We have seen our world change dramatically over the past few months, and we hope these crises are the beginning of a new awakening. COVID-19 is stress-testing everything dramatically: people, politics, health and economic systems and our capitalist model, but also the way we live and work, socially and environmentally.
The pandemic and its economic and social consequences are the most immediately confronting of a number of seismic events that have, over recent years, shaken our country and our world. When we put a face to these events, it immediately heightens our awareness and makes what might ordinarily be considered distant and disconnected suddenly more real and personal.
The whale on the beach in Thailand in 2018 was the ‘face’ that made us aware of the breadth of plastic pollution in our oceans, while the bushfires over the 2019-20 Australian summer gave the climate emergency a face that could not be denied. COVID-19, across the world, is now the face of our deep collective vulnerability to systemic shocks; as the president of the Inter-American Development Bank recently said, the COVID-19 crisis is ‘like the Spanish flu and Great Depression at the same time’. And let George Floyd be the face that—perhaps finally—awakens all of us to systemic inequality and injustice.
The ‘collateral damage’ of these events is massive, and containment efforts have had severe consequences for people, companies and economies, resulting in social inequality being on a steep rise. What we’re living at the moment is unique in society and, by natural extension, in business. Everything is being questioned. Everything.
What kind of future do we want?
Capitalism has created incredible wealth, produced goods and services for millions of people around the world, and created jobs, but the pandemic is highlighting and exacerbating key market failures and governance gaps. What does this mean for business leaders and the future of the corporate model?
All of the events mentioned above are a stark reminder that we cannot rely on hope anymore, nor can any of us be silent bystanders. And while they all represent serious challenges and risks to businesses, with many, especially small and medium enterprises, struggling to survive, business leadership is now needed even more, given businesses’ vital role in all societies as the heartbeats of local economies. In the end, social stability and economic stability go hand in hand: business is unsuccessful when societies are unsuccessful, and vice versa.
Business, therefore, has a critical role to play in the evolution of a new normal by working differently: partnering with authorities, pre-competitively collaborative working, and being a role model for others. Expectations are high: an Edelman Trust Barometer special report on COVID-19 revealed that 78 per cent of respondents believe that the involvement of business is a critical ingredient of defences against the virus.1 Chief executives and boards will be doing a disservice to their shareholders and employees if they do not provide the leadership needed to support the reconstruction of our economy.
More broadly, it’s clear that we need a fundamental redesign of our economic model to make it more sustainable and inclusive. There’s undoubtedly growing support for this way of doing business: we’ve already seen increasing demand for companies to provide solutions, rather than simply selling products and services.
This crisis is proving that companies with strong environmental, social and governance (ESG) credentials are far more resilient than those without. And if anything, the emphasis on the ‘S’—social—is even more important than before.
Shareholder primacy was already an exhausted edict, and the pandemic has shown that we need companies to subscribe to a much more consequential focus of commitment: stakeholder primacy.
The future has become clearer
The COVID-19 pandemic is arguably highlighting more than ever before the tensions between shareholder and other stakeholder needs, financial and non-financial goals, and short-term and long-term imperatives—and the need to meet both in each pair.
So, while predicting the future in any detail is hard at the best of times, it actually might become easier in the middle of the pandemic: even though volatility has increased dramatically, our focus and options have necessarily narrowed. Existing vulnerabilities have been tangibly and tragically exposed, even in Australia, one of the richest corners of the world. Globally, full or partial lockdown measures in early April affected almost 2.7 billion workers—four in five of the world’s workforce. And we are yet to see the full picture of how poorer parts of the world will cope with the wild spread of COVID-19.
All around the globe, the virus is revealing the fragility of human life, our public health systems, supply chains, economies, international institutions and alliances. Business cannot be successful without these things in place: it requires healthy and educated employees and customers; it needs all corners of economies and supply chains to be efficient and resilient; and it requires a level and open global playing field. If we are to truly recover from COVID-19, then it will not be about putting things back together just as they were. We need to build back better and address the deep systemic vulnerabilities that have been allowed to develop over the last decades.
A case in point: the global lockdown imposed in response to the COVID-19 pandemic was a hardship in many ways, but it had at least one green lining: clear skies and quiet streets in cities where clouds of smog and stress-inducing noise levels had been the norm. Residents from Los Angeles to New Delhi saw distant mountains they’d never seen before and wondered why these inspiring vistas couldn’t be permanent.
