BUS604: Innovation and Sustainability

Key points

• Despite the economic and social gains of the past 30 years, the world's current economic model is deeply flawed.
• Uncertainty and turbulence arising from the current model's failures make it hard for businesses to see a way ahead to future growth and prosperity.
• Past social and economic successes may be reversed without urgent action.
• The UN Global Goals for Sustainable Development offer a compelling growth strategy for individual businesses and the world economy.

Three decades have passed since the Brundtland Commission report, Our Common Future, defined sustainable development as "development that meets the needs of the present without compromising the ability of future generations to meet their own needs". Since then, the world has seen huge social improvements and continued to experience unprecedented economic growth. Between 1988 and 2008, the poorest third of humanity saw their incomes rise by 40-70 percent, with those of the middle third rising by 80 percent. The proportion of people in extreme poverty declined by more than half between 1990 and 2015, as did the number of children dying before the age of five. Over the past 50 years, while the world population has almost tripled to more than 7 billion, global GDP has expanded six-fold. 

However, these social and economic successes mask major fault lines in the world's current model of development. It is failing the Brundtland test. Many of the drivers of growth in the past – for instance, use of fossil fuels and rapid urbanization – are no longer sustainable in their past forms. Without urgent correction, growth is likely to be much slower and more erratic over the next 30 years than the past 30, and many who escaped poverty during that period could slide back in.

Failures in today's development model are adding to a swelling list of global burdens that threaten future stability and shared prosperity. On the environmental front, human activity has already pushed the planet beyond four of its nine safety boundaries, the ones for climate change, loss of biosphere integrity, land-system change, and altered biogeochemical cycles. On the social front, there are vast numbers of people who do not have access to basic services such as healthcare, clean water, clean energy, and sanitation. In middle-income countries, the growing burden of non-communicable ill health is replacing gains made in the treatment of communicable diseases. Tobacco now kills around 6 million people annually, and the global prevalence of obesity doubled between 1980 and 2014. Although improving, many education systems are still failing to deliver access to high quality education. Without urgent action, the prospects for more than 124 million children and young people lacking access to schools and more than 250 million not learning necessary skills are severely diminished. Income inequality in OECD countries is at its highest level for 30 years, and Oxfam estimates that the 62 richest people in the world have the same wealth as half the world's population. 

On the economic front, many of these burdens are beginning to place important constraints on the world's future growth prospects (Exhibit 3). For example, without radical changes in the current food and agriculture system, the cost of biodiversity and ecosystem damage could reach up to 18 percent of global economic output by 2050, up from around US$2 trillion, or 3.1 percent, in 2008. The costs of runaway climate change could be even greater, acting as a risk multiplier across already fragile environmental and social systems. Finally, there are growing concerns with governance and security related issues. In 2014, the world spent 9.1 percent of its GDP on costs associated with violence. According to the IMF, the cost of bribery is roughly 2 percent of global GDP, and illicit flows from developing countries are over US$1 trillion.

The uncertainty created by these burdens makes it hard for businesses to make out the future. This is one reason why so many are treading water. Rather than commit themselves to long-term investments based on today's flawed growth model, they are sitting on cash, buying back shares, or paying high dividends – tactics that attract criticism.

Exhibit 3: 
Global burdens arising from the current model of economic development