Business Impacts Insight

Sustainability Trends for 2018

Introduction

Welcome to SustainAbility's annual trends review in which we identify ten issues that we believe will have significant impact on global sustainability and the corporate sector in 2018.

This year we expect to see continued momentum and leadership by companies on climate change, the social equity agenda, freedom of speech, sustainable mobility, and other core issues facing society. Despite declining leadership by national governments, we have reached an inflection point on renewable energy due to falling costs, and an increasing number of companies are investing in clean energy and strengthening climate resilience efforts.

Momentum is also growing for societies to close the gap on gender, racial and economic inequality. Last year saw a rising tide of support for a more equal society, with the emergence of the #MeToo campaign and vocal CEO and executive support for immigrants and minorities, and we expect this momentum to continue in 2018.

We hope that this report will spark further conversation and action in pursuit of a sustainable future. And as always, we invite your feedback.

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We Are Still In

The market will continue driving rapid adoption of renewables despite failing leadership on climate from the United States and Germany

“Things have moved from implausible to inevitable, only briefly pausing at possible.” – Gary Kendall, Sustainability & Strategy Specialist, Nedbank

The past 12 months has seen heavy blows to national leadership on climate change, with President Donald Trump announcing his intentions to withdraw the US from the Paris Climate Agreement, and Germany's position as the global champion of climate action and clean energy slipping dramatically given shifting political and economic realities - and continued reliance on coal use - in that nation. But despite major stumbles from influential political leaders, the outlook for renewable energy and continued progress on global greenhouse gas reductions remains positive.

Markets have reached an inflection point where renewables will have become the cheapest form of new power generation in nearly all markets by 2020. This is largely due to the falling costs of manufacturing for both wind and solar as well as improved efficiency. Continued action from national and subnational actors in the form of ambitious emissions reduction targets at regional and city levels, as well as the expansion of carbon pricing into more sectors and markets, are also spurring continued progress.

Global Benchmark Levelized Cost of Electricity for Solar and Wind, $ per MWh

Bloomberg New Energy Finance's research shows that global average levelized costs of photovoltaics have fallen by 73% since 2009, and onshore wind by 30%. Source: Bloomberg New Energy Finance

Participants in the World Climate Conference holding signs with the inscription "America's Pledge - #wearestillin" during one of the initiative's events in Bonn, Germany, November 2017.

Image © PA Images

Key signals:

  • China, the world's biggest source of climate-warming greenhouse gases, is ready to launch its emissions trading scheme.
  • Globally, regional, national and sub-national carbon pricing is on the rise, more than doubling since 2010. Eight new carbon pricing initiatives have been introduced around the world in just the last two years and Mexico will launch an emissions trading system in 2018.
  • Solar is already the cheapest form of energy in more than fifty lower-income countries, including China, India and Brazil.
  • President Trump's recently announced tariff on solar, designed to protect US manufacturers, will hurt domestic solar installers and may temporarily slow installation in the US, but will unlikely have global impacts on the transition to renewable energy.
  • The price of lithium-ion batteries has dropped by 73% since 2010.
  • Tesla built the world's largest proof-of-concept energy storage battery in South Australia, which is capable of powering up to 30,000 homes during short-term grid energy outages.
  • Global capital costs for photovoltaic solar and onshore wind have dropped by 15% and 14%, respectively in the last 12 months due to falling costs in manufacturing and efficiency gains.
  • Companies factoring an internal carbon price into business plans will increase more than eight-fold between 2014 and 2019, with more than 100 Fortune 500 companies with collective annual revenues of $7tn, taking action.
What this means for business:

Science-based carbon emission reductions and climate targets - goals that align with keeping warming below 2 degrees Celsius - are now used by well over 200 of the world's largest companies including Ford, GlaxoSmithKline and Unilever. Companies are coming under greater scrutiny when it comes to supply chain emissions also. Only 22% of companies directly engage with their suppliers to reduce emissions but there is growing pressure for this to change. 2018 will see increased pressure on companies to engage in renewable energy generation, energy efficiency and emissions reductions in supply chains and product end use.

