What are the sustainability megaforces that will impact every business over the next 20 years? Is your company ready to address the risks and opportunities arising from these megaforces? This article highlights the 10 global sustainability megaforces listed in KPMG’s recent report, and shares how businesses can take action and turn risks into opportunities in our uncertain future.
In Feb 2012, KPMG published a report titled, Expect the Unexpected: Building business value in a changing world. The report explains that over the next 20 years, businesses will be exposed to several environmental and social changes that could bring both risks and opportunities. Despite the challenges, businesses can actually thrive by turning the risks into opportunities, with proper foresight and planning.
The report highlights 10 global sustainability megaforces that will impact every business over the next 20 years:
- Climate Change
- Energy and Fuel
- Material Resource Scarcity
- Water Scarcity
- Population Growth
- Food Security
- Ecosystem Decline
Business leaders must understand how these megaforces function and affect their company, and assess and manage these risks in their long term strategic planning. At the same time, they must also understand that these megaforces do not function in isolation from each other, and act as a complex and unpredictable system.
Let’s look at each of these 10 sustainability megaforces:
1. Climate Change
Climate change is an important global megaforce that directly impacts all the other megaforces. The risks include new laws and government initiatives to tackle climate change such as energy efficiency requirements and standards, carbon taxes, emissions cap and trade systems and fuel tariffs.
Other risks include a long-term global temperature rise resulting in near-total deglaciation, contamination of groundwater supplies, water shortages, lower agricultural yields and more malnutrition, infectious diseases and deaths from heat waves, severe floods, droughts and storms.
2. Energy and Fuel
Fossil fuel markets would become more volatile and unpredictable because of higher global energy demand, changes in where fossil fuels are consumed, supply and production uncertainties, and increasing regulatory interventions related to climate change.
Some businesses will find it difficult to plan for and manage energy costs, while other companies will become more energy efficient or use more renewable energy, thus lowering their exposure to fossil fuel-related risks.
3. Material Resource Scarcity
Global demand for material resources is likely to increase dramatically and businesses will face global competition for a wide range of material resources that become less easily available. The uneven global distribution of material resources, from oil to land to fresh water, makes planning for the future even more complex.
Countries without large domestic supplies must rely on imported materials, or acquire large scale land rights in other countries. As supplies decrease, governments are likely to protect domestic interests by restricting exports.
The risks presented by resource scarcity also create opportunities to develop substitute materials, recycle and recover resources from waste products, enter new markets, and discover new techniques or processes.
4. Water Scarcity
Businesses operating where freshwater is scarce may be vulnerable to water shortages, declines in water quality, water price volatility and reputational issues. Potential water shortages pose a threat to business growth and expansion, and conflicts over water supplies may create a security risk to both business operations and markets.
Climate change puts further pressure on water availability and quality. More frequent extreme weather events caused by climate change, such as droughts and floods, are predicted to accelerate the deterioration of local freshwater supplies.
On the other hand, companies that use water more efficiently or eliminate water use entirely through closed-loop processes and water recycling can save money and resources and reduce business risks.
5. Population Growth
The number of people on our planet is predicted to increase to 8.4 billion by 2032 in a moderate growth scenario. Businesses can expect significant supply challenges and price volatility as a result of such a rapid growth in the number of people coupled with an increased use of resources. Population growth will also place intense pressures on ecosystems and the supply of natural resources such as food, water, energy and materials.
In developing nations, a lack of employment opportunities for growing young populations could result in social unrest and instability, and become a threat for business. For developed countries with a growing proportion of elderly and retired citizens, businesses will face a shrinking workforce and fiercer competition for skilled workers.
The OECD defines the global “middle class” as those with purchasing power of between US$10 and US$100 per capita per day, and this middle class is predicted to grow 172% between 2010 and 2030 over the next 20 years.
The challenge for businesses is to serve these new markets at a time when resources will become scarcer and more price-volatile. The greatest opportunity awaits those businesses that can provide products and services for a more resource-constrained world.
In 2009, more people lived in cities than in the countryside for the first time ever. By 2030 all developing regions are expected to have the majority of their citizens living in urban areas. For these growing cities to be habitable, they will require vast improvements in infrastructure including construction, water and sanitation, electricity, waste, transport, health, public safety and internet and cell phone connectivity.
