The Consequences of COVID-19 for the Decade Ahead

The consequences of COVID-19 for the decadeVision 2050 issue ahead brief Contents

Context | 3

Introduction: What color of swan? | 4

1 What COVID-19 has exposed | 5

1. Our dependence on economic growth | 5 2. High levels of inequality within and between countries | 6 3. The weakness of norms and institutions that enable coordination and collaboration | 6 4. Under-investment in healthcare systems, scientific research and preparedness | 7 5. Too much focus on efficiency and short-term value by businesses | 8

2 How COVID-19 could shape the 2020s | 9

1. How COVID-19 interacts with existing socio-economic, political and cultural divides | 9 2. Pressing fast forward on existing trends | 11 3. What COVID-19 makes more and less likely | 12

3 A question of fairness: learning lessons from history to inform a more equitable post-crisis recovery | 13

4 An opportunity to reset capitalism: the role of business | 14

Conclusion | 18

2 Vision 2050 issue brief The consequences of COVID-19 for the decade ahead Context would look like, what key enablers COVID-19, a single disruption, In 2010, the World of transformation business has triggered multiple shocks Business Council for would need to leverage, and how and accelerated many of the Sustainable Development sustainability approaches and macrotrends that we had (WBCSD) released Vision priorities varied in different parts identified. How we respond of the world. to it will undoubtedly shape 2050, a landmark piece the decade to come. of work that laid out a Then 2020 began. COVID-19 pathway to a world in now represents the worst public In this issue brief we will health crisis and certainly the which nine billion people deepest economic downturn of the • outline the vulnerabilities are able to live well, within modern era. It is revealing terrible that COVID-19 is exposing planetary boundaries, vulnerabilities in public health • present the ways in which it systems and economies around by mid-century. will shape the 2020s: how it the world, as well as how major will interact with existing socio- disruptions can rapidly snowball In 2019, WBCSD decided to revisit economic, political and cultural through interconnected systems. its Vision 2050 work – 10 years divides; how it may accelerate or on, we had not made as much We had already developed a decelerate existing trends; how it progress against the Vision 2050 increases the likelihood of other pathway as required. We would picture of the 2020-2030 operating landscape - what the next 10 years major disruptions occurring; and bring the pathway in line with how the recovery might unfold the SDGs, we would update to might throw at business. Not just in terms of sustainability challenges: reflect some of the great changes • explore the opportunity that we wanted to explore more that had unfolded, and we would it offers to reset the norms generally what the world would look reprioritize the critical actions and rules of capitalism in ways like, and consider how that would that business could drive during that enable businesses and affect business’ ability to operate what the UN would dub as the economies to become more successfully. We wanted to identify “decade of delivery”. resilient and regenerative. the headwinds and tailwinds that 40 members signed up to support business might experience over This issue brief has been developed this effort, led by WBCSD’s the next 10 years, and how those by the Vision 2050 team in Executive Committee. A team was might affect our efforts to deliver partnership with Volans and forms built with the support of member on our Vision 2050, of 9+ billion the first of three deliverables from secondments. Workstreams were people living well, within planetary WBCSD’s COVID-19 Response set up to investigate how systems boundaries. We wanted business Project exploring long-term transform, how best to update the to be able to prepare for these resilience. It is best read alongside pathway to Vision 2050, what the trends and shocks that might our Vision 2050 issue brief on 2020-2030 operating environment occur over the decade. the Macrotrends and Disruptions shaping 2020-2030.

3 Vision 2050 issue brief The consequences of COVID-19 for the decade ahead Introduction: What color of swan?

I know that history is going to be dominated by an improbable event, I just don’t know what that event will be.

