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Asia’s Challenge and the World’s: A Future that’s Sustainable, Inclusive and Growing

By Bob Sternfels and Gautam Kumra

While coping with climate change has dominated headlines in recent weeks, it’s important to note that sustainability is one of a number of interconnected challenges for leaders in Asia. Here’s what leaders are facing:

  • An economy where growth is imperative to continue lifting citizens into the middle class, at a time when the COVID-19 pandemic may have increased the number of people in poverty by 170 million.
  • A more inclusive economy where that growth is broadly shared. Gender inequality, for instance, was widespread in Asia before the pandemic and has worsened because of it.
  • And yes, a sustainable economy, which matters more for Asia than perhaps any other region – up to 1 billion people in the region are living in areas with some annual probability of lethal heat waves.

To ensure continued prosperity for our generation and the next, sustainability is an essential element for our economies. We will also need two others: robust growth and greater inclusion.

Perfecting the Trifecta

In Asia, as everywhere, the imperative of our time is to find ways to bring all three of these together, creating an economy that is growing and sustainable and inclusive.

The “and” here is the key. Growth, sustainability, and inclusion can reinforce each other and form a powerful dynamic. Yet in some ways, they counteract. Growth, for example, is needed to fund a sustainability agenda such as decarbonization, but if growth increases consumption of non-sustainable goods and services, that puts new burdens on the environment.

Every country will need to figure out how to tackle such issues in their own context. We don’t downplay the difficulties, and we don’t claim to have all the answers. But it’s important to begin asking the questions.

What does sustainable and inclusive growth look like in Asia? Its economic dynamism and rising consumption have been key drivers of the global economy, and continuing on that strong growth path is essential if the region is to pull more people into the burgeoning middle class. India, for example, needs to create about 90 million more nonfarm jobs by 2030 to absorb new entrants to the workforce by then, and that will require GDP growth of 8.0% to 8.5% annually over the next decade, or about double the rate in fiscal 2020.

But growth alone is not enough: without greater attention to inclusion and sustainability, there is a risk that robust consumption and economic growth in Asia in the future cannot be taken for granted.

First, inclusion. Incomes across Asia are rising, but many lower-income households remain vulnerable. The Asian Development Bank estimates that the number of people living in poverty (defined as living with less than $3.20 a day) in Asia may have increased by more than 170 million in 2020 during the pandemic.  Access to basic services also remains patchy. According to the World Bank, about 10% of the world’s people—many of them in Asia—still have no access to electricity, and 2.6 billion people lack access to clean cooking solutions.

Inequality in both income and wealth continues to be a significant factor, too, as does gender inequality. In India, for instance, one study found that during the first COVID-19 lockdown in 2020, 47% of women lost employment—and had not returned to work even by the end of 2020—compared with just 7% of men.

As for sustainability, Asia is on the front line of climate risk globally—with potentially significant implications for future growth in the absence of adaptation and mitigation. By 2050, our research suggests that between 600 million and 1 billion people in Asia could be living in areas with some annual  probability of lethal heat waves. That in turn could put $2.8 trillion to $4.7 trillion of GDP in Asia at risk annually due to labor productivity affected by extreme heat and humidity—especially in India and Pakistan, where a large share of the population works outdoors. In other parts of Asia, flooding is a major risk: as much as $1.2 trillion of physical capital stock could be damaged by riverine flooding in a given year.

Turning Challenge into Opportunity

Asia tackles these challenges from a dynamic starting point. It is a global leader in technological innovation. Asia’s share of start-up investment, for example, increased from only 16% in 2006–08 to 40% in 2017–19. Its consumer markets have bounced back after COVID-19 and continue to show among the fastest growth rates. And Asian companies are becoming global powerhouses: four of the world’s top ten technology firms were Asian in 2020; ten years earlier, the region had no companies in the top ten.

Even so, business leaders and policy makers will need to take a holistic view of the challenges and treat sustainability, inclusion, and growth as part of the same dynamic. We see a number of “no-regret” moves. Among them:

  • Embedding climate risk into infrastructure design. Asia continues to have huge investment in infrastructure needs, as much as $1.7 trillion annually through 2030, and this gives Asia an opportunity to shore up defenses against climate change.
  • Creating an environment that helps many more small and mid-sized companies grow into large productive companies.  
  • Focusing on renewables and clean tech to create investment and jobs and energy inclusion.
  • Workforce reskilling and lifelong learning, to equip today’s workers and future generations with the essential tools they will need to access higher-paid employment and thrive in a more automated world.
A new era is upon us. To maintain and increase Asia’s prosperity—and the world’s—we need growth that is both sustainable and inclusive. And we need to start working on that right away.

Bob Sternfels is Global Managing Partner of McKinsey & Company and Gautam Kumra is Chairman, McKinsey Asia.