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Megatrends — Why Do They Matter to Business?

We live in an increasingly dynamic and interconnected world. Conflicts in the Middle East are causing demographic shifts in Europe, e-waste from the West is being recycled in Africa and emissions from China are affecting air quality in the US. These are just a few examples of how megatrends are shaping today’s world.

By Bhaarat Verma | Published 6 years ago | About a 4 minute read

But what are megatrends? Ernst and Young defines them as “large, transformative global forces that define the future by having far-reaching impacts on businesses, economies, industries, societies and individuals.” It’s a broad yet apt definition with a very clear message: Megatrends are powerful phenomena impacting the foundations of our world that will be pivotal in shaping its future.

Some of the most commonly cited megatrends include climate change, population growth, resource depletion and urbanisation. It’s important to note that each megatrend encapsulates smaller trends, significant in their own right. Take population growth, for example: This megatrend covers everything from increasing life expectancy to food scarcity. Furthermore, megatrends are often interconnected, such as urbanisation and climate change — more cities means more manufacturing, which will release more emissions into the atmosphere, which will impact climate change.

Put simply, megatrends are complicated and extremely important.

So, what’s being done about them? And by whom?

Governments are recognising the importance of megatrends and have started making commitments, investing resources and legislating to manage them. An example is the pledge to set a 2 °C limit on global warming, made by 196 states at the COP21 in Paris in 2015.

NGOs and collaborative industry initiatives are working on megatrends, too. The United Nations launched the Sustainable Development Goals (SDGs) in 2016, identifying 17 trends (including megatrends) that need to be managed to ensure a prosperous future for mankind. The SDGs state that everyone, whether an individual, a company or a state, can and should play their part in achieving these goals by 2030.

So, megatrends and the issues they encapsulate are no longer the sole responsibility of governments, nor are they tied to specific industries, administrations or communities. There’s a notable shift in the language around megatrends towards making them everyone’s responsibility. The interconnected way in which the world operates means that we all play a role in the causes of megatrends, and therefore all should play a part in managing them.

What does this mean for companies?

Companies need to acknowledge megatrends, and act accordingly. At the very least, they should understand their contribution to relevant trends, as well as how their business is impacted by them, both positively and negatively.

And from here, companies should recognise that megatrends are business risks that need to be considered in the materiality assessment, strategy development and target- and KPI-setting processes, like any other. To not do this is a risk in itself that, in the worst cases, can damage a company’s performance, reputation and viability.

Communicating an understanding of megatrends to stakeholders is also key. The World Business Council for Sustainable Development’s 2017 Reporting Matters data shows only four companies to have received top scores for the ‘external trends’ criterion in 2017, which indicates that, on the whole, company reports are failing to discuss megatrends in sufficient detail. Some stakeholders will view this as a red flag that companies are not considering the context in which they operate fully, and so not carrying out adequate risk assessments.

Furthermore, from this year, certain companies in the EU will be legally required to report on issues related to megatrends under The EU Non-Financial Reporting Directive. There are numerous other requirements around the world already in place, such as the UK’s Modern Slavery Act, that quite clearly signal the role companies are expected to play in shaping the world for future generations.

So, the key takeaway for companies is this: Megatrends matter. They are not optional ‘best practice’ considerations. They are fundamentals for any business. For those that are already on top of megatrends, the evolving regulatory environment and stakeholder expectations will be a cinch to manoeuvre. And for those that aren’t, now really is the time to take action.