Nassim Nicholas Taleb The Black Swan Opinions differ on whether society and economy is, arguably, global response to COVID-19 COVID-19 qualifies as a ‘Black Swan’ more prone to systemic shocks helps accelerate the transition event.1 The pandemic was both and crises than ever before). All to a world where 9+ billion predictable and predicted.2 Yet it historical parallels are imperfect, people live well within took most of the world by surprise. but, in terms of the nature and scale planetary boundaries. Governments and businesses alike of disruption, COVID-19 is certainly were caught underprepared - both up there with the biggest crises of Like all crises, the COVID-19 for the health crisis and the resulting the last 100 years or so: the 1918-19 pandemic has the potential to be a social and economic fallout. On flu pandemic; the Great Depression; catalyst for positive change. Clearly, 31 March, Nassim Nicholas Taleb, World Wars One and Two; the oil in the short term, its consequences who coined the term ‘Black Swan’, crises of the 1970s; the 2007-8 are overwhelmingly negative – and waded into the debate: COVID-19 financial crisis. All of these previous attention is rightly focused on how is not a Black Swan in his view; the crises led to profound political, to minimize loss of life and mitigate crisis we are now in was predictable economic and social change - the impact on health, wellbeing and preventable; those arguing some of it good, some of it less so. and people’s livelihoods. But otherwise are simply trying to justify A lot is riding on our response precisely because it is so disruptive their own lack of preparedness.3 to this crisis. a shock to our economic and political systems, there is also Semantics aside, the COVID-19 This paper explores the the possibility that COVID-19 will pandemic is clearly a profoundly implications, risks and opportunities help accelerate the emergence disruptive event that will have of COVID-19 for the achievement of what John Elkington refers to far-reaching short- and long-term of WBCSD’s Vision 2050 agenda, a as ‘Green Swans’.4 consequences for global health, world where 9+ billion can live well, politics, economics and more. within planetary boundaries. Green Swans are profound market The pandemic - and the near-term shifts with exponentially positive response to it - will cast a long • In section 1, we look at what consequences for people and shadow. But it also opens up a COVID-19 has revealed about planet. They rely on a combination window of opportunity. In many the fragility of the systems on of changing paradigms, values, countries, it has made policy which we rely. mindsets, politics, policies, interventions that were previously technologies, business models, • In section 2, we consider how unthinkable inevitable - at least in and other factors – all of which tend the crisis could shape the next the short term. It has temporarily to shift further and faster in times decade. weakened what Milton Friedman of crisis. This is about much more than a few behavioral changes called ‘the tyranny of the status • In section 3, we look back to the necessitated by the pandemic quo’, creating a context in 2008-9 financial crisis to see – e.g., a shift to remote working which radical, systemic change how our responses could affect in some professions/industries – is possible. how the next 10 years unfold. proving sticky; it’s about the extent These windows of opportunity don’t • Finally, in section 4, we look at to which COVID-19 forces us to come along all that often (though the potential role of the business fundamentally re-assess what we they may become more common community in ensuring that the value and how we operate. in the future, since our globalized

1 A Black Swan is a highly improbable outlier event that has a disproportionate impact. 2 https://www.mercurynews.com/2020/03/25/coronavirus-bill-gates-predicted-pandemic-in-2015/ 3 https://www.bloomberg.com/news/videos/2020-03-31/nassim-taleb-says-white-swan-coronavirus-pandemic-was-preventable-video 4 John Elkington, (Fast Company Press, 2020) Green Swans: The Coming Boom in Regenerative Capitalism

4 Vision 2050 issue brief The consequences of COVID-19 for the decade ahead 1 What COVID-19 has exposed At the time of writing, COVID-19 continues to have a devastating impact on lives and livelihoods around the world. It has revealed some hard truths about the scale of the systemic risks we face and the lack of resilience built into our current operating models. We outline five factors that have all contributed to making both the health crisis and the resulting economic crisis worse.

1. OUR DEPENDENCE ON ECONOMIC GROWTH The pandemic – and governments’ There is no responsible way response to it – has triggered a for governments to stimulate dramatic and sustained drop both consumer demand – and thereby in global demand and production. economic growth – until the Around the world, millions of health crisis passes. Yet the businesses and billions of people’s macroeconomic recession livelihoods are suffering or at also has a severe human cost – risk as a result. Governments are especially in countries without scrambling to provide temporary strong safety nets for the millions support to the many businesses of workers who suddenly find and households that have themselves unemployed. This puts no financial buffer. But, as UC governments in a double bind. Berkeley economist Pierre-Olivier The degree to which social Gourinchas notes, ‘flattening the stability and welfare in today’s infection curve inevitably steepens world is dependent on constant the macroeconomic recession economic growth has become a curve.’5 This trade-off was, without source of vulnerability in the face doubt, a key factor in many of the COVID-19 pandemic. policymakers’ initial reluctance to embrace containment measures – a reluctance that may have worsened both the health and economic crises in the long run.

5 https://voxeu.org/content/mitigating-covid-economic-crisis-act-fast-and-do-whatever-it-takes

5 Vision 2050 issue brief The consequences of COVID-19 for the decade ahead 2. HIGH LEVELS OF INEQUALITY WITHIN AND BETWEEN COUNTRIES How people experience the In developing and developed pandemic is partly determined by countries alike, many workers where they sit on the global wealth belong to the so-called “precariat”, and income spectrum. Those at meaning they have likely seen the top have an ample financial decades of wage stagnation, have buffer and access to high-quality little or no job security and lack healthcare; those at the bottom access to benefits such as paid have neither of these things. sick leave or health insurance. The As a result, inequality acts as a “precariat” has seen its numbers ‘threat magnifier’, interacting with swell in recent years as the number the spread of the virus in ways that of contractors, freelancers and gig increase the vulnerability of society economy workers has exploded. as a whole. As Professor Ian Goldin These workers have typically and Robert Muggah note, ‘social been amongst the first to see isolation simply is not an option their livelihoods threatened by for multiple family members the pandemic. For the most part, crowded into a single-room home responsibility for underwriting the or for those who must commute economic welfare of the precariat to put food on the table.’6 has fallen to governments – leaving even the wealthiest countries struggling to cope.