Converting to clean energy and transport would clean up the air and bring health and financial benefits. It would also generate jobs. Several bodies, including the US Department of Energy, the Energy Futures Initiative and the Energy Innovation think tank, have calculated that jobs in the renewable energy, electric vehicle (EV) and related industries already outnumber jobs in all fossil fuel industries combined.
For automotive manufacturers across the world to shift from internal combustion engines to EVs, something has to give. They don’t and won’t have money to develop a complete line of EVs and keep all their existing fossil-fuel-based cars. Which cars do they keep, and which cars do they axe?
This challenge is indicative of that facing the global energy system. We have been moving—many would argue too slowly—to decarbonise our energy systems, but post-pandemic we won’t have the money to develop renewables and fossil fuel technology. So again, something has to give. And if renewables technology is both cheaper and simpler to bring to market and has fewer environmental regulatory hurdles, then the answer seems obvious.
Business needs to restructure to recover
As we think about how we can build back better, it’s important to remember that we already have a business plan, the Sustainable Development Goals (SDGs), worth at least $12 trillion a year and 380 million jobs at a time when we need them most. Investment in the SDGs has been lagging for too long and we are now paying the price for an economy that plays fast and loose with our planetary boundaries.
In the immediate aftermath of the COVID-19 crisis, business needs to focus its actions on:
1. ensuring that our interdependent supply chains remain effective and resilient to connect us all. Business should contribute its systemic know-how to focus on short-term supply chain resilience plans, particularly for vital supply chains like food and medical supplies.
2. working closely with the public health capabilities for surveillance, detection, isolation and treatment to ensure we make our society ‘COVID-ready’ while returning to the new normal. Businesses can contribute by being places that help detect people with COVID-19, as well as finding pathways to economic recovery.
3. recognising that our economy and supply chains are not shock-proof and have vulnerabilities that were not anticipated. Business must apply the lessons learned from the COVID-19 crisis to make our systems more shock-resilient. Furthermore, it must double down on making its products, processes and business models more sustainable to prevent further shocks from happening.
The pandemic is also a very important reminder to all of us of just how important government is, and especially good governance. The role of private sector leaders, either individually or collectively through trade associations and business groups, is to engage with government at national, state and local levels and examine their joint priorities. Now is a pivotal moment for business to demonstrate leadership towards society.
Unless we use the rebuilding phase of the new normal to create focus on these three priorities, reflecting how connected our world and systems are, we will miss a massive opportunity to do better, and to accomplish the change that’s needed.
It is also critical that business leaders make their voices heard and show leadership in the transformation that is urgently needed. A free-market system that not only serves the interests of shareholders but is much more attentive to people and the environment is of its time. It includes:
• universal respect for human rights as the key to peaceful and inclusive societies, as envisioned by the SDGs. CEO leadership plays a crucial role in ensuring that human rights are taken seriously in companies and in business relationships around the world.
• the realisation that ‘stakeholder capitalism’ will be nothing more than two empty words if we fail to address the core challenges of systemic change: climate emergency, loss of nature, and inequality.
• concrete support for companies to deliver science-based climate action to reach net zero emissions.
How business responds to COVID-19 will undoubtedly shape the decade, and possibly a generation, to come. Various people in business, government, academia and other areas have been working to understand the underlying forces shaping the next ten years, how these are likely to interact with one another, and how COVID-19 is changing the picture. The World Business Council for Sustainable Development (WBCSD) released two interim Vision 2050 Refresh issue briefs in support of its COVID-19 Response Program: Macrotrends and Disruptions Shaping 2020-302 and The Consequences of COVID-19 for the Decade Ahead.3 Understanding the existing trends, challenges and opportunities being exposed, influenced and accelerated by the pandemic is critical to the development of recovery strategies in line with the WBCSD’s vision of 9-plus billion people living well within planetary boundaries.
CEOs face choices about when to lead, as opposed to following their peers or simply doing what is required by law. They can no longer be bystanders on environmental, social or governance issues—especially those at the present time—that are ever more closely intertwined with their business activities. Their shareholders and their customers, employees, governments and communities worldwide will be demanding leadership. Let’s make sure we work together, take the initiative, and help shape the new reality by focusing on both social and economic recovery and resilience.
Our common future will be shaped by what we do now. Our actions will make vital contributions to the resilience of societies, economies and humanity. We have no excuse not to learn from this crisis, or to be unprepared next time. Deep change is needed, globally. Let us never forget these events and let us take bold actions, together, to deliver positive and lasting change—to make 2020 the year in which we finally awaken to the need for systemic change and turn words into actions.