What’s Next for Business?

Sustainability Trends for 2017

Introduction

Welcome to SustainAbility’s annual trends report. As 2017 begins, we identify ​10 issues that we believe have the greatest sustainability influence right now, calling out implications for the private sector in particular.

Last year brought profound global ​shifts including rising support for protectionism and populism, growing cybercrime and​ shifting global climate leadership, all amid growing political and economic instability.

At the same time, opportunities for companies to help solve global challenges have never been so varied - and perhaps never so ​compelling. ​A growing number of companies are already ​taking action, testing corporate strategic alignment with the SDGs, ​setting and pursuing ever more ​ambitious climate targets, and adapting plans to address various food and health challenges. We hope that this report will inspire discussion and ideas for further action in pursuit of a sustainable future​, and we invite your feedback.​

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Globalization Under Pressure

Rising support for trade protectionism and nationalism, reflected in recent elections and referendums in the US and Europe and in public sentiment more widely, challenges fundamental assumptions about the inevitability of globalization.

Slowing global trade, expansion of protectionist measures, and rapid rise in nationalistic and xenophobic rhetoric are increasingly prominent issues globally. The US presidential election and Brexit as well as ongoing election campaigns in Germany and France have all been marked by nationalism and calls to rollback political, economic and cultural liberalization. Companies must determine the impact of barriers to trade and capital flows generally, as well as what this means for corporate sustainability.

Piles of containers in the harbor of Singapore, the busiest Asian commercial port. Yet global trade grew by just 1.7% in 2016, its slowest rate since the financial crisis of 2009, according to WTO.

Image © iStockphoto

Key signals:

  • The World Trade Organization (WTO) estimates that global trade grew by just 1.7% in 2016, its slowest rate since the financial crisis of 2009. The global body also revised its forecast for 2017, estimating that trade will expand at a rate between 1.8% and 3.1%, down from the previous forecast of 3.6%. WTO singled out Brexit and “growing anti-trade rhetoric” among the factors clouding the outlook.
  • • Major international trade agreements, even those near completion or already in place, are at risk of being abandoned. US President Donald Trump signed an executive order withdrawing the US from the Trans-Pacific Partnership (TPP), a long-negotiated agreement which covers 40% of the world economy. European leaders are concerned that the Transatlantic Trade and Investment Partnership (TTIP) could be next.
  • A new EU-Canada trade agreement almost fell through after Belgian regional governments threatened to block the deal. Disagreements were eventually overcome opening the way for the landmark agreement to be signed.
  • While some countries have been striking down barriers to free movement of trade and capital, this has been outpaced by the rate of new protectionist measures. In 2015 alone, G-20 governments put in place 644 discriminatory trade measures, and international lending has dropped by more than 10% since 2014.
  • The UK government is due to begin negotiations later this year to leave the EU, after a referendum vote to leave the bloc. The negotiations will involve developing a new trade agreement.
  • Analysts warn that the new landscape is already forcing some companies to scale back international operations and is affecting cross-border capital flows, but the long-term impact on sustainable development remains to be seen.
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Cybercrime Epidemic

The scale and sophistication of cybersecurity attacks are growing, putting businesses, governments and individuals at increasing risk.

Cyberattacks and data breaches rocked multiple global corporations and affected the US presidential election in 2016. Machine learning will accelerate the number and sophistication of attacks in 2017. Internet of Things (IoT) malware has the potential to open backdoors into autonomous vehicles as well as connected homes and businesses, putting consumers’ personal data and physical safety at risk. The public and private cost of cybercrime and the security measures meant to prevent it are skyrocketing, and companies, especially ICT, energy utilities and automotive, are under increasing pressure to improve system security and customer data protection.

The cost of cybercrime could reach $6 trillion annually by 2021, according to some estimates.

Image © iStockphoto

Key signals:

  • The cost of cybercrime has risen exponentially (estimated to be $3 trillion in 2015) and could reach $6 trillion annually by 2021. The associated costs of cybercrime include damage and destruction of data, theft of intellectual property, and personal and financial data, disruption of business operations, and reputational damage.
  • In 2016, Yahoo announced that private data from more than a billion user accounts was stolen in 2013 by an unspecified hacker, the largest known data breach in history. Last year, hackers prevented millions of people from accessing popular sites and services including Reddit and Twitter through a Distributed Denial-Of-Service attack.
  • Technology, utility and automotive sectors are particularly vulnerable to cybercrime. In 2016 the US government awarded $34 million in funding to projects aimed at the protection of the country’s power grid from cyberattacks, and a number of reports have singled out the transportation sector as being at high risk.
  • By 2020, there are expected to be 20.8 billion devices connected to the Internet, making private consumer data increasingly vulnerable and forcing companies to invest in more robust data protection capabilities and improve policies.
  • As autonomous vehicles are rolled out by automakers, security will be top-of-mind for companies. Autonomous, connected vehicles and IoT are particularly vulnerable to hacking.
  • The rising number and complexity of cybersecurity risks resulted in a new momentum for greater regulation. China’s new cybersecurity law, and the European Union’s General Data Protection regulation are likely to start a slew of government efforts to address the rise of cybercrime.
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Climate Leadership Shake-Up

