In this section we articulate the overarching context of the interlinkages between business, ecology and society. We examine global sustainability trends and try to position our strategic approach in this larger context.
A thriving global society, now and in the future, depends on the stable functioning of all interacting components of the Earth System (ecology and society). Unfortunately, scientific evidence indicates that human influence has altered Earth System processes to a point that we have begun transgressing planetary boundaries that have kept civilization safe for the past 10,000 years. Scientists claim that we have entered a new geological epoch 'the Anthropocene' - characterized by manmade actions interfering and changing the environment.
The changes in the Earth system can be understood through the framework of nine planetary boundaries proposed by a team led by Johan Rockstrom at the Stockholm Resilience Centre, it shows that at least three planetary boundaries have been transgressed (rate of biodiversity loss, human interference with the nitrogen and phosphorus cycle), while some are at risk of being surpassed (land-system change, and ocean acidification).
While the world income (GDP per capita) has increased exponentially over the past century, income inequality did decrease till the 70's-80's and is now showing a rebound to levels seen near the beginning of the century (IMF). About a billion people are estimated to be living in extreme poverty today. A quarter of all children under the age of five years is estimated to be stunted due to malnutrition. By the close of 2016, 65.6 million people worldwide were forcibly displaced due to violence, conflict, persecution or human rights abuse. The worldwide refugee population is nearly 5 million, with 84% of them hosted by developing regions. 775 million adults and 250 million children worldwide lack basic literacy skills, and of this, more than 60 per cent of them are women.
2015 was the year when three landmark agreements on human development were signed: the new Sustainable Development Goals (SDGs), a new framework for global sustainable development financing, and a new climate change agreement at the COP 21 in Paris. The objectives of the seventeen SDG’s are to end poverty, protect the planet, and ensure prosperity for all as part of a new sustainable development agenda. The COP 21 at Paris concluded with a legally binding and universal agreement on reducing greenhouse gas emissions to limit the global temperature increase to 2 degrees Celsius above pre-industrial levels climate, from all world nations. Even though the outcome of the summit can be considered ‘very little and too late’, the summit succeeded in reaching at a global consensus for a complex problem. Also it resulted in countries committing on post-2020 climate actions they intended to take under the new international agreement, known as their Intended Nationally Determined Contributions (INDCs). Implementation on the SDGs began in 2016, and the first progress report was published in 2017, accompanied by the launch of the Global SDG Indicators Database, which presents global, regional, and country-level data. Countries have also undertaken separate voluntary national reviews.
The UN’s Sustainable Goals Progress Report, 2017, indicates that while progress has been made on the 17 goals, the pace of progress needs to be much faster to achieve the agreed on 2030 milestones. For instance, while the rate of child mortality has sharply declined, the pace of progress in reducing maternal mortality must double to reach the 2030 target. Progress is also inconsistent across demographic groups and nations. For instance, women spent almost three times the number of hours that men do, on unpaid domestic work and care-giving. Women also continue to be under-represented in parliaments and corporates, especially at senior and middle management levels. Another area of growing concern, worldwide, is youth unemployment. While mobile cellular coverage is almost universal now, internet and fixed broadband services remain out of reach in many parts of the developing world. Not all trends are discouraging, though. Manufacturing emission levels are lower across regions, and investment in R&D continues to rise. For business, these results and trends would mean a need to think widely in terms of defining ‘vulnerable’ groups and materiality, and step up their efforts to partner with government and civil society to create change.
The involvement of business in SDG action and progress is considered an integral part of governmental plans, and is widely referred by around 60% of countries that carried out a Voluntary National Review. In countries like India, which is considered a land of opportunity for sustainable development, the SDGs are expected to create huge opportunities for sustainable business in the areas of food & agriculture, cities, energy and health. Across the world, businesses across the world must be willing partners in the journey towards progress- by bringing technology, ingenuity, enterprise building capacities and creating markets for development of sustainable alternatives. In this, business has to collaborate with all stakeholders across its value chain and with the community to transition to a future that is equitable to all stakeholders and is cognizant of interdependent issues and planetary boundaries.
What follows is an articulation of eight significant sustainability mega forces or trends and their implications for business.
Global Economic System
The global economic system is vulnerable to multiple risks which have the potential to undermine financial and social stability of societies. The risks include asset bubbles in major economies, failure of a major financial mechanism or institution, fiscal crises, unmanageable inflation or prolonged ultra-low inflation or deflation in a major economy or region (World Risks Report, 2016). There is also a growing problem of structural unemployment in advanced economies. Even though the world has recovered from the latest financial crisis, the danger of complacency compared to other risks exists.
