19.2 Global sustainability challenges and business implications

Global sustainability challenges pose significant risks and opportunities for businesses. Climate change, resource scarcity, and social inequality are reshaping markets and societies worldwide. Companies must adapt to these challenges to remain competitive and resilient.

Businesses play a crucial role in developing solutions to sustainability issues. Through innovation, collaboration, and advocacy, companies can create positive impact while building long-term value. Strategies like risk management, stakeholder engagement, and sustainability governance are key to navigating this complex landscape.

Global Sustainability Challenges

Climate Change and Greenhouse Gas Emissions

• Climate change is a significant global sustainability challenge caused by the increasing concentration of greenhouse gases in the atmosphere, primarily due to human activities (burning fossil fuels, deforestation)
• The main greenhouse gases include carbon dioxide (CO2), methane (CH4), and nitrous oxide (N2O)
• Climate change leads to rising global temperatures, sea level rise, more frequent and intense extreme weather events (hurricanes, droughts, floods), and ecosystem disruptions
• The impacts of climate change are far-reaching and affect various sectors, including agriculture, water resources, human health, and biodiversity

Resource Scarcity and Depletion

• Resource scarcity, including the depletion of natural resources (water, minerals, fossil fuels), poses a major threat to the sustainability of businesses and societies worldwide
• Water scarcity is a growing concern, with many regions facing water stress or drought due to factors such as population growth, urbanization, and climate change
• The depletion of non-renewable resources, such as fossil fuels (oil, coal, natural gas) and minerals (rare earth elements), raises concerns about energy security and the availability of raw materials for industries
• Overexploitation of renewable resources, such as forests and fisheries, can lead to ecosystem degradation and loss of biodiversity

Social Inequality and Uneven Distribution

• Social inequality, characterized by the uneven distribution of wealth, opportunities, and access to basic needs, is a pressing global sustainability challenge that businesses must address
• Social inequality can manifest in various forms:
  • Income inequality: disparities in income and wealth distribution within and between countries
  • Gender inequality: unequal opportunities and treatment based on gender, affecting areas such as education, employment, and political representation
  • Racial inequality: systemic disadvantages and discrimination faced by certain racial or ethnic groups
• Access to basic needs, such as healthcare, education, and clean water, is often unequal, with disadvantaged communities facing greater challenges
• Social inequality can lead to social tensions, political instability, and reduced economic growth, affecting businesses and society as a whole

Risks and Opportunities for Businesses

Climate Change Risks and Low-Carbon Transition

• Climate change poses significant risks to businesses:
  • Physical risks: damage to infrastructure and assets due to extreme weather events (flooding, hurricanes), supply chain disruptions
  • Transition risks: policy changes (carbon taxes, emissions regulations), shifts in consumer behavior towards low-carbon products and services
• Industries particularly vulnerable to physical risks include agriculture (crop failures, livestock losses), tourism (damaged destinations), and insurance (increased claims)
• The transition to a low-carbon economy presents risks for carbon-intensive industries (oil and gas, coal mining) but also opportunities for clean technology and renewable energy sectors (solar, wind, electric vehicles)
• Businesses that proactively adapt to the low-carbon transition can gain a competitive advantage and mitigate potential risks

Resource Scarcity Risks and Circular Economy Opportunities

• Resource scarcity can lead to increased costs, supply chain disruptions, and reputational risks for businesses that rely heavily on scarce resources
• The mining and manufacturing industries are particularly exposed to the risks associated with resource scarcity, as they depend on the availability of raw materials (metals, minerals)
• Water-intensive industries, such as agriculture, beverages, and textiles, face risks related to water scarcity and potential conflicts with other water users
• Opportunities exist for businesses that develop innovative solutions for resource efficiency, recycling, and the circular economy
  • Circular economy principles involve designing out waste, keeping products and materials in use, and regenerating natural systems
  • Examples include closed-loop supply chains, product-as-a-service models, and the use of bio-based or recycled materials

Social Inequality Risks and Inclusive Business Opportunities

• Social inequality poses reputational risks for businesses that are perceived to contribute to or exacerbate social disparities
• Industries such as fashion (labor practices in supply chains) and technology (digital divide, algorithmic bias) have faced scrutiny over their impact on social inequality
• Businesses that fail to address social inequality may face consumer backlash, employee dissatisfaction, and difficulty attracting top talent
• Addressing social inequality presents opportunities for businesses to enhance their brand reputation, attract and retain talent, and tap into new markets
  • Inclusive business models aim to provide goods, services, and livelihoods to underserved communities while generating financial returns
  • Examples include microfinance, affordable housing, and last-mile distribution of essential products (healthcare, clean energy)
• Businesses can also promote diversity, equity, and inclusion within their own organizations to foster a more inclusive workplace and society

