 people say they instinctively distrust something until evidence suggests otherwise. The government and the media fuel a “cycle of mistrust”, with nearly one in two people perceiving these institutions as divisive forces in society. Democratic governments are even less trustworthy than autocratic regimes.
Increasingly, consumers and employees are holding companies accountable for their role in society. They also want CEOs to take a stand on the issues. The Edelman survey reports that beliefs and values now guide key decisions such as buying or advocating for brands (58%), choosing a workplace (60%) and investing (64% ). Most institutional investors (88%) also scrutinize an investment’s commitment to ESG (environmental, social and governance) factors as much as its operational and financial practices. Meanwhile, activists take to the streets to protest greenwashing as litigants sue corporate giants for failing to deliver on climate pledges, putting increased pressure on companies and investors to they are tackling climate change in a meaningful way.
Converging ESG reporting metrics
For years, ESG reporting lacked rigor and consistency due to the lack of a single ESG accounting framework. This has created difficulties for investors seeking to compare corporate commitments and has also fueled discontent over the greenwashing of sustainable 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 organizations make a firm commitment to these factors and integrate them into their business strategy. The new standards will also help monitor large-scale ambitions that have historically been difficult to measure, such as contributions to the United Nations Sustainable Development Goals.
Technology regulation is gaining importance
Our dependence on technology, coupled with the acceleration of technological innovation, has increased the need for new regulatory tools and policies. The challenge for policy makers is to develop approaches that protect consumer privacy, speech and security without stifling growth or inhibiting innovation. Governments and businesses must also work together to rebuild trust and moderate misinformation in digital spaces. This will require an agile, flexible and transparent approach to governance as well as global cooperation and collaboration, especially to address rapidly evolving cybersecurity threats.
Overall a trend in the right direction
Because of 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. These are reasons to act. These are definite reminders that responsible business matters. They motivate us to work harder for people and the planet. Ultimately, this puts us all in a better position – not just to manage other risks, but to weather the next crisis that awaits us.
Ilian Mihov is Dean of INSEAD, Professor of Economics and Rausing Professor of Economic and Business Transformation at INSEAD. He is also 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 Professor of Economics at INSEAD, Stone Professor of Wealth Inequality and Academic Director of the James M and Cathleen D Stone Center for the Study of Wealth Inequality. He is also Deputy Academic Director of the Hoffmann Global Institute for Business and Society.