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#MeToo

Women and minorities step up the fight for equality

“We still have a long way to go on gender equity. No matter what country you are in, it's shocking the challenges women face in the workplace, in broader society, and sometimes even at home.” – Lindsay Clinton, Director, Intellecap

2018 will see a continuation of fierce battles in the ongoing campaign for a more inclusive and equal society. The last twelve months witnessed Trump's successive attempts to enact a travel ban, affecting primarily Muslim-majority nations, and overturn Obama's executive order protecting Dreamers (illegal immigrants brought to the United States as children), resulting in thousands of Americans rising up in protest. For the second consecutive year, people in cities across the US and around the world took to the streets for the Women's March, protesting a President perceived as sexist and anti-women, and calling for equal pay and an end to sexual harassment and assault.

The Me Too movement, founded over 10 years ago by social activist Tarana Burke, went viral around the globe with the hashtag #MeToo in the wake of numerous high profile allegations of sexual assault against Hollywood producer Harvey Weinstein, with millions of women around the world sharing stories on social media shining a spotlight on the pervasiveness of sexual harassment and the misconduct of men in positions of power.

Hollywood actress Alyssa Milano encourages women to tweet "me too" to give people a sense of the ubiquitous nature of sexual harassment and assault, triggering an outpouring from women around the world.

Protesters make statements during a gathering against sexual harassment and assault in Republique square in Paris, France in the wake of a wave of a number of high profile allegations in 2017.

Image © PA Images

Key signals:

  • Tech giants including Uber, Facebook, Google and Tesla are among the companies that have faced accusations of racial prejudice, sexism, harassment and gender pay disparities over the last year.
  • In a 2016 UK survey of 1,533 women 52% reported experiencing sexual harassment in the workplace.
  • The European Commission is pushing for a 40% quota for women on company boards.
  • Major investors including Black Rock, State Street and Vanguard are upping pressure on companies to increase diversity and are beginning to systemically vote against male-only boards.
  • Over 170 companies have signed on to a new CEO-led alliance, CEO Action for Diversity & Inclusion, including Cisco, Dow Chemical, HP, The Home Depot, Merck, Morgan Stanley, Staples, Target and Walmart.
  • Apple is stepping up its hiring of minorities with 27% of its general 2017 hires, and 50% of its tech hires, coming from underrepresented groups, including women, African Americans, Latinos and other racial minority groups over the last 12 months.
  • The U.K. government recently passed legislation that requires companies with more than 250 employees to disclose gender pay gap data every year, beginning in April 2018.
  • Tens of thousands of people took to the streets and airports across America President Donald Trump’s executive order that barred entry to individuals from certain majority-Muslim countries.
What this means for business:

2018 will see further increases in public and investor pressure for companies and institutions to address racial and gender diversity and sexual harassment. Companies will also face demands that they produce robust data that provides public evidence of change, including closing the gender pay gap. There will also be increased scrutiny of internal processes, policies and HR protocols for managing sexual harassment. Major companies can expect to weather further negative attention as women come forward with claims against senior management figures across a variety of industries. More countries are likely to follow in the footsteps of the UK, requiring mandatory disclosure of gender pay gap statistics. Companies should take the lead in proactively increasing public transparency on diversity and equity data while also addressing problematic internal culture to avoid becoming the next negative news headline.

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Charging Ahead

China's actions accelerate the global transition to low-carbon mobility

“The notion of taking the internal combustion car into city centres, prioritising cars over people and polluting the air -- we will look back and think, "How was this possible?” - Hendrik Jan Laseur, Founder, Lead the Change

The end of the internal combustion engine automobile is coming more clearly into view, with China joining the UK, France and Norway in announcing an eventual ban on cars powered solely by internal combustion engines. The announcement has left global car manufacturers racing to protect their ability to compete in China's future auto market, which is already the market with the highest number of electric vehicles on the road, having overtaken the US in 2016.

This trend is visible elsewhere: India has set its own aspirational goal of only selling EVs by 2030; automaking powerhouse Germany has suggested it will phase out gas-powered cars on a yet undetermined timeline; and the US state of California is exploring policy mechanisms to accelerate the shift to electric vehicles. Potentially speeding the transition to EVs further is the increasing likelihood of mass deployment of autonomous vehicles, which have huge potential to benefit from the long-term cost effectiveness of EV drive-train maintenance and lower fuel costs.