While the ambitious Paris Agreement was ratified in late 2016, the climate leadership landscape has undergone major shifts since it was negotiated, and the political will needed to support implementation may be increasingly difficult to build and maintain.

While the US played a major role in bringing about the Paris Agreement, the Trump Administration has threatened to pull out of the climate agreement and increase investment in fossil fuels. China is emerging as a once-unlikely champion and leading global investment in renewable energy, and European countries are continuing their advocacy for implementation of the Paris goals.

Additionally, there is increased private sector activity on climate as seen in the number and seriousness of corporate efforts on science-based emissions reduction goals, ambitious renewable energy targets and improving climate-risk disclosure. Regional governments and cities are also speaking out and making significant climate commitments, suggesting leadership from subnational actors and institutions may be what shores up efforts to deliver on the Paris Agreement’s promise.

Chinese Vice Premier Zhang Gaoli meets with UN Secretary-General Ban Ki-moon at the UN headquarters in New York prior to the Paris climate agreement signing ceremony in April, 2016.

Image © PA images

Key signals:

  • With plans to “unleash America’s $50 trillion in untapped [fossil fuel] reserves,” the Trump Presidency may spur increased US investment in oil and gas. President Trump has also promised to revitalize the US coal industry, but demand is set for continued decline in 2017, with China’s falling coal consumption expected to further reduce demand for US exports.
  • Faced with the prospect of the US pulling out of the Paris Agreement, China is stepping up its climate leadership efforts and recently said that US government actions would not affect its transition to becoming a greener economy. China is the world’s largest investor in renewable energy and recently announced plans to spend at least $360 billion on renewable energy by 2020. China also plans to launch its national carbon trading scheme in 2017.
  • The Canadian government has announced plans to have all Canadian jurisdictions introduce a price on carbon pollution by 2018. According to Prime Minister Justin Trudeau, provinces and territories would be able to put a direct price on carbon pollution or opt for a cap-and-trade system.
  • Increasingly, the business community recognizes that a stable environment ensures long-term profitability. Hundreds of companies and investors have called on President Trump to continue US participation in the Paris Agreement. More than 200 global companies so far have committed to science-based emissions reduction targets and continue to take action through ambitious renewable energy goals as well as collaborative coalitions, such as We Mean Business.
  • The divestment movement has also been gaining pace. Institutions and individuals controlling more than $5 trillion in assets have pledged to divest from fossil fuels, which represents 100% growth in the last 15 months.
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Splashy Debut, Uncertain Next Steps for SDGs

Since their launch in 2015, the SDGs have attracted significant corporate, investor and government attention but specific action has been limited.

A small but notable number of companies are publicly supporting the United Nations (UN) Sustainable Development Goals (SDGs or the Goals), launching related initiatives and committing to ambitious targets. There is also an increase in the number of financial tools being launched with the intention of mobilizing capital aligned with achieving the Goals. However, widespread commitment by the private sector, not to mention agreement on metrics for measuring progress, lags.

Financial institutions have launched a number of innovative initiatives to support the SDGs.

Image © iStockphoto

Key signals:

  • Many companies publicly supporting the SDGs have yet to set goals, targets or metrics to track progress, according to a recent multi-sector analysis of 25 European companies from PricewaterhouseCoopers.
  • According to the Global Opportunity Report 2016, 32% of CEOs surveyed were familiar with the SDGs, and 23% were planning a response. But awareness further down the management chain was minimal, with only 5% of mid-level managers aware of plans for a company to act on the Goals.
  • The Business Commission recently published its flagship report Better World, Better Business, in which it argues that sustainable development presents unique opportunities for companies and sustainable business could unlock $12 trillion in new market value.
  • Unilever, SABMiller, Ericsson and Tata Group are amongst a small but growing number of companies demonstrating strong leadership on the SDGs, aligning core strategy with specific Goals and developing measurable targets.
  • Despite lack of action, consumer expectations of corporate leadership on the SDGs remain high. A recent report from Corporate Citizenship found that 81% of millennials believe business has a key role to play in achieving the Goals.
  • The investor community has also been showing interest with financial institutions launching new initiatives to support the SDGs. UNEP Finance Initiative and Principles for Responsible Investment, representing more than 1,500 organizations with combined $60 trillion in assets under management, will work with the UN Global Compact to create innovative financial products that have the potential to redirect public and private finance towards critical infrastructure and solutions key to achieving the SDGs.
  • The World Bank with BNP Paribas will launch a program of equity index-linked bonds, which will allow investors to contribute to the financing of sustainable development projects and benefit from the performance of companies making a significant contribution to the SDGs.
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Whose News?