The volatile nature of economic environment and the multitude of risks that can disrupt the financial order pose serious threat to long time sustainability of businesses. Businesses need to be alert and should proactively address critical areas of concerns to insulate themselves from any potential crises. They should avoid unduly large debt and related financial exposures and exercise prudence in their risk taking strategies
The fifth assessment report of IPCC asserts with greater certainty that climate change is a reality. The report says that "the atmosphere and ocean have warmed, the amounts of snow and ice have diminished, sea level has risen, and the concentrations of greenhouse gases have increased" and "human influence on the climate system is evident from the increasing greenhouse gas concentrations in the atmosphere, positive radiative forcing, observed warming, and understanding of the climate system".
Climate change can directly or indirectly lead to hunger, water scarcity, health problems, and poverty over varying time frames. It can impact employment and livelihood opportunities thereby limiting opportunities to access education, housing and energy. It can also cause large scale migration and displacement as a result of climate change related emergencies like extreme heat, floods and droughts, tropical storms and changing patterns of infection of diseases. The cost of climate change is both financial and social. The IPCC AR 5 predicts global mean losses to be in the order of 1 to 5% of GDP for 4°C of warming with even higher regional losses. Inaction can create risks of major disruption to economic and social and herein lies the implications for businesses.
Discussions on climate change have moved from ascertaining the probability and estimating risks and costs to developing strategies for mitigation and adaptation. The Fifth Assessment report talks about adaptation and mitigation strategies that need to be implemented. Businesses are expected to play a greater role in implementing those strategies. WRI, CDP and WWF launched ' Mind the Science, Mind the Gap' initiative to develop sector specific methodologies to help companies set science based emission reduction targets based on IPCC's recommendations i.e. what is required by companies across different sectors to limit global temperatures rise by 2 degree centigrade by 2100 from pre-industrial levels.
Businesses will face a multitude of risks and opportunities related to climate change. The risks include (a) increased energy and other resource costs (b) increased insurance costs related to extreme and adverse climate events and (c) potential future litigation, claims and legal action. On the other hand, opportunities for businesses lie in the field of emissions trading, carbon credits, carbon offsetting or ecofriendly technologies or products like hybrid cars and renewable energy. Process improvements that can save energy and reduce GHG emissions can also enhance brand value and reputation. The opportunities are not without challenges - both scientific and political. For example, renewables face the challenges of energy density, efficiency, scalability and grid integration while offsetting programs like large scale afforestation can adversely impact other resources due to land use change - like water and biodiversity.
Global water demand (in terms of withdrawals) is projected to increase by 55 percent by 2050. Currently agriculture accounts for 69% of the world's total freshwater withdrawal and a further 19% increase of agricultural water consumption is expected by 2050. But the rise in demand of water is mainly because of growing demands from manufacturing (400 percent), thermal electricity generation (140 percent) and domestic use (130 percent).
Water and food security are inextricably linked. Multiple factors like population, shift in food consumption patterns (non-local and higher protein food) and shift towards mechanization without the application of local and traditional resources, knowledge and skills are increasing the demand for water. If this situation is not resolved, the impending water crisis can threaten food security.
Urbanization supported by the increase in tertiary economic activities (services) and industrialization have also contributed to the misuse of water resources - primarily driven by the shift to water being viewed as yet other resource that an external entity ( the state in most cases) is supposed to provide. This situation is likely to be exacerbated further due to Climate change driven changes in precipitation patterns.
The UN Water forecasts that 1.8 billion people will be living in countries or regions with absolute water scarcity and two thirds of the world population will be living in ‘water-stressed’ areas by 2025 (UN Water, 2007). World Economic Forum's Global Risk Report 2016 reflects this problem and identifies water crisis as one of the top high impact and high likelihood risks.
Water scarcity can lead to implementation of stringent policies on water allocation and regulation e.g. development of water markets that cap usage and stricter water quality standards. Subsidies may be replaced with full cost pricing which may increase water prices. Agricultural crises can increase food prices and this along with increased water prices can affect disposable income of consumers. This can impact profits of businesses and economic growth.
Water is a commons which has tangible societal and cultural connects. The societal license to operate for a business may be challenged in times of scarcity and there will be pressures to implement water saving measures, new processes technologies and products to reduce the water foot print by businesses. Disruption in water supply can directly impact continuity of business operations at a local level.
Consumers are likely to consider water efficient products or from companies which are seen as water responsible.