3. THE WEAKNESS OF NORMS AND INSTITUTIONS THAT ENABLE COORDINATION AND COLLABORATION

Both between countries One partial exception has and within them, the lack of been China’s so-called ‘mask coordination in the way that diplomacy’8 – though negative governments and other actors headlines about masks being have responded to the pandemic recalled and test kits proving has demonstrated just how badly defective, as well as about China’s norms and institutions designed initial handling of the pandemic, to facilitate collaboration have have to some extent undermined been eroded in recent years. China’s diplomatic efforts. Some countries have banned Overall, the lack of coordination exports of medical equipment is hampering the effectiveness and critical supplies. Rich nations of the response to both the health have mostly been reluctant to crisis and the economic crisis. offer support to poorer countries. Given how contagious the virus is, Transnational institutions – a failure to confront the pandemic from the G20 to the EU – have in all countries will likely lead to largely been sidelined. In the US, recurring outbreaks as and when individual states and hospitals economic and travel lockdowns have been left to compete with begin to be lifted. one another for scarce medical supplies, driving up prices for all.7

6 https://www.project-syndicate.org/onpoint/viral-inequality-by-ian-goldin-and-robert-muggah-2020-03 7 https://www.washingtonpost.com/business/2020/03/24/scramble-medical-equipment-descends-into-chaos-us-states-hospitals- compete-rare-supplies/ 8 https://thediplomat.com/2020/03/chinas-mask-diplomacy/

6 Vision 2050 issue brief The consequences of COVID-19 for the decade ahead 4. UNDER-INVESTMENT IN HEALTHCARE SYSTEMS, SCIENTIFIC RESEARCH AND PREPAREDNESS ‘This shouldn’t have been a 2019 annual report, Gro Harlem surprise,’ says Dr. Seth Berkley, Brundtland and Elhadj As Sy CEO of Gavi, the Vaccine Alliance. warned that ‘for too long, we ‘This is the third coronavirus that have allowed a cycle of panic has jumped into humans. We and neglect when it comes to had SARS in early 2002. We had pandemics: we ramp up efforts MERS a number of years later, when there is a serious threat, and now we have this virus.’9 then quickly forget about them In fact, between 2011 and 2018, when the threat subsides. It is the World Health Organization well past time to act.’ The rapidly tracked 1483 epidemic events rising death-toll provides a stark in 172 countries.10 As Michael reminder of the very real human Liebreich notes, ‘we should have costs of our failure to act before been acting as though we face the crisis struck. a pandemic threat every three or four years, because that is Under-investment in health the reality.’11 What’s more, the systems is undoubtedly a risk of zoonotic epidemics and contributing factor in many pandemics is increasing as a countries: while global health result of deforestation, climate spending has grown faster than change, urbanization and global the overall economy since 2000, connectedness.12 In January, the rate of growth – particularly David Quammen wrote, ‘we cut in public spending – has the trees; we kill the animals or fallen significantly since 2010 cage them and send them to (compared with the decade markets. We disrupt ecosystems, before) as a result of austerity and we shake viruses loose from programs adopted by many their natural hosts. When that governments in the wake of the 14 happens, they need a new host. 2007-8 financial crisis. (The Often, we are it.’13 case of the United States amply demonstrates that high per Yet, despite its predictability, capita spending on healthcare COVID-19 has rapidly is, in itself, no guarantee of good overwhelmed the health outcomes.) Scientific research systems of even some of the that could inform better risk world’s richest countries – whilst assessment and planning has exposing how far from achieving also struggled to attract adequate universal health coverage we investment. There are an currently are in both developed estimated 30,000 coronaviruses and developing countries. It has in animals: we don’t currently exposed a lack of preparedness know how many of these could that had been flagged for years spread to humans, because the by experts: writing in the Global research hasn’t been done.15 Preparedness Monitoring Board’s

9 https://www.forbes.com/sites/jeffmcmahon/2020/04/01/there-are-30000-more-coronaviruses-environmental-disasters-are-bringing- them-to-your-door/#3492cbc79e85 10 https://apps.who.int/gpmb/assets/annual_report/GPMB_annualreport_2019.pdf 11 https://about.bnef.com/blog/covid-19-the-low-carbon-crisis/ 12 https://www.theguardian.com/environment/2020/mar/18/tip-of-the-iceberg-is-our-destruction-of-nature-responsible-for-covid-19-aoe 13 https://www.nytimes.com/2020/01/28/opinion/coronavirus-china.html?smtyp=cur&smid=tw-nytopinion 14 https://www.who.int/health_financing/documents/health-expenditure-report-2019.pdf?ua=1 15 https://www.forbes.com/sites/jeffmcmahon/2020/04/01/there-are-30000-more-coronaviruses-environmental-disasters-are-bringing- them-to-your-door/#3492cbc79e85