The power of technology companies to influence public consumption of information and shape public opinion has reached new heights.

The rise of social media as a major distributor and sometimes publisher of news operating with little editorial or quality control has growing implications for government and business. Fake news stories impacted the US election, and with voters heading to the polls in Germany, France, Norway, the Netherlands and many other countries this year, governments are worried that fabricated news reports could tip voting outcomes.

The proliferation of fake news has forced technology companies to reconsider the boundaries of their responsibility for content shared on their platforms, while other businesses are increasingly aware of the serious implications false data may have on corporate brand reputation.

Are we witnessing the death of traditional news? More than 62% of American adults get their news from a social media outlet.

Image © iStockphoto

Key signals:

  • According to Pew Research Center, more than 62% of American adults get their news from a social media outlet, with 44% of the general population getting their news from Facebook.
  • New research suggests that Google search algorithms can shift undecided voter preferences by as much as 20%.
  • Norway’s leading newspaper has called Facebook CEO Mark Zuckerberg “the world’s most powerful editor” but social media companies have long maintained that as technology companies they have limited responsibility for content. However, Zuckerberg recently announced that the company would take steps to counter fake news, and both Google and Facebook released policies aimed to restrict revenue-generating advertisements from being placed on fake-news sites.
  • Pepsi and New Balance experienced first-hand the impact that fake stories can have on consumer trust. After fabricated news article misquoting senior executives from both companies went virals, consumers called to boycott those companies’ products.
  • Fake news has also been causing a storm outside North America and Europe. It was flagged as a security priority for Indonesia, after fabricated stories have exacerbated ethnic and political tensions and placed strain on diplomatic relations with China. A fake news story also recently sparked a Twitter confrontation between nuclear powers Pakistan and Israel.
  • Sweden has called on Facebook to censor fake news voluntarily or else face “compulsory measures” by the government, joining Germany, Finland and Indonesia in the growing ranks of governments that are actively tackling fake news.
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Feeding the Future

As the global population grows and becomes more affluent, issues at the intersection of nutrition, health and climate become increasingly critical and complicated.

Business generally, and food and beverage companies in particular, continue to come under increasing consumer and regulatory pressure to address food-related health and climate challenges. As wealth in middle-income countries rises, diseases of affluence like Type 2 diabetes and obesity are surging, fueled by greater sugar and meat consumption.

Some believe obesity and its associated medical risks now pose a  bigger global health crisis than hunger. Animal protein, and red meat especially, are under fire for both their negative health impacts and large carbon footprint. While meat consumption continues to increase in developing countries, there is evidence of interest in the health and environmental benefits of non-meat proteins in certain markets in Europe and North America.

In the 'Green Cube' by 'XYZ' plants can grow in a hydroponic garden.

Image © PA images

Key signals:

  • Diabetes rates have increased by around 400% globally and obesity rates have doubled since 1980 according to the World Health Organization (WHO), due in part to the increased consumption of sugary beverages in middle-income countries. Studies have shown that meat consumption is also playing a critical role in growing global obesity rates.
  • Beverage companies continue to face public criticism and growing regulation. In 2016, a WHO report urged governments to tax soda in an effort to address diabetes. Soda taxes are expected to come into effect in South Africa this year, followed by the United Kingdom and Ireland in 2018. These countries will join a growing number of governments who have successfully implemented sugar-related taxes over the last five years, including Mexico, France, Norway, Hungary and several US cities.
  • Companies including PepsiCo and Coca-Cola have responded to the sustained public pressure by once again pledging to cut the sugar and calorie content of their products.
  • The livestock industry is a major contributor to our global carbon footprint, accounting for around 18% of total greenhouse gas emissions. In response, countries such as Denmark are considering a tax on red meat in order to fight climate change.
  • The Chinese government plans to cut meat consumption by 50% amongst its 1.4 billion citizens. The measure is designed to improve public health outcomes but could also provide an important reduction in greenhouse gas emissions.
  • A growing number of companies, including one of the world’s largest meat producers, Tyson Foods, are responding to consumer demand for non-meat proteins in Europe and North America. This year will see further growth in plant-based foods as customers prioritize health and wellness.
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Financial Disclosure Requirements Emerging

A range of new policies and recommendations from regulators and standard-setting bodies both guide and push greater company disclosure on sustainability performance.