Chinese Demand for Electric Vehicles, Q1 2015 - Q3 2017

Sales of electric vehicles in China have risen rapidly over the last three years, outstripping both North America and Europe. Source: Bloomberg.com

Electric cars lined up at public charging points in Paris.

Image © iStockphoto

Key signals:

  • Forecasts predict that global sales of all-electric cars will surge 70% in 2018, up from 580,000 in 2017.
  • Around 375,000 EVs were manufactured by Chinese car companies in 2016-43% of EV production worldwide.
  • HP, IKEA and Unilever are amongst a growing number of multinational companies committing to integrating EVs into corporate fleets and installing charging stations for customers and employees as part of EV100, a new business campaign designed to fast-track the uptake of electric vehicles.
  • Tesla unveiled an electric semi-autonomous commercial truck (designed to replaced the diesel tractor-trailer trucks ubiquitous on highways today). With a range of 500 miles, this model is expected to hit the market in 2019 and could revolutionise commercial ground transportation and shipping.
  • In emerging economies, electric rickshaws (small three-wheeled taxis), electric scooters and electric buses are growing in popularity.
  • Volvo has announced that it will only offer electric or hybrid vehicles from 2019 onwards and General Motors has announced its commitment to an all-electric vehicle future.
  • Volkswagen has announced $40bn in funding for electric cars, autonomous driving and new mobility services over the next 12 years, and Ford is investing $11bn in EVs by 2022, promising a fully self-driving car by 2021.
  • Germany will open the world's largest EV charging station in 2018, with capacity to charge more than 4000 vehicles a day, while London will double its number of EV charging stations from 750 to 1,500 by the end of 2018.
What this means for business:

In order to stay relevant in the fast-growing global hybrid and EV market, global car manufacturers will need to rapidly innovate to produce low-cost, small and efficient hybrid and electric vehicles that meet the needs of diverse global consumers and regulations. When it comes to shipping and global supply chains, companies will be weighing the costs, as well as the reputational and environmental benefits, of investing in EVs and autonomous vehicles. Potential benefits include reduced safety risks for autonomous and semi-autonomous vehicles, significant reductions in GHG emissions and electric grid energy management benefits for electric utilities. Challenges include initial upfront purchase costs, as well as layoffs for thousands of drivers in both the taxi and long distance trucking industries as the deployment of automated vehicles increases.

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Media Matters

Freedom of speech, which has been declining globally for the last decade, has taken another hit with the roll back of net neutrality in the United States

“The United States' repeal of net neutrality has an impact internationally - it's a signal to regulators around the world that Internet Service Providers can garner the ability to chill innovation and hamper free speech. And it will undoubtedly affect users in Brazil, Kenya, the UK and elsewhere around the world.” - Ashley Boyd, Vice President, Advocacy, Mozilla Foundation

Globally, freedom of speech has experienced an alarming decline across both developed and developing nations; this negative trend is expected to continue in 2018. Private communications surveillance has reached a historical high, as governments, including the UK, pass legislation to enable extensive digital surveillance.

A significant percentage of the world's online content is now regulated by the community standards of a small number of tech companies such as Facebook and Twitter, whose processes and algorithms for managing both legal and illegal content lack transparency and are not subject to the checks and balances of traditional governance. Meanwhile, President Trump's continuing attack on mainstream media as "fake news" and recent decision to roll-back net neutrality may also have major global implications, with experts concerned that the US is sending a message to authoritarian leaders, such as Russia's Vladimir Putin and China's Xi Jinping, that western norms regarding freedom of information and the press are shifting.

Finally, Chinese influence in Africa, Latin America and the Caribbean includes investing in the local media in tandem with large investments in local infrastructure, the implications of which are yet unknown.

World Press Freedom 2017

Source: TheGuardian.com

An illustrative picture of the internet site of the so-called First Draft Coalition, a network of media and internet companies which have joined forces against 'fake news'.

