Why Companies Will Drive Sustainable, Inclusive Growth
Today’s world needs to make progress toward three pressing goals: sustainability, inclusion, and economic growth. True, the world—and Asia in particular—has made significant steps toward those goals over the past 30 years. Particularly striking has been improvement on inclusion, which we define broadly as including all people in economic empowerment, opportunity, and progress. Globally, for example, child mortality has been reduced by almost 60 percent since 1990, and the average number of years that people spend in school has increased by nearly 50 percent. During the same period, China has brought most of its population out of poverty, and India has doubled its real per capita GDP.
But the world still falls short of what it could accomplish. For example, most people live in countries that emit too much CO2 to put the world on a pathway to net-zero by 2050; worse, worldwide emissions continue to rise. As the G20 countries and B20 CEOs meet in Indonesia this week to discuss topics such as the global recovery and the world’s transition to sustainable energy, we envision a future in which the three goals reinforce one another, combining prosperity with a healthy climate and environment, and with economic empowerment for all people. We call this vision sustainable, inclusive growth.
And in any successful push for such growth, the world’s companies will feature prominently. Strong growth is necessary for the world to make major progress toward sustainability and inclusion. This is because growing economies produce the financial resources, services, and technologies necessary to solve global challenges. Every percentage point of growth creates income that is consumed, saved, or invested. Some of that income can help raise lower-income households into the global middle class, and some can contribute savings that help build the infrastructure needed for a transition to net-zero emissions of greenhouse gases.
However, currently projected growth will not be enough on its own to fuel the progress we hope for, so two more forces are needed. One is government and philanthropy, which can directly steer incentives and resources toward sustainability and inclusion. These actors can help spur investment through blended finance; encourage sustainability-directed funding through carbon taxes or subsidies for low-emissions projects; or use transfer payments to directly lift more households into economic empowerment.
The other force is business-led innovation, which can make growth more inclusion- and sustainability-oriented under the right conditions. For starters, as innovation boosts overall growth beyond what is currently projected, more income can be spent by households below the empowerment threshold, or saved and invested for sustainability. Innovation can also make inclusion and sustainability more “affordable”—for example, as companies invent ways to bring less costly healthcare or internet access to low-income people, or as they figure out how to produce low-emissions technology more cheaply. And when innovation does provide low-emissions technology more cheaply, it helps improve sustainability further by shifting consumers’ preferences toward that technology. Electric vehicles are a good recent example.
This is why companies will be indispensable drivers of sustainable, inclusive growth. The good news is that they are already the most powerful growth engines in the global economy: in OECD countries, companies account for about 70 percent of GDP. They drive productivity growth in various ways, including the vast majority of R&D and digital transformation, and they build and invest in human capital. They are particularly important in drawing workers into more formal, productive, and skill-enhancing jobs in lower-income economies. In short, they have the reach and innovative capabilities required for transforming and shaping how the economy grows.
When market opportunities already exist, companies can decide to act independently—and act now. For example, breakthroughs that achieve sustainability and inclusion goals can expand markets or even create new ones, as Asian companies have done by pioneering battery swapping for electric vehicles, and creating more efficient wind turbines and other renewable energy technologies. By the same token, pursuing sustainability and inclusion goals can help reduce costs in some cases, such as when companies in the region have realized savings from increasing their energy efficiency.
In some situations, though market opportunities do exist, a company’s individual action would result in a competitive disadvantage. Such situations may call for new collaborations. For instance, new standards and practices for reducing chemicals or plastics in value chains could be created and shared by all companies involved, just as open-data ecosystems have been created for emissions and battery usage in the automotive and other industries. While such efforts can involve regulators, the initiative does not need to rest with them, as climate finance projects to catalyze green investment have shown.
But where markets do not yet exist, government involvement and broader, society-wide collaboration may be necessary. In many cases, governments, the social sector, and companies can act together, forming public-private partnerships to take advantage of their particular strengths. For example, some cities have built traffic infrastructure that, using artificial intelligence developed by innovative companies, reduces CO2 emissions and improves safety.
However companies choose to act, it is clear that they will play a major role in the push to make the world more sustainable and inclusive—a role in which they pursue new strategies of innovation and new ways of collaborating with each other and with government. Sustainable, inclusive growth is possible, but only with their active engagement.
Gautam Kumra is chairman, McKinsey Asia, based in Singapore; Anu Madgavkar is a partner with the McKinsey Global Institute, based in New Jersey.