Investors of all types are increasingly paying attention to sustainability, and a growing number of financial institutions have units dedicated to sustainable investing. While accessing timely and robust data on environmental and social performance remains a barrier to more rapid growth in this area, there is ever more and better disclosure guidance available. A number of regulators and standard-setting bodies have released or are working on new disclosure guidelines, and a growing number of companies are facing pressure from investors to be more transparent about sustainability risks and performance.

In 2016, more than one out of every five dollars under professional management in the US — $8.72 trillion or more — was invested according to sustainable strategies.

Image © iStockphoto

Key signals:

  • According to the US SIF Foundation, in 2016 more than one out of every five dollars under professional management in the US — $8.72 trillion or more — was invested according to sustainable strategies, a number which has consistently grown during the last decade, and is up 33% compared to 2014. Europe has also seen uptake in sustainable investing of all kinds.
  • The Financial Stability Board's Task Force on Climate-related Financial Disclosures has released recommendations for companies on climate change disclosure to be made as part of their mainstream financial filings. This will make it easier for investors to incorporate climate-related risks in their decisions.
  • Momentum has also been building for stock exchanges to review their requirements for disclosure of environmental and social issues. The majority of comments submitted in a recent round of public consultation about disclosure guidelines by the US Securities Exchange Commission, highlighted the need for more disclosure on environmental, social and governance (ESG) issues.
  • FTSE Russell, a global leader in equity indices, plans to release ESG reporting guidance for issuers of both the equity and bond markets.
  • Companies are feeling more pressure from shareholders to disclose data related to sustainability risks. Resolutions submitted last year to Chevron and Exxon Mobil called for stress tests to determine the risk that efforts to curb climate change pose to their businesses. The fact that the resolutions achieved 41% and 38% votes respectively demonstrates the increasing significance with which institutional investors view climate change.
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Access, Antibiotics and Pandemics

Global health institutions from multilaterals to national governments as well as businesses continue to find access to medicines, antibiotic resistance and pandemics the most acute challenges to improved human health.

Ebola and Zika, like most other pandemics that preceded them, took the world by surprise, underscoring the lack of preparedness of the global community to deal effectively with pandemics. As multilateral organizations and governments continue to work on improving readiness for such crises, businesses face increasing pressure to invest in solutions. Such proactive planning, along with improved access to medicines and fighting antibiotic resistance will remain central health themes influencing the corporate sustainability agenda of pharmaceutical companies in particular.

Health workers stand in the Rio 2016 Olympic Park spraying insecticide to combat the Aedes aegypti mosquito that transmits the Zika virus.

Image © PA images

Key signals:

  • The recent epidemic of Ebola claimed more than 11,000 lives, and the outbreak of Zika has been linked to thousands of babies born with underdeveloped brains. These epidemics caught the global community by surprise but the race to develop vaccines is now at full speed. Merck & Co, with the assistance of a public health agency in Canada, developed an experimental vaccine for Ebola that in a recent trial was shown to provide 100% protection, and GlaxoSmithKline, Sanofi and others are actively working on a Zika vaccine.
  • Access to medicines remains a major global health concern with more than 2 billion people still lacking access to medicine. According to the most recent Access To Medicines Index, GlaxoSmithKline, Johnson & Johnson and Novartis are leading global efforts in this arena.
  • In a development seen as a major step to improve global access to medicines, the UN Human Rights Council adopted a landmark resolution, sponsored by a group of developing countries, that calls on states to apply the principle of delinking medical R&D from the prices of medicines, diagnostics and vaccines.
  • The overuse of antibiotics and the spread of resistant super-bugs have become a call to action for business to work on solutions. Scientists have warned that the world is on the cusp of a “post-antibiotic era”, also known as the “antibiotic apocalypse”, when bacteria will become resistant to known treatments. More than 700,000 people are estimated to die each year from drug-resistant infections. This number is predicted to reach 10 million by 2050.
  • Reacting to a call to action by the UN, 13 leading pharmaceutical companies recently presented a new industry roadmap that lays out four key commitments by the private sector to be implemented by 2020 to combat antimicrobial resistance.
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Ever More Consumption

Spurred by increased prosperity and population growth, rising consumption rates in China and other developing markets generate economic growth and sustainability challenges in equal measure.

