The central theme of the World Economic Forum 2019 in Davos last week was “Globalization 4.0: Shaping a New Architecture in the Age of the Fourth Industrial Revolution.” But what is Globalization 4.0, and what are the main sustainability lessons that practitioners can take away from the week?
About Globalization 4.0
Over the past few decades, global integration has flourished as trade barriers came down, in an era often referred to as “Globalization 3.0.” It contained many potential benefits — including reduced poverty, better living standards in underdeveloped countries, and more accessible services through Internet-based technologies. However, this development also contributed to inequality and frustration.
The global economy is now morphing into the era of Globalization 4.0, fueled by the swift universal spread of digital technologies. Upon us is a time where the nature of exchange between countries and organisations will become fundamentally different, relying on digital connectivity and the related flow of ideas and services. Klaus Schwab, founder and Executive Chairman of the World Economic Forum, labels this as the core of Globalization 4.0.
“Globalization 4.0 has only just begun, but we are already vastly underprepared for it. Clinging to an outdated mindset and tinkering with our existing processes and institutions will not do.” — Klaus Schwab
Innovation in food systems through partnering platforms
During WEF 2019, the call for partnering platforms, developed with multiple stakeholders from entire value chains, became much louder. Almost one-third of our global food production is currently wasted, and yet nearly 800 million people around the world are chronically undernourished, while food systems are responsible for approximately 25 percent of global greenhouse-gas emissions. Upscaling of innovation is required, and multiple stakeholder platforms are regarded as the best-in-class option.
One such platform presented itself in Davos last week. Loop, initiated by TerraCycle — a specialist in recycling the non-recyclable — is a new returnable packaging platform. Relying on Loop partners such as Procter & Gamble, Nestlé, Mars, Coca-Cola, Mondelēz, Danone and Carrefour, Loop uses the traditional "milkman model" in which customers receive their purchases at their doorstep, while the supplier owns the durable, reusable containers. Tests for Loop are in preparation in both Paris and New York, and are due to go live in Spring 2019.
Climate change means business
Evidently, the clock is ticking faster than before. Shortly before WEF 2019 kicked off, the Intergovernmental Panel on Climate Change (IPCC) published an alarming report on the Impacts of Global Warming at 1.5°C, stating that the world only has 12 years to act if major negative impacts from climate change are to be avoided. Our oceans have been warming 40 percent faster than understood thus far, and we are struggling to deal with the 12.7 million tonnes of plastic waste deposited every year.
In response, the Alliance of Climate Action CEOs — a group of leaders of 50 major global businesses including ING Group, Lenzing, BT and Carlsberg — published an open letter to governments demanding better collaboration to accelerate outcomes in the race against climate change. In their appeal the CEOs, jointly representing more than $1.5 trillion in total revenue, they emphasized the importance of partnering and public-private cooperation. The CEO’s stressed the importance of the business case for cutting emissions to generate wider support in the private sector. Moreover, better public-private cooperation was demanded to accelerate effective carbon pricing mechanisms and policies that incentivize low-carbon investment and drive demand for carbon-reduction solutions.
With its call for action, the open letter contained an enchanting message for shareholders. A few years ago, private equity giant BlackRock found that U.S. companies with higher climate scores tend to be more profitable and generate higher returns on assets. Research on the Dow Jones Sustainability Index data confirms that sustainability leaders outperform their industry average by as much as 25 percent and the differences between industries are as high as 36 percent; evidence that laggards urgently need to advance their ESG (environmental, social and governance) performance for an amended appeal to their investors.
Towards the demise of the materiality matrix
According to the WEF’s Global Risks Report 2019, four of the top five most impactful risks we face today are environmental or societal — including extreme weather events, water crises, natural disasters, and failure of climate change mitigation and adaptation. Sparked by the potential impact on portfolios, there is a rising interest from investors seeking to understand how organizations are identifying and responding to ESG-related risks and how these organizations embed ESG-related risks into their Enterprise Risk Management.
Research among WBCSD member companies on sustainability and risk disclosures revealed that only 29 percent of material topics as published in their sustainability report were also included in the company’s legal disclosure of risks. Amazingly enough, for 35 percent of member companies this disclosure dropped to zero(!), demonstrating a feeble link between sustainability reporting and Enterprise Risk Management. To improve on these numbers, WBCSD released the “Guidance for Applying ERM to Environmental, Social and Governance related Risks” in October 2018, which offers corporations a pragmatic, 5-step process to identify and manage ESG risks.
With ESG-risk or materiality assessments becoming an integral part of enterprise risk management, not only will sustainability stand a much better chance of entering the core of business strategy, but over time it should lead to the demise of the materiality matrix.
For sustainability practitioners, the principal message of WEF 2019 was in the swelling urgency to deal with the globe’s environmental and social challenges. Perhaps this was best phrased by 16-year old environmental activist Greta Thunberg, when she said, “Often hear adults say: ‘We need to give the next generation hope.’ But I don’t want your hope. I want you to panic ... and want you to act. I want you to behave like our house is on fire. Because it is.”
Jan van der Kaaij is co-author of the new book, Winning Sustainability Strategies (Palgrave Macmillan, 2018).