Sustainability megaforces that affect business

Posted: March 27, 2012

Ten megaforces – or global trends – are set to impact businesses in the next 20 years, according to a new report by KPMG International titled Expect the Unexpected: Building Business Value in a Changing World, released in mid-February.

“These forces do not act alone in predictable ways. They are interconnected and they interact,” says KPMG International chairman Michael Andrew and special global advisor KPMG Climate Change & Sustainability Yvo de Boer. They are:

Climate change

Risk: This one directly impacts all the rest. There are six key types of risk to business: physical, regulatory, reputational, competitive, social and litigation. It’s not all gloom though.

Opportunities: For innovators, crises create opportunities. For instance, the US$100 billion-a-year Green Climate Fund (GCF) should help developing countries adapt to climate change. Public-private partnerships could be created in these nations to build green industries, create jobs, reduce poverty and improve infrastructure as well as tackle climate change.

Energy & fuel

Risk: Globally, 81% of power is generated by fossil-fuel and there are few indicators that this will change dramatically. All companies will find it hard to plan for and manage energy costs. Those at greater risk include transport companies and manufacturers that use petroleum as process input.

Opportunities: Energy-efficiency solution providers and users. Design and development of products that use less energy. Renewable energy system providers.

Material resource scarcity

Risk: In 2030 it is predicted some 83 billion tonnes of minerals, metals and biomass will be extracted from the earth – 55% more than in 2010. It’s clear that demand for material resources will soar while supplies will become increasingly difficult to obtain. Governments will seek to protect domestic supplies by restricting exports.

Opportunities: Development of substitute materials, and recycling and recovery of resources from waste products. Others include entering new markets, collaborating with other sectors, universities or government and discovering new techniques or processes.

Water scarcity

Risk: Businesses operating where freshwater is scarce are vulnerable to shortages, drop in water quality, price volatility and reputational issues. Vulnerable sectors are clothing, automobile, food and beverage, biotech/pharmaceutical, chemical, forest products, electronics, mining, refining and electric utilities.

Opportunities: Companies that use water more efficiently or eliminate water use entirely through closed-loop processes and water recycling can save money and resources.

Population growth

Risk: Significant supply challenges and price volatility as a result of rapid population growth coupled with an increased use of resources. Social unrest and instability could arise from lack of employment opportunities for growing young populations in developing nations.

Opportunities: Creation of commerce and jobs, and innovations to address the needs of growing populations for agriculture, sanitation, education, technology, finance and healthcare.

Urbanisation

Risk: By 2030 all developing regions, including Asia and Africa, are expected to have most of their citizens live in urban areas. Moving people and goods safely and efficiently through larger, densely-populated urban areas will be more challenging and expensive. There will be greater demands on scarce resources such as clean water and open green space.

Opportunities: IT could allow resources to be used more efficiently. Smart health systems that allow patients to consult their doctors over the Internet, for example, not only free up resources in the health service, but also cut traffic congestion. City-wide building management systems and smart grids can reduce power demand at peak times, reducing the need for expensive and polluting peak power plants.

Wealth

Risk: As incomes rise, resource use per capita also grows. Billions more middle-class consumers will emerge over the next 20 years, driving demand for water, energy, food and material resources. Resource supplies, infrastructure and ecosystems will come under increasing stress.

Opportunities: The challenge for businesses is to serve these new markets at a time when resources will become scarcer and more price-volatile. The greatest opportunity awaits those businesses that can provide products and services for a more resource-constrained world.

Food security

Risk: Global food prices could rise by 70–90% by 2030 due to population growth, water scarcity and deforestation, or even higher if potential effects of climate change are factored in.

Opportunities: Demand for food is expected to increase most in developing countries with their fast-growing populations, prompting an increase in domestic production to mitigate the rising cost of food imports. Large agricultural producers will likely find a ready market in the growing global middle class, raising demand for more expensive products such as meat and dairy. Modernising agricultural techniques in the developing world may provide opportunity for producers of fertilisers and other agricultural inputs.

Ecosystem decline

Risk: Decline in biodiversity and ecosystems make natural resources scarcer, more expensive and less diverse – increasing the costs of water and escalating the damage caused by invasive species to sectors including agriculture, fishing, food and beverages, pharmaceuticals and tourism.

Opportunities: Companies that can recognise the risks and opportunities, anticipate new markets, mitigate their impacts, improve stakeholder engagement and demonstrate leadership will have the advantage. Pharmaceuticals is one sector that is increasingly focused on the implications of biodiversity and ecosystem decline.

Deforestation

Risk: The timber industry and downstream industries such as pulp and paper are vulnerable to potential future regulation and market-based mechanisms, such as Payments for Ecosystem Services (PES), that incentivise farmers and landowners to manage land for an ecological purpose. There will also be increasing pressure to prove to customers a product’s sustainability through the use of certification standards.

Opportunities: Industries that depend on biodiversity for innovation, such as pharmaceuticals, could suffer from continued primary forest loss and have an incentive to prevent it. Business opportunities may arise through the development of market mechanisms and other economic incentives through PES and the REDD+ (Reducing Emissions from Deforestation and Degradation) process.

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