7 Vision 2050 issue brief The consequences of COVID-19 for the decade ahead 5. TOO MUCH FOCUS ON EFFICIENCY AND SHORT-TERM VALUE BY BUSINESSES As Roger L. Martin noted in a 2019 debt during an era of low interest Harvard Business Review article, rates – has also left many ‘resilient systems are typically companies ill-prepared to deal characterized by the very features with an economic shock, such – diversity and redundancy, or as the one triggered by COVID-19. slack – that efficiency seeks to Last October, the IMF warned that destroy.’16 an economic slowdown half as This is a problem since much severe as the 2007-8 global of the corporate world has been financial crisis could result in fine-tuned to maximize efficiency: USD $19 trillion of corporate debt the prevalence of ‘just-in-time’ (nearly 40% of total corporate manufacturing and supply chains debt in major economies) being are a case in point. A survey by owed by firms that cannot cover the Institute for Supply Chain their interest expenses with their Management conducted in late earnings.18 That would be worrying February and early March found enough if the COVID-19 crash that nearly 75% of companies were only half as severe as the were experiencing some kind global financial crisis: unfortunately of supply-chain disruption due it looks like it will be significantly to the coronavirus, and 44% worse.19 In early January, an HBR didn’t have a plan to deal with article warned that companies this kind of disruption.17 that engage in share buybacks ‘deprive themselves of the liquidity An excessive focus on short-term that might help them cope when financial value maximization – and sales and profits decline in an excessive build-up of corporate an economic downturn.’20

As well as exposing vulnerabilities, COVID-19 has also highlighted the type of response governments, businesses and international institutions are capable of when faced with an emergency of a certain type. Many may have been slow off the mark, but the speed and scale with which resources have since been mobilized to battle the public health emergency and to shore up livelihoods and businesses has been record-breaking in many countries. “Whatever it takes” has become a mantra of governments and central banks around the world. The Economist reported in late March that, according to the most conservative estimates, the global stimulus from government spending this year will exceed 2% of global GDP – more than was seen in 2007-9.21 Much more than that may still be needed, given the likelihood that the pandemic will inflict lasting economic damage on many industries – and it remains to be seen what the long-term consequences of governments having to inject so much money into their economies will be.

Clearly, COVID-19 represents a clear and present danger to populations the world over. But so do other, slower-unfolding planetary emergencies – from climate change to poverty and non-communicable diseases. The speed and scale of the global response to COVID-19 raises the question of what we might yet be capable of in the face of these other emergencies.

16 https://hbr.org/2019/01/rethinking-efficiency?mod=article_inline 17 https://amp.theatlantic.com/amp/article/608329/ 18 https://www.imf.org/en/Publications/GFSR/Issues/2019/10/01/global-financial-stability-report-october-2019#Chapter2 19 https://www.project-syndicate.org/commentary/coronavirus-greater-great-depression-by-nouriel-roubini-2020-03 20 https://hbr.org/2020/01/why-stock-buybacks-are-dangerous-for-the-economy 21 https://www.economist.com/briefing/2020/03/26/rich-countries-try-radical-economic-policies-to-counter-covid-19

8 Vision 2050 issue brief The consequences of COVID-19 for the decade ahead 2 How COVID-19 could shape the 2020s

The ripple effects from COVID-19 are likely to be felt for many years. In this section, we look at the ways in which the crisis is interacting with existing global trends and issues – particularly those identified in our Vision 2050 issue brief on the Macrotrends and Disruptions shaping 2020-2030.

1. HOW COVID-19 INTERACTS WITH EXISTING SOCIO-ECONOMIC, POLITICAL AND CULTURAL DIVIDES

COVID-19 affects different groups differently: the old are more vulnerable than the young; men and obese people are more at risk than women and non-obese people; the rich are better protected than the poor. In some cases the pandemic will exacerbate tensions, but it also creates a context in which building solidarity between groups whose interests are normally opposed becomes possible. Key societal fault lines that COVID-19 is interacting with in complex ways include:

currently, those at the bottom of the wealth Income and wealth inequality: and income spectrum are being hit hardest by COVID-19. They are least likely to have access to adequate healthcare. Many cannot afford to stop going to work, putting themselves and others at risk. COVID-19 may, in the short run, reduce inequality by making the rich poorer, but this is likely to be a relatively short-lived effect. Longer term, COVID-19 is likely to increase the level of inequality within and between countries, though the post-crisis policy response (see section 3) will be critical to how this plays out.

there is mounting evidence that the social and economic Gender inequality: fallout from COVID-19 is disproportionately impacting women. Under lockdown, women and girls are taking on the majority of the caring burden – often at the expense of their own health, careers and education. Girls are more likely to be withdrawn from school to save money than boys. Professional women working from home are more likely to take on responsibility for home-schooling and entertaining children than men. Sacrifices made (willingly or not) in the short term are likely to have a long-term dampening effect on women’s earnings. Tragically, too, domestic violence seems to be on the rise in households under lockdown.