Moving people and goods safely and efficiently through larger, densely populated urban areas will become more challenging and expensive. As cities grow, there will be greater demands on scarce resources such as clean water and open green space.
These requirements create opportunities for companies that can provide innovative ways to boost eco-efficiency, mitigate climate change, improve transit, alleviate poverty and reduce ecological footprints in areas of high residential and employment density.
8. Food Security
In the next 20 years, the global food system is set to come under increasing pressure from other megaforces, and global food prices could rise by 70–90% by 2030. In water-scarce regions, agricultural producers are likely to have to compete for supplies with other water-intensive industries such as electric utilities and mining and with consumers. Modernizing agricultural techniques in the developing world may provide opportunity for producers of fertilizers and other agricultural inputs.
Demand for food is expected to increase most in developing countries with their fast-growing populations and this will spur an increase in domestic production to mitigate the rising cost of food imports. Patterns of production are likely to be driven by crop yields, water availability, governance and consumer preferences.
9. Ecosystem Decline
The decline in biodiversity and ecosystems is making natural resources scarcer, more expensive and less diverse. Continued degradation of global biodiversity and ecosystem services could add to operational risk and, in certain locations, potentially jeopardize the long-term profitability and survival of some of the most-affected sectors such as forest products, agriculture and fisheries.
Companies further up the supply chain or that operate “upstream” may be more susceptible to operational and regulatory challenges, while companies down the supply chain often have a greater degree of public exposure and therefore to potential reputation risks.
Cutting down forests – for agriculture, commerce or housing – directly reduces the supply of valuable natural resources and ecosystems services for business and the global community. It also removes a vital carbon sink and reduces the world’s ability to contain climate change. It hits agricultural productivity, human and animal health and economic activities such as ecotourism. It also increases land degradation and desertification by destabilizing soils, increasing erosion and reducing the cycling of nutrients through soils.
The timber industry and downstream industries such as pulp and paper are vulnerable to potential future regulation and market-based mechanisms, which incentivize farmers and landowners to manage land for an ecological purpose. They may also find themselves under increasing pressure from customers to prove that their products are sustainable through the use of certification standards. Agricultural industries seeking to meet higher demand for land-intensive products such as meat, dairy and even biofuels also need to be aware of the need to avoid sourcing products farmed on deforested land.
The 10 global sustainability megaforces are set to significantly affect the way the world does business over the next 20 years. While existing trend projections provide some insights about a possible future, the world is too uncertain and too complex to rely on linear forecasts. Therefore, business leaders should prepare for the unexpected and learn to look at the world in a new way that takes account of globally interconnected megaforces, the causal relationships between megaforces, feedback loops, effective intervention points and complex scenarios.
Turning Risks Into Opportunities
The sustainability megaforces threaten to bring increasingly complex risks and interrelated challenges that demand a new approach to business planning. Business leaders have to address and manage these risks, and more importantly, thrive by turning these risks into new opportunities with foresight and planning.
There are 4 steps for turning risks into opportunities:
First, businesses can identify sustainability risks and potential opportunities through Enterprise Risk Management tools. Companies can leverage on current risk management processes to tackle future sustainability risks and to invest more leadership capital in sustainability risk management.
Second, business leaders should make sustainability central to their corporate strategy, incorporate it at all levels, and tap into employee engagement. Companies will also need to look at measuring performance and reporting on sustainability, and seeking collaboration between companies on sustainability issues.
Next, businesses need to turn plans and strategies into ambitious targets and actions, such as energy and resource efficiency improvements, sustainable supply chain management, investment into innovation on sustainable products and services, and gaining access to new markets for greener products, services and technologies.
The last step is to build strategic partnerships with governments and demonstrate new and innovative approaches to public-private partnerships. The partnership could focus on economic instruments and market barriers that could be reduced to make sustainable behavior easier.
What do you think of the 10 global sustainability megaforces? Is your company addressing the megaforces in your corporate strategy, and identifying the risks and opportunities? Share with us your thoughts and comments in the box below.
Source and Image: Expect the Unexpected: Building business value in a changing world