Urban living is often associated with better access to employment, livelihoods, education, health care and other social services as well as greater opportunities for social and cultural participation. It is largely lead by increased mechanization in farm/rural sectors and opportunities from industries and service sectors in cities. Currently, 54% of world's population lives in urban areas, projected to reach 66% by 2050 (UN, 2014). Nearly 90% of projected increase would come from Asia and Africa. Most emerging urban areas are low on livability indices. They suffer from haphazard planning which is mostly post facto and reactive. Accessibility of basic services is often an issue for disadvantaged sections of the society, leading to urban inequality.
Cities are the ecosystems for organizations and institutions to access rich and diverse social capital. It can be argued that they have been the centers of economic growth since the past few decades and will continue to do so in the future. Poor social infrastructure can dampen this possibility. While the state will continue to play a key role in creation of this infrastructure, they suffer from significant knowledge and governance deficits. Businesses must play an active role here by engaging with local governments and communities to look at solutions for some complex problems. Integrated multi modal transport and management of other urban civic services leveraging technology are some of the emerging possibilities.
Biodiversity is critical for the proper functioning of ecosystems and ensures the delivery of various ecosystem services - from provisioning of clean air, water and food to decomposition of wastes and supporting pollination and nutrient cycles. Biodiversity is also an important source of flora and fauna with medicinal characteristics. Around 50000 - 70000 plant species are currently used in or as medicines.
Given the importance of biodiversity for the sustainability and survival of humankind, biodiversity loss is found at the nexus of many risks ranging from food price volatility to infectious diseases. Large tracts of biodiverse ecosystems have been converted to cropland to ensure short term food security. Scientific studies have found that cropland expansion is one of the principal causes of biodiversity loss. There is also a relationship between biodiversity loss and soil degradation which in the long term could affect food production leading to food price volatility. Loss of biodiversity can also amplify environmental issues like coastal flooding and desertification.
The WWF Living Planet Report has been long emphasizing that 1.6 planet Earths are required to support the current lifestyles of humankind. This figure called the ecological foot print of mankind (WWF, 2016). Ecological footprint is the sum of biologically productive land and sea required to produce the resources which human beings consumes and to absorb associated wastes and to provide space for infrastructure.
A study in 2008 by The Economics of Ecosystems and Biodiversity (TEEB) has calculated the total annual economic cost of biodiversity loss and ecosystem degradation to be between 3.3 - 7.5% of global GDP for the year. No business sector can escape the risks associated with biodiversity loss, either direct or indirect. The type and extent of exposure to the risk could be different for different industries. The risk exposure would be greater for primary industries such as agriculture, forestry and fishing and secondary industries dependent primarily on primary produce - fast moving consumer goods (FMCG) for example.
Inequality and inclusion
According to the Millennium Development Goals Report 2014, extreme poverty has reduced by half in 2010 compared to 2010 figures - a reduction of 700 million people. The fight against diseases like Malaria, Tuberculosis and HIV in poorer countries has shown good results. However, a study by the World Institute for Development Economics Research at United Nations University reports that the richest 1% of adults alone owned 40% of global assets in the year 2000. The UNDP report titled 'Humanity Divided: Confronting Inequality in Developing Countries' published in 2013 talks about how income inequality has significantly increased in many countries during the last two decades. The report says income inequality increased by 11 percent in developing countries between 1990 and 2010 and more than 75 percent of the population is living today in societies where income is more unequally distributed than it was in the 1990s. The latest Global Multidimensional Poverty Index indicates that nearly 1/3rd of the population across over 100 developing nations are deprived of basic well-being in terms of education, health and standard of living. This global trend of inequality if left unchecked, can undermine social and economic development. Social inequality or discrimination due to gender, nationality/ethnicity and disability further adds to this economic inequality. Diversity as a key engine of innovation Eliminating discrimination and including disadvantaged minorities in mainstream social processes is a crucial driver of more resilient and innovative communities. Empowerment of women, for example, has shown to be closely correlated with variety of social outcomes - family planning, the prevention of human rights abuses like child labor, better management of community resources and educational levels of their children.
Businesses action on inclusion has centered on livelihood generation, micro credit and low cost technologies for bridging the resource and information gaps. While this needs to continue, there is a force multiplier effect when diversity and inclusion programs are integrated across their own operations value chain. The business sector should prioritize commitment to promote diversity and inclusivity at the workplace and in its extended supply chain. Business action on inequality and inclusion should incorporate aspects like diversity criteria in the procurement, local or traditional knowledge and socio economic contexts, for example- how to engage with the informal economy
Human Rights and Labor Relations
The World Report 2016 published by Human Rights Watch discusses several instances of human rights violations which happened in the previous year. An earlier report by Human Rights Watch describes companies as the most powerful and sophisticated actors on the world stage, not governments. There are instances where corporate accountability has failed and human rights were violated by companies directly or indirectly and Human Rights Watch has documented such cases of corporate complicity with human rights violations. These are not restricted to extractive industries (mining, refineries) but also include companies with poor human rights and health and safety compliances across other business sectors. In the last couple of years, international migration levels have steadily risen, which would bring about a change in global workforce demographics and workplace practices. Migrant worker human rights and risks (pay equity, benefits, workplace conflicts and other issues) is an emerging area of focus.