9 Vision 2050 issue brief The consequences of COVID-19 for the decade ahead the initial response to COVID-19 around the world Nationalism and globalism: has highlighted the strength of nationalism in many countries and the relative weakness of multilateralism. Many countries closed borders unilaterally and banned exports of medical supplies. The crisis has put a strain on already frayed relations between countries within the Eurozone and EU. It has certainly exacerbated tensions between the US and China – as well as in other important trading relationships. There are few signs – yet – of effective multilateral coordination and collaboration to address the pandemic and its consequences, with many poorer countries left in a desperate situation due to the lack of support from the international community. It is possible that governments may yet choose global – or at least regional – solidarity over nationalist isolation, but it doesn’t look especially likely right now.

irrespective of COVID-19, a generational handover Intergenerational dynamics: of political, cultural and economic power is underway and will continue throughout the 2020s. While it is older people who face the greatest health risk from this pandemic, the longer-term economic fallout will disproportionately impact the young. Those hoping to enter the workforce for the first time in the early 2020s will be doing so in very adverse circumstances. Many will struggle to find jobs at all. Age cohorts that come of age during recessions tend to experience a long-term hit to their earnings. In the same way that the 2007-8 financial crisis and its aftermath left many Millennials disenchanted with the status quo, COVID-19 is likely to color Gen Z’s view of the world for years to come. Many will feel very little loyalty – and, in some cases, a great deal of resentment – towards a system that has failed to deliver prosperity for them. This could drive a wedge between the generations in terms of their economic and political interests.

for all of the above reasons, there is a risk that Polarization and atomization: COVID-19 will exacerbate political polarization and instability. But it has also in many places brought local communities together, fostered a spirit of solidarity and mutual responsibility, and created a new level of awareness of our interconnectedness and interdependence. Societies have been becoming more atomized for decades, but because the process has been slow and incremental, it has met with little resistance. Now that COVID-19 has forced people into isolation, many more are noticing the value of community and relationships. This is not a universal phenomenon by any means and it remains to be seen how much of this spirit of solidarity will persist after the crisis ends, but it at least holds out the possibility of a bottom-up strengthening of the social fabric.

10 Vision 2050 issue brief The consequences of COVID-19 for the decade ahead 2. PRESSING FAST FORWARD ON EXISTING TRENDS

As historian Yuval Noah Harari notes, the nature of emergencies is that they ‘fast-forward historical processes’.22 Already, the crisis is acting as an accelerant for several trends that were already underway.

COVID-19 is prompting both companies and governments to focus Reshoring: on securing critical supplies, with some governments even banning exports of protective equipment. In the wake of the crisis, many companies will look to increase the resilience of their supply chains by reducing complexity and embracing diversity and redundancy, not just efficiency. The trend of bringing production closer to consumer markets (“reshoring”), which was already starting to happen as a result of technological change and turbulent geopolitics before COVID-19, is likely to accelerate as a result of the crisis, though the pace of change will be uneven across different industries. ‘In terms of physical flows, 2019 will likely go down in history as the time of peak supply chain fragmentation’, argues Professor Ian Goldin of the Oxford Martin School.23

physical lockdown has accelerated the digitalization of many Digitalization: parts of the economy. E-commerce sites have thrived while bricks-and-mortar retail has been largely shut down in many parts of the world. Remote working, schooling and telemedicine have become much more prevalent for those lucky enough to benefit from it. So too, alas, has cybercrime. Some of this is a short- term effect of the crisis, but some behavioral changes will stick. Furthermore, the challenges and disruptions caused by COVID-19 are turbocharging the rate of technological innovation in some areas – from collaborative medical research and the race to develop a vaccine, to the deployment of 3D design and printing in manufacturing.24

many states have rapidly deployed existing surveillance technologies Surveillance: to help monitor and slow the spread of the pandemic, often enlisting large tech companies as essential partners in this endeavor. Some governments appear to be using the crisis as an opportunity to override resistance to surveillance measures, introducing emergency regulations that are likely to outlast the emergency. Ending lockdowns and ensuring the world is more prepared for the next pandemic will almost certainly mean implementing ever more sophisticated systems of ‘bio-surveillance’. So-called health or immunity passports that use biometrics are being widely touted as a means of gradually easing lockdowns. Likewise contact tracing. These practices raise concerns about data ethics and privacy. There is a chance, however, that the pandemic will make people more willing, at least in the short term, to give up a degree of privacy for the promise of greater security – as has been the case with other shocks, for instance terrorist attacks, in the past.25

during the last decade, the number of countries moving in an Autocratization: authoritarian direction has overtaken the number of countries moving in a democratic direction for the first time since World War II.26 Already some authoritarian rulers are using this crisis as an opportunity to consolidate power and suspend democracy. As more elections are postponed and public gatherings banned on health grounds, many countries where democratic norms and institutions were already weak before COVID-19 may slide towards more autocratic forms of government.

