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Senior executives are facing a clarion call to scale sustainable business models amid unprecedented pandemic disruptions and a looming climate crisis.
While global leaders at the COP26 United Nations Climate Change Conference made major commitments to cut methane emissions, end deforestation and shift away from coal, government declarations are insufficient for a sustainable future. Business transformation is needed to ensure global warming is limited to 1.5°C above pre-industrial levels and securing a just economic transition to a low-carbon economy, where we can live well within our planetary boundaries.
Leading firms are revamping their supply chains, embracing new forms of financing, and reinventing products and services to ensure that they are future-ready and accountable for their Environmental, Social and Governance (ESG) performance. New government and banking regulations as well as investor scrutiny and supply chain transparency are accelerating this transition. IMD experts identified key trends that will drive further sustainable transformations in business strategies, corporate roles, operations, financing, stakeholder engagement and impact measurement in 2022 and beyond.
Four global forces that will impact the world of sustainability in 2022
Businesses’ sustainability strategies are being shaped by big global forces that are likely to become even more important in 2022, according to IMD experts.
Global leaders at the COP26 Climate Change Conference in Glasgow made major commitments to cut methane emissions and end deforestation with the aim of limiting global warming to 1.5°C above pre-industrial levels, but here are four other major trends that business leaders need to be aware of.
We are in the middle of one of the greatest transfers of wealth in human history, with the next generation (largely Millennials and digital natives) taking over the reins and moving into powerful positions in business and politics. The new generation comes in with a fresh mindset, new ideas and they feel a great sense of responsibility to become agents of change. They are wired somewhat differently to their predecessors. It is not uncommon that they express a profound interest in matters of ESG, sustainability, philanthropy and impact investing. As innovators and entrepreneurs, they dare to take the necessary steps to deploy their own wealth for a greater purpose. They take a more entrepreneurial approach to doing good with a sustainable impact and “business case” long-term viability at the center.
Peter Vogel, Professor of Family Business and Entrepreneurship
Malgorzata Kurak, Postdoctoral Research Fellow at the Debiopharm Chair for Family Philanthropy
Activist investors drive systems change with proxy voting
Activist investors increasingly are using proxy votes to drive systems change and encourage companies to disclose and improve their commitments to people, profit and planet. In a milestone of what’s come to be called “stakeholder capitalism”, Nia rallied 94.3% of the proxy vote in April 2021 to force IBM to release data on the effectiveness of the company’s diversity, equity and inclusion (DEI) programs. With 467 shareholder resolutions on ESG issues already proposed in 2021 in the US alone, shareholder activism is poised to grow next year and beyond. BlackRock, the world’s largest asset manager, agreed to give its investors the ability to vote on shareholder proposals, which by some estimates would transfer votes to investors representing as much as $1.5 trillion in indexed assets.
Vanina Farber, Professor of Social Innovation and Entrepreneurship
China cutting coal investments
When President Xi announced China is cutting its estimated $50 billion investments in overseas coal-fired power plants, the UN General Assembly – and the world – drew a breath. China has been making big strides domestically in the last years by reducing its reliance on fossil fuels to greener (and more secure) energy such as wind, solar and waterpower. China has added five times more wind power capacity in 2020 than the US, making it the largest in the world. But at the same time, China had been financing overseas coal-fired power plants, making global observers skeptical of its intentions. This may have changed with China’s line in the sand on overseas coal production. Cautiously optimistic, the year 2022 will prove critical to understand if China becomes a global carbon game changer.
Mark Greeven, Professor of Innovation and Strategy
Human rights risks emerge from immature AI
Between 2016 and 2019, the EU experimented with iBorderCtrl, an automated border control system which uses machine learning for lie-detection, and facial recognition to measure the affective state of immigrants – to reveal their personality and emotions through their facial features. State-of-the-art scientific research does not support the notion that we can deduce emotions from facial expressions. Yet here we are, using such applications supported by government institutions, taking automated decisions that affect millions of lives.
AI can truly change the world – but we have a responsibility to ensure that these systems are developed free of bias, truly measure what we want them to measure, and are not discriminating against certain groups for the sake of efficiency. Regulations pushing for explainable and transparent AI are a welcome trend for 2022. Proposed first by the EU, then followed by China, we will see more countries introducing oversight and responsibility expectations for AI use. We want AI to amplify humanity’s best, not automate its worst.
Oyku Isik, Professor of Digital Strategy and Cybersecurity
Source: https://iby.imd.org/sustainability/14-sustainability-trends-that-will-drive-business-transformation/