Investors, media, consumers and communities, primarily from the developed economies, have been particularly successful in bringing the spotlight back on human rights compliance for suppliers of large businesses, many of who are based out of emerging and low-income countries. The OECD Guidelines for Multinational Enterprises ("OECD Guidelines") and the UN Guiding Principles on Business and Human Rights ("UN Guiding Principles") reflect the importance of proactive business interventions on upholding human rights principles. An important challenge which businesses may face is in effecting interventions where the sphere of control and influence is limited. Businesses should take efforts to ensure that business decisions and interactions are guided by the context of issues and informed consent of affected parties. Workplace policies, processes and cultures must re-align with demographic changes, to help the workforce adapt and to prevent human rights violations. Companies must set examples on transparency by reporting publicly on human rights, and the social and environmental impacts of their work.
According to International Telecommunications union (ITU), there are more than 7 billion mobile cellular subscriptions worldwide in 2015, corresponding to a penetration rate of 97%. Between the years of 2000 and 2015, global internet penetration grew sevenfold from 6.5% to 43% and 3.2 billion people are using the internet by end of 2015. This is driving creation of new business models which strives to take technology as well as other accessible and affordable.
With ICT becoming ubiquitous in day to day life, several technological risks arise. The World Economic Forum's Global Risk Report 2016 talks about risks related to the growing role of information and communication technologies to individuals, businesses and governments. The major risks identified by the report are adverse consequences of technological advances, critical infrastructure failure/ breakdown, data fraud/theft and cyber-attacks. The disruption created by, and cost of, cyber-crime is on an upward trend. These technological risks are strongly connected to each other and also to risks such as terrorist attacks and global governance failure.
ICT companies have greater responsibility in strengthening critical infrastructure and for putting in place systems to protect against disruptions or attacks as the risks associated utmost important to national security and business continuity. Companies are increasingly being subject to various government disclosures on data privacy and cyber security issues. As a result, there is onus upon businesses to put in place resilient infrastructure and communication protocols.
Businesses are legally obliged to comply with lawful government demands. At the same they also have the responsibility to uphold universally accepted human rights principles. In this context, there is onus upon businesses to address this issue by balancing legal compliance with compliance with human rights principles.
Financial Implications of Climate Change
At Wipro, the implications of climate change are of deep interest and we have been engaged with the multiple questions on this for the past seven years. We have studied and identified risks and opportunities that have the potential to generate a visible change in our business operations, revenue or expenditure. The risks and opportunities have been identified in the context of regulatory changes like introduction of fuel / energy taxes, physical climate parameters like changes in precipitation extremes and droughts, and other climate related developments like increasing humanitarian demands. We have followed a comprehensive approach for identification of risks and opportunities and estimation of their financial implications. Our analysis outcomes are detailed in our response to Carbon Disclosure Project every year. The quantification of some key impacts is provided below. For more information, visit www.cdp.net and search for the Wipro response.
|Risks||Financial Impact||Time Horizon|
|Fuel/energy taxes and regulations.||An aggregate impact of USD 97 Million of increased operational costs over the next five years (2017-18 to 2021-22) is estimated on account of increase in electricity and diesel costs.||Medium|
|Renewable energy regulations||An incremental annual cost of which will be in the range of USD 0.32 Mn for non-solar or solar Renewable Energy Certificates.||Medium|
|Due to changes in precipitation extremes and droughts.||An estimated impact of $ 46.7 Mn over 5 years due to employee absence caused by disruption in city infrastructure and tropical diseases.||Short|
|Due to changes in temperature extremes||A total financial impact of $ 8.62 Mn is estimated over 5 years over the next five years due to (a) increased employee absence from work and (b) increased electricity costs resulting from higher cooling demand.||Medium|
|Tropical cyclones (hurricanes and typhoons)||Potential revenue loss due to increased employee absence from work due to disruption in the city infrastructure - $13 Mn. over the five year period||Short|
|Reputation||An estimated financial impact of around 0.1% of our revenues which translates to $ 44.7 Mn over a 5 year period.||Long|