22 https://www.ft.com/content/19d90308-6858-11ea-a3c9-1fe6fedcca75 23 https://www.oxfordmartin.ox.ac.uk/blog/the-world-after-coronavirus-cannot-be-the-same/ 24 http://blog.else-corp.com/2020/03/how-3d-design-is-transforming-supply-chain/ 25 https://www.pewresearch.org/fact-tank/2016/02/19/americans-feel-the-tensions-between-privacy-and-security-concerns/ 26 https://www.tandfonline.com/doi/full/10.1080/13510347.2019.1582029

11 Vision 2050 issue brief The consequences of COVID-19 for the decade ahead 3. WHAT COVID-19 MAKES MORE AND LESS LIKELY

As well as exacerbating existing • Urban populations’ experience • A tipping point for the global tensions and accelerating of cleaner air during lockdown energy transition (some existing trends, COVID-19 may lead to longer-term analysts now believe that fossil may have changed the way pressure on municipal and fuel demand may have peaked certain trends play out over national governments to cut in 2019)27 that in turn triggers the decade ahead: air pollution permanently. a sudden correction in the way financial markets price • The rate of urbanization may There is also a possibility climate risk. decrease as higher infection of domino effects, with the risk in cities makes them COVID-19 pandemic triggering • A societal and regulatory less attractive places to other major disruptions over “techlash” later in the decade live and work. the months and years ahead. prompted by the fact that A global pandemic was one of Big Tech will almost certainly • Some industries (eg., travel ten potential disruptions we emerge from the current crisis and tourism) may never fully highlighted in our analysis of the even more dominant relative to recover as certain temporary 2020-30 Operating Environment (potential) competitors. behavioral shifts endure. before COVID-19 struck. The This is especially likely to be other nine potential disruptions • A Global Green (New) Deal true of industries that rely have probably all become more made more likely by a shift in on discretionary consumer likely as a result of the pandemic. citizens’ expectations about spending (which will almost the role of government in certainly be lower for years These include: responding to crises and to come) and/or where the need for major public the behavioral changes • A financial crisis triggered by investment to stimulate required during lockdown the overlay of the severest economic recovery. have other social or economic contraction in decades onto an economy environmental benefits. In short, rather than expect a already carrying extremely “new normal” in the wake of • Trust in science and experts high levels of debt, particularly COVID-19, we should perhaps has received a temporary in the corporate sector. think in terms of a “new boost during the pandemic abnormal” in which disruptions and the value of competent • Popular uprisings that lead that trigger rapid and extreme government has been to regime change as real outcomes (compared with highlighted. This may take the economic hardship bites the status quo) become wind out of certain populist and populaces turn on increasingly common. leaders’ sails, though it is governments perceived to unlikely to turn the tide on have handled both the health populism as a whole. and economic crises poorly.

• A newfound appreciation for low-paid “key workers” may translate into a political shift in favor of egalitarianism.

27 https://carbontracker.org/was-2019-the-peak-of-the-fossil-fuel-era/

12 Vision 2050 issue brief The consequences of COVID-19 for the decade ahead 3 A question of fairness: learning lessons from history to inform a more equitable post-crisis recovery The economic hangover The decisions taken by But the worst-case outcome is from COVID-19 is likely to be governments in the wake of the not (yet) baked in. We can avoid painful and long. As two World 2007-8 financial crisis sowed the repeating the mistakes that Bank economists note, ‘many seeds for a populist backlash were made in the aftermath of households will have depleted in the second half of the 2010s 2007-8. That means structuring savings or large debt and will because they created a very recovery packages in ways that need to save more and consume strong perception of unfairness: ensure the most vulnerable less. Similarly, firms and financial those who had caused the crisis members of society get the institutions will need to rebuild received bailouts and saw their pay It means prioritizing best deal. their balance sheet and will thus packages recover quickly post- the interests of workers and SMEs be less able to invest. [The same crisis; those who were innocent as the engines of our economies. is likely to be true of governments bystanders paid the price in the And it means choosing public and central banks.] It is reasonable form of a decade of fiscal austerity investment, coupled with tax to expect aggregate demand and stagnant wages. A 2019 Ipsos reform, rather than austerity, as to remain depressed for an poll carried out across 27 countries the recipe for recovery – ideally extended period after the found that 70% of people believe using investment to kickstart the pandemic is over.’28 that their country’s economy is decarbonization of economies, rigged to advantage the rich and creating jobs in the process. If In this context, the design and powerful.29 This is consistent we get this right, COVID-19 could implementation of government with many other polls from earlier massively accelerate progress policies as we move from rescue in the decade. towards Vision 2050. to recovery will play a crucial role in determining what the long-term Given this starting point, a poorly legacy of COVID-19 looks like. designed response to COVID-19 Looking back from 2030, we may that further exacerbates the see COVID-19 as a catalyst for perception of unfairness could positive change that helped shift have disastrous consequences for the global economy onto a more democracy and capitalism. As Rana inclusive and sustainable path. Foroohar wrote in the Financial But we may also see it as Times on 22 March, ‘if we want an event that exacerbated capitalism and liberal democracy to divisions within and between survive COVID-19, we cannot afford countries, catalyzing a great to repeat the mistaken “socialize unravelling that led to instability the losses, privatize the gains” and even violence. approach used a decade ago.’30