Across emerging economies, increasing affluence and economic growth are being accompanied by growing consumption and resource use. Despite recent slowdown in GDP growth, China’s consumption rates continue to rise at a rapid rate. Most emerging economies’ growth is outpacing the capacity of their waste management systems, accelerating impacts on human health, land and marine ecosystems.

Companies operating in emerging markets have a unique opportunity to partner with local communities on mutually beneficial solutions to tackle the negative social, economic and environmental impacts of rapid growth.

On China’s Singles Day, Alibaba’s annual shopping event achieved a record $17.8 billion in sales in just 24 hours.

Image © iStockphoto

Key signals:

  • E-commerce has experienced rapid growth in China. In 2016, online shopping made up 15% of total private consumption, a sharp increase since 2010, when it was only 3%.
  • Chinese automotive and electronics sectors have also seen rapid expansion. Car sales are growing at the annual rate of more than 10%, and telecoms giant Huawei estimates that revenues from its consumer-devices division rose by about 50% in 2016.
  • On China’s Singles Day in 2016, Alibaba’s annual online shopping event achieved a record $17.8 billion in sales in just 24 hours – beating the records of previous years and exceeding the combined sales of similar US events, Black Friday and Cyber Monday, and raising concerns of the environmental impacts of packaging waste.
  • Lifecycle impacts of products will be an increasingly crucial issue for companies to tackle, as the Chinese government ramps up regulation with the Extended Producer Responsibility plan, expected to come into effect in 2025. In Latin America, Argentina and Mexico are tackling growing waste challenges with proposed regulations targeting packaging, e-waste and polystyrene.
  • A recent study by the Ocean Conservancy found that the majority of plastic enters the ocean bordering five rapidly growing economies—China, Indonesia, the Philippines, Thailand, and Vietnam. These countries have experienced exploding demand for consumer products but waste-management infrastructure has failed to keep up.
  • Waste is also a growing challenge for many African countries. In Ghana, the public plastic waste problem has been so significant that the government announced a partial ban on light plastics in mid-2015. However, backlash from business forced the government to abandon the plan and instead propose a new law that requires the use of biodegradable plastics.
  • Multinational companies have previously focused on "social license to operate" in emerging markets, but are now gradually moving towards a "license to grow" strategy, which includes measures to address local environmental and social challenges. Unilever is one such company that has shifted to a long-term growth strategy in emerging markets, where it sees reducing environmental impacts such as water consumption, and addressing social challenges such as hygiene and sanitation, as key to its continued growth.
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A Jobless Future Draws Close

Advances in artificial intelligence, robotics and other technologies are causing profound shifts in the labor market, demanding governments and companies to grapple with questions about technology’s impact on jobs and the economy.

As technologies such as robotics, artificial intelligence and sensors advance and become mainstream, the nature of work is rapidly changing. Global giants such as Amazon and Uber, which currently provide jobs to millions of people, are increasingly integrating automation in their operations, replacing humans with machines.

Several countries are due to launch national experiments of basic income as a means to provide universal income as economies change through automation. While estimates of how much automation will affect future employment differ, experts agree that the future workforce is likely to shrink and the nature of jobs that remain will change.

The robots are coming. More than 6% of US jobs are estimated to disappear due to automation by 2021.

Image © iStockphoto

Key signals:

  • Robots will take over 6% of US jobs by 2021, starting with customer service representatives, and taxi and truck drivers, according to a report by market research firm Forrester. A report by Oxford University goes much further suggesting that as much as 47% of all jobs will be automated by 2035.
  • More than 137 million workers in Southeast Asia could lose their jobs to automation in the next 20 years, according to a 2016 report conducted by the International Labor Organization.
  • Finland has become the first country to launch a national pilot of basic income, which will provide an unconditional monthly sum to 2,000 unemployed Finns for two years to replace existing social benefits. Proponents of universal basic income argue that it will ensure better wealth redistribution in the economies rapidly changing due to job automation, protect people against job insecurity and cut red tape associated with social benefits. Italy, the Netherlands and Canada are among the countries that are also launching similar pilots.
  • Uber has started piloting driverless cars in Pittsburg and San Francisco and plans to eventually replace the majority of its drivers with automated cars. The company has also recently acquired a self-driving truck start-up, Otto, and is looking to launch a self-driving long-haul trucking service.
  • If Amazon’s check-out free shop is an indication of things to come, the retail sector should brace for big job losses. The global retail giant is piloting a real-world shop in Seattle, which allows customers to walk in, take what they need and walk out. Their accounts are charged later, automatically.
  • Farming is another sector experiencing profound shifts. Drones, artificial intelligence and sensors are increasingly applied in farming to plant seedlings, plow the fields, sort and package produce and do many other jobs that replace human labor.

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