In November, hundreds of corporate chief executives and heads of state arrived in Bali, Indonesia, for the B20 global business summit. The topics on the agenda revolve around three interrelated goals: sustainability, inclusion and economic growth.
Far from being in conflict with one another, these three goals are mutually reinforcing. A sustainable world can contain climate change and conserve natural capital and biodiversity. Inclusivity will create economic opportunity and show progress for all.
And while some believe that economic growth is incompatible with fighting climate change, it is necessary to generate the financial resources needed to create a sustainable and inclusive world – if these resources are used properly.
To assess the scope of the challenges ahead, we examine two very important indicators. First, we measure the sustainability gap, which is the additional investment in low-emission technologies that each country needs to make to achieve net-zero emissions by 2050.
As the world is on track to reduce its “carbon budget” – the amount of carbon dioxide that can be emitted without causing dangerous global warming – by 2030, there is little time to make critical investments. The transition to a net-zero economy requires decisive steps by the end of this decade.
Another indicator, called the empowerment gap, is the level of consumption required to meet basic needs like food and energy, having discretionary income beyond essential needs and being able to deal with emergencies.
According to our calculations, the empowerment threshold amounts to $11 per person per day in poor countries and $55 in rich countries (at 2011 purchasing power parity). If every household in the world can achieve this level of consumption by 2030, every adult in 2050 will grow out of poverty and economic security. But here too, the world must make drastic changes before this decade ends.
Economic growth can help us achieve these goals. Governments can spend some of the income from growth to bring poorer households into the global middle class, while allocating some to building green infrastructure.
At the same time, research presented at the B20 summit shows that growth alone will not close the sustainability and empowerment gap. If the countries and regions we studied maintain current spending levels, few will close more than half the empowerment gap by 2030, and none will close more than half the 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 grows at an annual rate of 2.1% for another decade, the country will close only 36% of the empowerment gap and 7% of the sustainability gap by 2030.
The situation is very different in sub-Saharan Africa, where we estimate the empowerment gap to be even larger, at $10.3 trillion, with a total sustainability gap of $600 billion. Growth (as currently projected) will close only 6% of the empowerment gap and 25% of the sustainability gap.
To close the gap, economic growth must be supported by additional forces. Business-led innovation, for starters, can transform current growth models in ways that are more inclusive and sustainable.
Large G20-based companies spend more than $2 trillion annually on research and development and thus play a critical role in developing new technologies and solutions to reduce the costs of the sustainability transition.
And when these businesses know how to reduce the cost of low-emission infrastructure, they can also help reorient growth towards sustainability by changing consumer preferences towards green products, as electric vehicle manufacturers have done in recent years.
At the same time, when accompanied by public strategies and policies that enable inclusive education, training, childcare, health care and employment, business-led innovation can help close the empowerment gap by increasing workers’ incomes.
Governments and philanthropies can also direct incentives and public resources towards sustainability and inclusion. For example, governments can mobilize more private capital for sustainable projects by investing, an approach known as blended finance.
Carbon taxes and subsidies for low-carbon projects can also encourage investors to close the sustainability gap. Alternatively, the government can use direct transfer payments to lift more households through the empowerment line.
Unfortunately, the current world’s empowerment and sustainability gap cannot be closed immediately. But that should be a rallying cry, not a reason for inaction. Companies should not only face challenges and innovate, but also seize the many opportunities that exist.
In addition, governments and philanthropists should focus on areas where the market is currently lacking. If the business, public and social sectors work together, we can produce the sustainable and inclusive growth that the world so desperately needs. — © Project Syndicate
Sven Smit is a senior partner at McKinsey & Company and co-chair of the McKinsey Global Institute. Anu Madgavkar is a partner at the institute and Kevin Russell is a senior fellow there.