Business Role in Sustainability Solutions

Developing and Implementing Innovative Solutions

• Businesses have a crucial role to play in addressing global sustainability challenges, as they possess the resources, expertise, and influence to drive meaningful change
• Developing and implementing innovative solutions is one key way businesses can contribute to addressing sustainability challenges
• Examples of innovative solutions include:
  • Clean technologies: renewable energy (solar, wind), energy storage, electric vehicles, green hydrogen
  • Circular economy practices: product design for durability and recyclability, waste reduction, resource recovery
  • Sustainable agriculture: precision farming, regenerative practices, plant-based protein alternatives
  • Inclusive business models: microfinance, affordable healthcare, education technology
• Businesses can invest in research and development, pilot projects, and scaling up successful innovations to accelerate their impact

Collaborative Efforts and Partnerships

• Collaborative efforts, such as industry partnerships, multi-stakeholder initiatives, and public-private partnerships, are essential for tackling complex sustainability challenges that require collective action
• Industry partnerships allow businesses to share best practices, develop common standards, and drive sector-wide change
  • Examples include the Sustainable Apparel Coalition (fashion), the Roundtable on Sustainable Palm Oil (agriculture), and the Global Battery Alliance (energy storage)
• Multi-stakeholder initiatives bring together businesses, governments, civil society organizations, and academia to address sustainability issues holistically
  • Examples include the United Nations Global Compact, the World Business Council for Sustainable Development, and the Science Based Targets initiative
• Public-private partnerships leverage the strengths of both the public and private sectors to deliver sustainability solutions at scale
  • Examples include the Global Alliance for Vaccines and Immunization (GAVI), the Renewable Energy and Energy Efficiency Partnership (REEEP), and the Alliance for Water Stewardship

Advocacy and Policy Engagement

• Businesses can engage in advocacy and policy dialogue to shape the regulatory environment and create enabling conditions for sustainable development
• Advocating for policies that support the transition to a low-carbon, circular, and inclusive economy can help level the playing field and drive systemic change
  • Examples include carbon pricing, renewable energy targets, extended producer responsibility, and social protection policies
• Businesses can provide input and expertise to policymakers, participate in consultations, and support research and analysis to inform evidence-based decision-making
• Engaging in responsible lobbying and political activities, in line with sustainability principles and transparency, is crucial for maintaining credibility and trust

Strategies for Business Resilience

Risk Assessment and Management

• Building resilience is crucial for businesses to withstand and recover from the impacts of global sustainability challenges
• Regularly assessing and disclosing sustainability risks and opportunities, in line with frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD), can help businesses make informed decisions and communicate their resilience strategies to stakeholders
• Risk management strategies include:
  • Diversifying supply chains to reduce dependence on single suppliers or regions vulnerable to disruptions
  • Investing in business continuity planning to maintain operations during crises or disasters
  • Developing scenario analysis and stress testing to evaluate potential impacts of sustainability risks on financial performance
• Integrating sustainability risks into enterprise risk management frameworks can help businesses prioritize and allocate resources effectively

Adaptive Capacity and Innovation

• Businesses should adopt a proactive approach to sustainability, anticipating and preparing for future challenges rather than reacting to them as they arise
• Fostering a culture of adaptability and innovation can help businesses respond quickly to changing circumstances and seize new opportunities
  • Encouraging experimentation, piloting new ideas, and learning from failures can drive continuous improvement and innovation
  • Investing in research and development, as well as collaborating with external partners (startups, academia), can bring in fresh perspectives and expertise
• Building adaptive capacity also involves investing in employee training and capacity building to develop the skills and knowledge needed to navigate the evolving sustainability landscape
  • Examples include training on sustainability topics (climate change, circular economy), as well as skills such as systems thinking, collaboration, and change management

Stakeholder Engagement and Collaboration

• Collaborating with stakeholders, including customers, investors, suppliers, and local communities, can provide businesses with valuable insights and support for building resilience and adapting to change
• Engaging customers in sustainable product design, use, and end-of-life management can help businesses align with changing consumer preferences and build brand loyalty
• Communicating with investors about sustainability strategies, performance, and resilience can attract long-term, patient capital and strengthen investor relations
• Collaborating with suppliers to improve sustainability practices, share knowledge, and co-develop solutions can enhance supply chain resilience and innovation
• Engaging local communities in dialogue, impact assessments, and benefit-sharing can help businesses build trust, secure social license to operate, and contribute to local resilience

Governance and Leadership

• Embedding sustainability into corporate governance, including board oversight and executive compensation, can ensure that sustainability considerations are integrated into strategic decision-making
• Establishing board-level sustainability committees, appointing sustainability experts to the board, and setting sustainability performance targets for executives can drive accountability and leadership
• Developing a clear sustainability vision, strategy, and roadmap, with measurable goals and regular progress reporting, can provide direction and motivation for the entire organization
• Cultivating sustainability leadership at all levels of the organization, from top management to frontline employees, can create a shared sense of purpose and ownership for sustainability outcomes
• Leading by example, through visible commitments and actions by senior executives, can inspire and engage employees, customers, and other stakeholders in the sustainability journey