Image © PA Images

Key signals:

  • Net neutrality was repealed in the United States in December 2017, overturning regulations that prohibited broadband providers from blocking websites, charging for higher-quality service, or certain content.
  • Turkey, Bangladesh, Brazil, Burundi, Egypt, Poland and Venezuela have all experienced a disconcerting decline in both the diversity and independence of the media.
  • The EU has repeatedly fined Facebook over data privacy violations and after months of negative headlines criticising the company of being a platform for the spread of fake news, Facebook has recently changed its algorithms to promote more personal content rather than news.
  • Canada's Supreme Court forced Google to delete certain search results, not just in Canada but everywhere in the world.
  • Experts have criticised the UK Investigatory Powers Act, passed by the government in 2016, as seriously undermining the rights of its citizens to privacy and freedom of expression.
  • Russia has introduced significant restrictions to online speech, invasive surveillance of online activity, and prosecutes critics under the guise of fighting terrorism and extremism.
  • Over the last two years over 150 Turkish journalists were in prison and over 170 media organisations in Turkey had been shut down and 2,500 journalists have been laid off.
What this means for business:

Companies will come under greater pressure to take positions on and address issues such as data privacy, surveillance and freedom of information in 2018, especially where governments are seen as eroding free speech. Those that side with governments against the interests of consumers on issues such as net neutrality and data privacy may experience public and customer backlash. In addition, social media companies can expect increasing scrutiny and regulation in response to opaque algorithms and policies that govern the publishing of online content and advertising, particularly in Europe and Canada.

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Executive Advocacy

CEOs and executives are taking to Twitter and the streets to champion high profile issues that are impacting society

“Too much ground is lost because of confrontation between civil society and business. For corporates to be part of the solution, and they need to be, civil society has to see them not just as the enemy.” - Robert Barrington, Executive Director, Transparency International

The last two years have seen unprecedented upswing in leadership from companies and CEOs on high-profile public issues. Leaders of Intel, Merck and Under Armor were among the first in the private sector to stand up for racial justice after the Charlottesville protests. Heineken was praised for producing an ad that encouraged people to connect across political divides and Google's co-founder Sergey Brin joined protestors at San Francisco's international airport, demonstrating against Trump's travel ban on seven Muslim-majority nations.

Businesses are being called on to fulfil their moral obligation to take a stand on environmental, social and, increasingly, moral and ethical issues appearing in the public discourse to an extent rarely seen before. CEOs especially are stepping up.

Google CEO Sundar Pichai tweets his support for Deferred Action Against Childhood Arrivals (DACA).

Key signals:

  • High-profile executives from dozens of companies including Apple, Ford, Google and General Electric spoke out against President Trump's executive order banning travel from seven Muslim-majority countries.
  • CEOs from major companies including Amazon, Starbucks and Wells Fargo criticized Trump over revoking Obama-era policies that protected undocumented immigrants who arrived in the United States as children (the so-called Dreamers) using the hashtags #DefendDACA and #WithDreamers
  • President Trump sparked a mass exodus of CEOs from his advisory councils after the President failed to adequately condemn white supremacists taking to the streets of Charlottesville, instead stating that there were, "Very fine people on both sides," of the protests
  • Hundreds of companies, including Bank of America, Dow Chemical, Duke Energy and PayPal spoke out against Mississippi and North Carolina's laws removing anti-discrimination protections for LGBT individuals, with many companies threatening to pull operations out of those states or even to relocate their headquarters to other regions.
  • Edelman's 2017 study of 14,000 global consumers found 73% of Chinese consumers and 65% of Indian consumers surveyed were influenced by a company's outspoken stance on social and political issues as compared to France (50%) and the US (47%).
  • According to the same study, 65% of consumers will not buy a brand that stays silent on an issue that they feel it has an obligation to address.
  • A survey of 14 countries conducted by Masdar finds younger consumers such as Millennials and members of Generation Z demonstrate higher loyalty to values-driven companies. The report found 49% of Millennials are willing to pay more for ethical products and 31% have boycotted unsustainable companies.
What this means for business:

In the past, companies have been scared of risking confrontation with consumers or governments by taking a public stance on controversial public issues. But in 2017, the risks of staying silent were higher than ever before and this trend will continue in 2018. Employees, customers and other stakeholders are demanding more from business leaders. Expectations are rising for companies to take positions on high profile issues such as immigration and equality. Consumers are increasingly likely to buy from companies that they perceive to be honest and that have similar values to their own. In 2018 and beyond, the most successful companies will be those that authentically and consistently align their core values and business model.