28 https://blogs.worldbank.org/climatechange/for-a-sustainable-recovery-from-covid-19-coronavirus 29 https://www.ipsos.com/sites/default/files/ct/news/documents/2019-09/populist_and_nativist_sentiment_in_2019_-_global_advisor_ report_-_gb.pdf 30 https://www.ft.com/content/c98362f0-6aa4-11ea-800d-da70cff6e4d3

13 Vision 2050 issue brief The consequences of COVID-19 for the decade ahead 4 An opportunity to reset capitalism: the role of business

As we have seen, crises can accumulate over time. It is clear imperative, particularly in the fast-forward processes that that deforestation, biodiversity immediate crisis response phase; were already underway. This is loss, climate change and as we move into the post-crisis also true for the debate about inequality all contributed either to phase though, and Resilience the future of capitalism and increasing the risk of a crisis like will both become Regeneration the role of business in shaping the one we’re in or making increasingly important and will that future, which was already our societies and economies be where focus needs to turn. gathering momentum before more vulnerable in the face of it. the pandemic struck. Given this, there is an opportunity The value of building resilience post-crisis to accelerate work at all levels – from individual Shifting to a more stakeholder- that was already underway to businesses to supply chains oriented form of capitalism enable markets to integrate to the global economy – should becomes more, not less, social and environmental be self-evident in the wake important in the wake of impacts into financial valuations, of COVID-19, given what the COVID-19. The economic helping to create stronger pandemic has exposed about consequences of the pandemic incentives for resilience- our vulnerability to systemic will put a severe strain on political building, decarbonization shocks that are predictable. and social stability. Only by and inclusive growth. Regeneration matters because ensuring the recovery is inclusive it is only by regenerating – benefitting all stakeholders – From the perspective of business, economies, communities and can we avoid a populist backlash COVID-19 responses need to the biosphere that we will be able against ‘capitalism’ that would accelerate an expansion of the to achieve true resilience in an ultimately make the recovery corporate sustainability agenda interconnected, interdependent slower and more unequal. that was nascent before the world. How companies contribute crisis. One way to understand to systemic efforts to foster COVID-19 has also provided this necessary expansion is in resilience and regeneration will a stark reminder of the scale terms of “the three Rs (3Rs)”:31 be a vital test – and a potential of systemic risks that can build is the principle source of opportunity – in the Responsibility up – and the exponential impact frame through which companies post-pandemic world. these can have – when we have viewed sustainability issues allow negative externalities to to date and it will remain a critical

31 https://volans.com/project/tomorrows-capitalism-inquiry/ 32 See, for example, Business Fights Poverty’s COVID-19 Response Framework (https://businessfightspoverty.org/articles/covid- 19-response-framework/), or the World Economic Forum’s Stakeholder Principles in the COVID Era (http://www3.weforum.org/ docs/WEF_Stakeholder_Principles_COVID_Era.pdf) 33 https://www.ft.com/content/040be2bd-a202-46e7-92d2-2c227c8e0465

14 Vision 2050 issue brief The consequences of COVID-19 for the decade ahead financial management.34 “Just-in- Building systemic resilience will THE 3RS IN THE CONTEXT time” production and procurement require collaboration across OF COVID-19 may give way somewhat to “just- business, finance and government Several organizations have in-case” inventories and diversity to ensure systemic risks are published frameworks and of both suppliers and customers. priced into markets, and to principles to guide business in For some, it will require the implement local, national how to respond to the COVID-19 development and roll-out of new and international mitigation 32 emergency responsibly. business models, designed for an and adaptation strategies. The emphasis in these is age of physical retrenchment and A useful starting point will be for on supporting vulnerable digital expansion. businesses to collaborate with stakeholders through the crisis - other market actors to improve and rightly so. Bailouts and other In terms of financial resilience, the quality and consistency forms of state aid also impose companies requiring bailouts may of ESG data and climate risk responsibilities on businesses, come under pressure to build up disclosures, in line with the whether or not government stronger cash reserves – though recommendations of the support packages come with there is also a risk that some Taskforce on Climate-related formal strings attached. For companies will assume that they Financial Disclosures (TCFD) and example, in some countries, can always rely on governments the EU taxonomy for sustainable companies on the receiving end to step in and do “whatever it activities. This will enable markets of state aid are under pressure takes” in a crisis, so why bother to better price in risks, triggering a to reduce or scrap dividend investing in preparedness? reorientation of capital flows away payments, on the grounds that Nonetheless, for publicly- from the most at-risk businesses for them to distribute profits to listed companies, buybacks, and towards those that are shareholders at this moment in dividends and remuneration contributing to the emergence of 33 time would be irresponsible. schemes will almost certainly a more resilient and regenerative be more closely scrutinized in economy through their core In the coming months and years, the aftermath of the pandemic. business activities. Businesses companies will need to prioritize So too will tax arrangements: will need to use these disclosures resilience-building to ensure they some governments have already as the basis for engagement and are better prepared for the next indicated that they will not bail out dialogue with investors, working shock when it comes. For many, companies that are registered in to rebuild confidence by clearly this will mean establishing a better tax havens. and transparently articulating balance between efficiency and strategies for boosting resilience resilience in everything from and regeneration in the wake supply chain configuration to of the crisis.

