When it comes to genuine sustainable development, businesses still have a blind
spot. Collectively, we’re failing to address the systemic risk posed by mounting
levels of inequality. This is a humanitarian tragedy and a barrier to long-term,
meaningful sustainable change.
Addressing inequality — a business imperative
According to calculations by Credit
Suisse,
54 percent of the $127.5 trillion in new wealth created between 2012 and 2022
went to the world’s richest 1 percent. And only 0.7 percent went to the four
billion people who make up half the global population, predominantly in the
Global South.
As the reality and challenge grows starker and harder to ignore, businesses are
waking up to the urgent and systemic risk of inequality. It erodes trust in our
political and economic system, unravels the social fabric, fuels civil and
political unrest and constrains economic growth. In May, a group of more than 30
major corporations convened under the Business Commission to Tackle
Inequality (BCTI) to launch a flagship
report asserting that growing
inequality is bad for business. The report highlights how rising inequality
contributes to:
-
an increasingly volatile business operating environment;
-
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supply chain insecurity;
-
the erosion of productivity and innovation;
-
regulatory and compliance risks; and
-
reputation risk.
It’s no surprise, then, that corporate performance on inequality-related
matters
is increasingly recognised as an investor priority because it creates ‘systemic
risk’ to their entire portfolio. In response to this, a new
framework
is being developed for financial disclosures for social and inequality-related
risks. The aim is to develop a disclosure framework similar to the TCFD and TNFD
frameworks for climate and nature.
Inequality and climate change: 2 sides of the same coin
Aside from the business and economic cost and the vast humanitarian
consequences,
inequality also undermines the world’s ability to address existential global
threats such as climate change. As wealthy countries outsource industries and
labor to developing nations, emissions are driven up — as these nations have
usually not had their industries regulated through global climate policies or
modernised to become more sustainable. Additionally, poverty in developing
nations often forces communities to put more pressure on the environment — which
can lead to unsustainable agricultural practices,
deforestation
and overexploitation of natural resources.
So, inequality worsens climate change — which simultaneously fuels inequality.
For example, poorer countries lack the resources to recover from extreme
weather
events
brought on by climate change. Similarly, access to resources such as clean
water, food and adequate housing is reduced as the climate worsens — further
exacerbating insecurity and inequality.
Sustainable solutions must incorporate all voices
It’s clear that not everyone will feel the impacts of climate change equally.
Many communities will lose more than others, compounding deep-rooted societal
and systemic inequalities. Despite this, it’s these very people who will feel
the effects of climate change most acutely that are often left out of the
conversation when it comes to business solutions. This dangerous discrepancy can
limit perspectives on the climate issue and the success and relevance of
proposed solutions. It’s crucial we address the needs of those worst affected by
climate change and incorporate their voices and knowledge into decision-making.
Doing so will help futureproof organisational strategies, too. To date,
businesses haven’t been particularly proactive at including the perspectives of
those groups most likely to be negatively impacted by climate change into their
conversations and strategies to address it. But they should be. Consideration
of their challenges and
insights
is not only fair — it can also be the difference between success and failure
when it comes to setting short- and long-term sustainability priorities.
Rethinking business impact and rightsholders
The introduction of double
materiality
is set to change this and is driving a monumental shift in the way businesses
consider impacts and rightsholders. Double materiality requires organisations to
engage with two types of stakeholder: users of information and affected
stakeholders, or ‘rightsholders,’ who are or could be affected by the
organisation’s activities. To support this shift, companies must assess the
significance of an impact according to its severity and likelihood. This
methodology draws on established human rights impact-assessment
methodologies
with an emphasis on the rightsholder.
This is good news from an inequality perspective. By considering the views of
rightsholders, a company is much more likely to take on board the opinions of
those who face greater levels of inequality.
The way forward
Climate change affects everyone but in vastly unequal ways. To address this and
drive real, sustainable change, businesses must ensure their sustainability
strategies do not exacerbate existing inequalities even further. This won’t
happen overnight; but it starts with a greater understanding of who your
rightsholders and affected stakeholders are and how your business’ contribution
towards climate change could impact them.
Double materiality and the BCTI’s new framework for financial disclosures on
social and inequality-related risks can help with this. Ultimately, both reflect
a broader, positive shift towards addressing and disclosing business impacts on
sustainability-related issues — not just the impact of those issues on the
business. This holistic approach to impact is key to reducing inequalities and
creating meaningful sustainable change.
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Published Jul 5, 2023 8am EDT / 5am PDT / 1pm BST / 2pm CEST