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Trash Talk

China's ban on waste plastic and paper imports from developed countries disrupts the global recycling industry

“In Asia we're seeing a growing number of companies in a variety of sectors -- not just the food and beverage industry - beginning to tackle the issue of plastic waste. There are a number of exciting innovations coming through - the challenge, and opportunity, is ensuring these have scale and exposure to make the vast difference needed.” – Pat Dwyer, Founder and Director, The Purpose Business

China is joining a growing number of developing countries who are cleaning up their acts on waste. Kenya and Rwanda have joined over forty other nations, including China, in enacting bans or restrictions on plastic bags. Globally, 56% of waste plastic is exported to China, to be reused as raw materials for new products. But while China repurposes waste from other countries, it has been struggling with its own domestic waste management and is now the leading country contributing to ocean plastic debris. But in 2018, the economics of plastic recycling will be upended, due to a recently announced Chinese import ban and higher production of cheap US oil that can be used to make virgin plastic.

A potential silver lining for plastic waste exporters: the chance to create domestic recycling industries that drive job creation and spark innovation at home, as well as reducing waste at its source.

European Plastic Waste Generated Per Inhabitant

Source: TheJournal.ie

Key signals:

  • The United States and Japan are the two biggest exporters of plastic waste to China; 87% of Europe's waste plastic is also shipped there.
  • China's new waste policy bans the import of four categories of waste: household waste plastics, unsorted waste paper, waste textiles and mining slag.
  • Countries including India and Indonesia are investing in biodegradable alternatives to plastic made from maize, corn and yuca, after banning, taxing or restricting the use of plastic bags.
  • 155,000 direct jobs are supported by the US export recycling industry, with workers contributing more than $3 billion to federal, state and local taxes.
  • Assessing global plastic packaging flows comprehensively for the first time, a recent report from the Ellen MacArthur Foundation found that most plastic packaging is used only once; 95% of the value of plastic packaging material, worth $80-120 billion annually, is lost to the economy.
  • Eleven multinational companies representing more than 6 million tonnes of plastic packaging per year have recently committed to using 100% reusable, recyclable or compostable packaging by 2025 or earlier. Companies making the commitment include Mars, Marks & Spencer, PepsiCo, The Coca-Cola Company, Unilever, Walmart, and Werner & Mertz.
  • Apple has made an ambitious goal to achieve a 100% closed loop supply chain that would eliminate the need for mining, though the company has not set a date for achieving this goal.
What this means for business:

The Chinese ban on foreign waste plastic and paper imports offers both a challenge and an opportunity for global companies. The falling price of virgin plastic requires companies to double-down on commitments to utilizing recycled materials, despite falling prices for new plastic, while China's ban on waste imports opens up opportunities for domestic recycling processing in the US and Europe that could spur job creation and innovation. A larger challenge is for companies to work with governments to reduce waste at its source, and for consumer-product companies, to move away from built-in design obsolescence of products and design for repairability, recycling and reuse.

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The Rise of Superbugs

Global efforts by companies and policy-makers to tackle antimicrobial resistance are rapidly gaining speed

“The fight against antimicrobial resistance will take decades, and the life sciences industry is committed for the long haul. However, the full impact of industry's efforts can only be made through collaboration with governments and providers, and other public health stakeholders.” – Thomas Cueni, Chair, AMR Industry Alliance

Global efforts to tackle antimicrobial resistance (AMR) are rapidly gaining momentum, and 2018 is set to be a key year for pharmaceutical companies, governments and multilateral organizations to deliver progress. While a natural and inevitable process, the evolution of AMR has been accelerated by the inappropriate use of antibiotics in humans, animals and crops. This is rapidly decreasing the effectiveness of many antibiotics on the market and driving the growth of multi-drug resistant superbugs. The World Health Organization (WHO) has called growing antimicrobial resistance a "global health emergency that will seriously jeopardize progress in modern medicine" and England's Chief Medical Officer Sally Davies has warned of the looming "post-antibiotic" apocalypse.

