Modern businesses and the 2 great challenges of our times

Free market capitalism is one of the greatest legacies that our generation has inherited. It has provided us the freedom to produce and consume infinite varieties of goods and services, the ability to achieve economic growth, the transparency in market forces of demand and supply, and the resultant competitive markets. On one hand, it is our solution for prosperity, well-being, and improved standard of living while on the other hand, it threatens the fundamental forces on which it is based- environment and people. Capitalism and industrialization are considered major contributors to some of the greatest challenges of our times.

Climate change

In late 2019, UN Secretary-General António Guterres warned that a “point of no return” on climate change is “insight and hurtling toward us”. For the first time in the history of the World Economic Forum’s Global Risks Perception Survey (released in January 2021), climate-related issues dominated all of the top-five long-term risks by likelihood and top-three by impact.

Burning of fossil fuels, rapid deforestation, dumping of harmful or polluting substances, and poor waste management, among other practices, is increasing our carbon footprint and creating a threat to the environment and human lives alike. Glaciers are melting, sea levels are rising, forests are dying, wildlife is struggling and natural calamities are increasing. Left unchecked, climate change will pose a threat to the future sourcing requirements of corporations, hinder their going- concern assumption, and induce losses to investors.

Growing economic inequality

As per a recent Oxfam report, over the last 40 years, the richest 1% of the global population have captured more of the proceeds of economic growth than the poorest half of humanity combined. Global inequality is shockingly entrenched and the number of billionaires has only doubled in the last decade. The Covid-19 pandemic has further aggravated such inequality. The 1,000 richest people on the planet recouped their pandemic-related losses within just nine months, but it could take more than a decade for the world’s poorest to recover from the economic impacts of the pandemic. Billions of people already lack access to adequate education, healthcare, and job security while advances in robotics and AI threaten to throw millions out of work.

Need for Capitalism 2.0- Sustainable, Ethical and Purpose-driven businesses

While businesses may have contributed to the above-mentioned challenges, they are also in a unique, focal position to drive the wheel of change and address them to achieve sustainable development. However, it will involve considerable effort.

The most popular definition of Sustainable development was provided by the UN World Commission on Environment and Development (WCED)'s Brundtland report (1987) as 'development that meets the needs of the present without compromising the ability of future generations to meet their own needs. To attain sustainable development, corporations need to be purpose-driven and shift their goals beyond shareholder value maximization. Businesses must instead focus on triple bottom lines ie. planet, people and profits. They will need to adopt sustainable and ethical business strategies, invest in clean energy initiatives, undertake R&D to find carbon-free solutions towards net-zero goals, implement a circular economy, improve employee welfare programs, and much more.

Sustainable development is most imperative and not an option anymore. Business efforts towards sustainable development also improve employee morale, customer confidence, and long-term benefits for the investors. Such efforts along with effective government regulation and guidance from international institutions like the UN will go a long way in ensuring a better future.

(This article is based on the insights and learnings from Professor Rebecca Henderson at HBS. For more insights on the role of corporates in implementing sustainable business strategies contact preeti@preetisuresh.com)