In November, hundreds of corporate CEOs and heads of state gathered in Bali, Indonesia for the B20 global business summit. The themes on the agenda revolved around three interconnected objectives: sustainability, inclusion and economic growth.
Far from being in conflict with each other, these three goals could be mutually reinforcing. A sustainable world could contain climate change and preserve natural capital and biodiversity. Inclusion would create economic opportunity and shared progress for all.
And although some believe that economic growth is incompatible with the fight against climate change, it is necessary to produce the financial resources necessary to create a sustainable and inclusive world, provided those resources are used correctly.
To estimate the scope of future challenges, we look at two crucially important indicators. First, we measure the sustainability gap, which is the additional investment in low-emission technologies that each country must make to achieve net zero emissions by 2050.
With the world on track to exhaust its “carbon budget” (the amount of carbon dioxide it can emit without triggering dangerous levels of global warming) by 2030, there is little time left to make critical investments. The transition to a net zero economy will require decisive action by the end of this decade.
Another indicator, which we call the empowerment gap, is equal to the level of consumption required to meet basic needs like food and energy, have discretionary income beyond the essentials, and be able to cope with emergencies.
By our calculations, the empowerment line amounts to $11 per person per day in the poorest countries and $55 in the richest countries (at 2011 purchasing power parity). If every household in the world could achieve that level of consumption by 2030, by 2050 every adult would be lifted out of poverty and financially secure. But here too, the world would have to make drastic changes before the end of this decade.
Economic growth could help us achieve both goals. Governments could spend part of the revenue from growth to attract the poorest households into the global middle class, while allocating part to build green infrastructure.
At the same time, the research we presented at the B20 summit suggests that growth alone will not be able to close the sustainability and empowerment gaps. If the countries and regions we studied maintained their current spending levels, few could close more than half of their empowerment gap by 2030, and none would close more than half of their sustainability gap.
In the United States, for example, we estimate the empowerment gap to be $5 trillion and the sustainability gap to be $5.6 trillion. If the US economy grew at an annual rate of 2.1% for the rest of the decade, the country would close just 36% of its empowerment gap and 7% of its sustainability gap by 2030.
The situation is very different in sub-Saharan Africa, where we estimate that the empowerment gap is much larger, at $10.3 trillion, and the sustainability gap totals $600 billion. Growth (as currently projected) is expected to close only 6% of the empowerment gap and 25% of the sustainability gap.
To close these gaps, economic growth would have to be bolstered by additional forces. Business-driven innovation, for starters, could alter the current growth model in ways that are more geared towards inclusion and sustainability.
Large G20 companies spend more than $2 trillion a year on research and development and therefore have a critical role to play in developing new technologies and solutions to reduce the costs of the transition to sustainability.
And when these companies figure out how to lower the cost of low-emissions infrastructure, they could also help reorient growth toward sustainability by shifting consumer preferences toward green products, as EV manufacturers have done in recent years. .
At the same time, when accompanied by public policies and strategies that enable education, training, childcare, health and inclusive recruitment, business-led innovation could help close the empowerment gap by increasing workers income.
Government and philanthropy could also direct incentives and public resources towards sustainability and inclusion. For example, governments could mobilize more private capital for sustainable projects by investing in them, an approach known as blended finance.
Carbon taxes and subsidies for low-carbon projects could also encourage investors to close the sustainability gap. Alternatively, governments could use direct transfer payments to bring more households over the empowerment line.
Unfortunately, the world’s current empowerment and sustainability gaps cannot be closed immediately. But that should be a rallying cry, not a cause for inaction. Companies must not only rise to the challenge and innovate, but they must also take advantage of the many opportunities that already exist.
Similarly, governments and philanthropists should focus on areas where markets currently fall short. If the business, public and social sectors work together, we could deliver the sustainable and inclusive growth that the world sorely needs. —© Union Project
Sven Smit is a Senior Partner at McKinsey & Company and Co-Chairman of the McKinsey Global Institute. Anu Madgavkar is a fellow at the institute and Kevin Russell is a Senior Fellow there.