As awareness about the growing threat increases the United Nations, G7 and G20 have all acknowledged the urgent need to tackle AMR. A global alliance of leading life sciences companies has published its first report on their progress to combat AMR. Governments are launching campaigns on responsible use of antibiotics and the UN is also stepping up its efforts. Addressing the threat of AMR through research and investment into new medicines, improving disposal of antibiotics and balancing the appropriate use of antibiotics with the need to improve access where it is lacking will be top of agenda for pharma companies, healthcare providers and policy-makers.

Average New Antibiotic Molecules Per Year

The rate at which antibiotics are becoming ineffective due to resistance exceeds the rate at which new therapies are being developed. Source: AMR Industry Alliance Progress Report

A petri dish with bacteria culture. Source: AMR Industry Alliance Progress Report 2018.

Image © iStockphoto

Key signals:

  • More than 700,000 people are estimated to die each year of drug-resistant infections. In Europe alone, 25,000 people die from antibiotic-resistant bacteria every year, while in the United States 2 million illnesses are attributed to AMR. At the same time, lack of access to basic antibiotics remains a major global health issue, responsible for millions of deaths worldwide.
  • The WHO has warned that there is a serious lack of new antibiotics under development and unless there is a rapid increase in investment in research and development, we will be "forced back to a time when people feared common infections and risked their lives from minor surgery."
  • The number of new antibiotics has fallen sharply since 2000, and the drugs currently in the pipeline are only expected to provide short-term solutions.
  • The AMR Industry Alliance, which unites 101 life sciences companies and associations, has published its first progress report. Among the key findings is that industry investment in AMR-relevant R&D, while significant with over $2 billion, is threatened. Governments have a key role to play to create an environment that supports sustainable investment in innovation and access.
  • In another major effort, the Access to Medicine Foundation has launched the AMR Benchmark, which compares the performance of 30 life sciences companies. According to the benchmark, GSK and Johnson & Johnson are currently leading the efforts from large R&D pharma companies.
  • The over-use of antibiotics in livestock farming is a leading cause of antimicrobial resistance. A recent study of chicken sold in British supermarkets found record levels of superbugs.
  • Governments are stepping up efforts to increase awareness about antimicrobial resistance. The UK has launched a major nationwide campaign, Keep Antibiotics Working, with the aim of reducing the number of prescriptions issued by doctors and raising awareness among patients about using antibiotics responsibly.
What this means for business:

Addressing AMR will be top of agenda for the life sciences industry in 2018 and beyond. Companies are expected to play their part by developing new vaccines, therapies and diagnostics; ensuring access and appropriate use, and reducing environmental impacts from manufacturing, use or disposal. Other industries using antibiotics, in particular the food/beverage and agriculture industries must also play their role in tracking and reducing the use of antibiotics.

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Fair Share

Tax reform and high-profile tax haven data leaks throw a spotlight on inequitable wealth

“Tax havens are at the root of a massive intergenerational transfer of wealth, which enriches the old and ultra-wealthy at the expense of the young and poor.” – Gabriel Zucman, Assistant Professor of Economics, University of California, Berkeley

In the aftermath of the Paradise Papers, and recent US tax reform, 2018 will see the spotlight continuing to shine on inequitable taxation policies and loopholes that benefit a tiny percentage of the wealthy global elite at the expense of the the world's working and middle classes. According to the leaked information from the Paradise Papers, companies including Apple, Facebook, Jindal Steel, Nike, the Sun Group and Videocon have avoided billions of dollars in tax using offshore tax havens. Globally, data suggests more than €600bn ($743bn) is shifted by multinationals to the world's tax havens each year. Despite recent movement by the European Commission to crack-down on tax havens, it has been criticised by Oxfam and others for failing to pursue adequate action against the worst offenders.

2018 will see growing public calls to address the issue of lost taxes which equate to billions of dollars of public money failing to be invested back into the communities in which the profits were made. However, meaningful regulatory reform that prevents companies and individuals merely switching between tax haven locations will be a slow and complex process.

Countries Losing More Than €1bn in tax Revenue per Year to Tax Havens

The United States and European nations together lose an estimated €155bn ($192bn) in public revenue to offshore tax havens each year. Source: TheGuardian.com

Key signals:

  • According to Oxfam, 82% of all growth in global wealth in 2016 went to the top 1%, whereas the bottom 50% saw no increase.
  • In 2017, US tax reform permanently slashed taxes for business and high-earners, while providing only modest, temporary tax cuts for the American middle class.
  • American companies, including Apple, are taking advantage of Trump's one-time offer of low-tax repatriation of foreign cash in a move that economists argue will do little to boost the US economy over the long-term, but provides positive headlines through a near-term injection of cash into the US economy.
  • Apple has said it will make a one-time tax payment of $38bn on repatriated cash and other tech giants including Microsoft, Alphabet and Cisco are likely to follow suit.
  • The European Union has blacklisted 17 countries for refusing to cooperate with its crackdown on tax havens. Another 47 countries, including Switzerland, Turkey and Hong Kong, have promised to reform their tax systems and have been placed on a 'gray list'.
  • Prominent European member state tax havens such as Cyprus, Ireland, Luxembourg, Malta, Netherlands - and territories within the United Kingdom, such as the British Virgin Islands, have so far escaped blacklisting, drawing criticism from experts.
  • The Panama Papers included details of the offshore financial dealings of parliamentarians, ministers and heads of state from dozens of countries including Queen Elizabeth II and resulted in the resignation of Iceland's Prime Minister.
What this means for business:

Increased government scrutiny of tax havens is likely in 2018, with both the European Union and Canada potentially using G20 as a mechanism to push for reform. However impactful regulatory changes that effectively close loopholes are unlikely. Meanwhile, many US companies will likely take advantage of President Trump's corporate-friendly new tax laws and provide a short-term injection of cash into the US economy.

Globally, companies are coming under greater pressure from the public and major investors such as BlackRock to deliver social and environmental value to the global community, rather than merely creating financial dividends for shareholders. As companies compete to create authentic, values-driven identities and build high-trust relationships with consumers, continued tax avoidance and lack of financial transparency will highlight jarring inconsistencies between corporate messaging and reality, resulting in further public distrust.

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Viva La Résilience

Companies are taking direct action on climate resilience

“When government lacks capacity to deal with big problems, corporates have to step in, despite it being outside the traditional bounds of business. And large companies that already have experience with climate resiliency are well positioned to support cities with these challenges.” – Niel Golightly, VP, Shell Oil Company

Climate impacts from extreme weather, natural disasters and water crises are some of the key risks faced by global companies in 2018. The last twelve months saw the world impacted by some of the most extreme weather in history. A savage hurricane season buffeted the Caribbean and North America, the poles suffered record low levels of ice, and record heat waves hit Australia, Europe, North America and Somalia.

While companies have been actively engaging in climate resiliency efforts in developing countries for years, 2017 marked a significant increase in larger-scale efforts in developed nations. Companies including Facebook, Shell and Tesla went beyond corporate donations for hard-hit places, to offering on-the-ground support and technology to help cities and regions get back on their feet after major disasters. 2018 will also see an increasing number of companies tackling climate resiliency head-on in both their operations and supply chains.

The Soaring Cost of Climate Change

The number of global extreme weather events, and associated financial costs, are growing. Source: Statista.com

A savage hurricane season buffeted the Caribbean and North America during 2017.

Image © Nasa

Key signals:

  • Extreme weather was named as the number one risk to global businesses in 2018 by the World Economic Forum. Natural disasters, failure of climate change mitigation and water crises were also listed as top ten issues.
  • The cumulative global cost of climate change-related impacts have been estimated at $2 to $4 trillion by 2030.
  • The US suffered an estimated $306bn worth of damage from storms during 2017, an all-time record.
  • Tesla sent hundreds of Powerwall battery systems that can be paired with solar panels to the US territory of Puerto Rico in an effort to restore power to essential emergency services in the aftermath of Hurricane Maria, while Facebook dispatched a "connectivity team" to supply emergency telecommunications during recovery efforts.
  • Shell helped extensively with on-the-ground hurricane relief and rebuilding efforts in Texas after Hurricane Harvey hit the state.
  • Californian utilities Pacific Gas and Electric and Edison International lost billions of dollars in market value due to damaging wildfires in California.
What this means for business:

As climate change impacts become more pronounced, a growing number of companies are taking steps to assess their risk exposure and incorporate climate resilience and adaptation into business strategy. Agriculture, transportation and utilities are among the sectors that will be most affected by the changing weather patterns and natural disasters. The leadership bar for corporate climate disaster relief has also been raised. The new standard goes beyond philanthropy to finding ways to offer practical support on the ground through the provision of products and services and partnering with local governments and not-for-profits on relief efforts.

2018 will see companies invest more in supply chain resiliency efforts and increase work with local communities and NGOs on projects that look holistically at climate resiliency risks, for example, water-basin risk and rehabilitation, extreme weather events, and sea level rise.

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A.I. Influence

Artificial intelligence is expanding rapidly and will transform everything from warfare, to agriculture, to trucking, raising new moral quandaries and governance challenges in the process.

“How we choose to use technology in the next decade is the single most important choice we will make. We need to make a conscious choice to point technology in the right direction.” – Mike Barry, Director, Plan A, Marks & Spencer

In 2018, Artificial Intelligence (A.I.) will help make people's lives safer and more convenient through autonomous vehicles, the Internet of Things and smart manufacturing. But as the world races to create artificial superintelligence, should we be asking ourselves harder questions about A.I.'s purpose? In the near future, we'll be looking at A.I. use in military combat zones, with capabilities to attack foreign states and corporations with a speed and accuracy that humans cannot defend against. In fact, A.I. will soon be embedded in most software we use whether we know it or not. A new report from Harvard Kennedy School suggests that A.I. will have drastic and wide-ranging impacts that go far beyond increasing the convenience of daily activities -- with major implications for national security and international relations.

Potential Automated Jobs Per Sector

Automation has the potential to replace between 30-60% of jobs across a wide range of sectors. Source: Quartz Media

Humanoid robot Pepper at SoftBank Robot World 2017 in Tokyo Japan.

Image © Alex Knight via Unsplash

Key signals:

  • 2018 will see narrow A.I. applications such as conversational A.I., image recognition and autonomic applications transition from pilot programs to operational usage.
  • Over the last three years, Amazon has increased the number of robots working in its warehouses from 1,400 to 45,000.
  • Semi and fully autonomous vehicles will utilise A.I.-based systems to deliver safety and entertainment to human passengers. In two years it is expected that 10 million self-driving cars will be on the road.
  • A.I. is also being applied to agriculture, helping with the smart application of water and nutrients at the field level to help growers reduce costs and increase yields.
  • A.I. is already playing a role in politics. Automated pro-Trump political bots on social media overwhelmed pro-Clinton bots 5-1 in the days leading up to the 2016 US elections, spreading fake news and shaping online political conversations.
  • Over 100 founders of global A.I. and robotics companies, including Elon Musk and Google DeepMind's Mustafa Suleyman, signed a letter in 2017 calling on the United Nations to ban lethal autonomous weapons, otherwise known as "killer robots".
What this means for business:

Companies who fail to invest in intelligent A.I. and machine learning as part of their products, services and supply chains will be lagging behind those who do, potentially losing market share as well as cost savings from efficiency gains. The implementation of "smart automation" will deliver the most immediate results to organizations in the form of improved efficiency.

As companies implement A.I. operations there will likely be a war for talent across a range of disciplines. Data scientists and cognitive programmers, linguists, psychologists and user experience (UX) experts, will be in high demand. However companies who embrace automation and other forms of A.I. that replace human workers will likely face public backlash regarding community fears of structural unemployment.

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