34 https://www.wsj.com/articles/efficiency-isnt-the-only-economic-virtue-11583873155 35 See, for example, https://www.sitra.fi/en/news/seven-sustainable-recovery-measures-for-the-coronashock/; and https://www.euractiv.com/section/energy-environment/opinion/emergence-from-emergency-the-case-for-a-holistic-economic- recovery-plan/

15 Vision 2050 issue brief The consequences of COVID-19 for the decade ahead economy have already been recovery is where the demand BUILDING BACK BETTER tabled35 – and doubtless many will come from, particularly Given the expanded role that more will emerge over the as it is unlikely to come from governments will inevitably play months ahead. All will require consumers, who may well spend in the post-COVID economy, support, collective ambition, less than they did pre-COVID-19 new models of partnership and and leadership. for years to come. The challenge collaboration between business, of decarbonizing entire sectors government and finance are also For stimulus and investment to and economies can be the vital. Forward-looking companies work, demand is needed, as well source of demand needed to have a role to play in advocating as capital. After the Second World kickstart economic recovery. post-crisis reforms and policies War, the need to physically rebuild For companies, setting Science- that will ensure that the direction Europe’s cities and industry Based Targets for climate and of the economic recovery is meant there was ample demand biodiversity – and then working aligned with the SDGs, the Paris for the capital provided through with partners across their value Agreement and WBCSD’s Vision the Marshall Plan and it was put to chains to achieve them – is a 2050. Many proposals for how to productive use. COVID-19 has not way to contribute to the goal ensure stimulus packages foster wrought physical destruction, so of building back better. a just transition to a lower carbon a vital question for the economic

16 Vision 2050 issue brief The consequences of COVID-19 for the decade ahead ensure that the risks and costs GIVING TEETH TO 3. Pay and incentives: associated with systemic crises if companies are to be run for STAKEHOLDER CAPITALISM are more equitably distributed the benefit of all stakeholders, COVID-19 has exposed many before the next crisis hits. executive remuneration needs of shareholder capitalism’s to be linked to a broader set vulnerabilities: a lack of financial Turning stakeholder capitalism of metrics that reflect the and supply chain resilience from rhetoric into reality value that companies create created by the relentless requires changes to be for all stakeholders, including pursuit of efficiency and short- made in three areas: communities and the term profit maximization; natural environment – not chronic under-investment in 1. Ownership and governance: just shareholders. preparedness for systemic there are many examples shocks; incentives that drive around the world of corporate On the surface, these changes companies to offer precarious governance structures and may seem unrelated to COVID-19 rather than stable forms of ownership models that ensure responses and priorities, but employment – and to leave vital the interests of different they are in fact critical to ensuring public services underfunded. stakeholders are brought to that the economic recovery is As we have seen, the rules and bear on corporate decision- sustainable and inclusive. This norms of shareholder capitalism making. These should be is an opportunity to confront the exacerbated the crisis by refined and replicated. broken norms and incentives at undermining resilience at the heart of our current model of

all levels. 2. Law and regulation: capitalism and make substantive maximizing stakeholder reforms. If we don’t, systemic risks value rather than maximizing This serves only to strengthen the and vulnerabilities will continue shareholder value needs to argument for shifting towards a to accumulate, making future become the default setting for more stakeholder-oriented model. shocks both more likely and business. In some instances, As governments, businesses more dangerous. and investors work together on laws will need to be rewritten, post-crisis recovery plans, there or the interpretation of existing is an opportunity to reset rules laws challenged, to ensure and norms. A new social contract that all companies are obliged between workers, firms and to measure and manage governments is needed in order to non-financial impacts. strengthen social safety nets and

17 Vision 2050 issue brief The consequences of COVID-19 for the decade ahead Conclusion The Vision 2050 Refresh team A guidance for business detailing COVID-19 will be with us is further exploring the main key actions that will support for some time. The impacts concepts discussed in this issue improved long- term resilience likely need to be measured brief. A deeper review of the is also planned. In addition, in years and decades rather macrotrends and disruptions WBCSD’s COVID-19 Response than weeks and months. (both related to COVID-19 and Project is looking at immediate The pandemic has revealed those that were preceded recovery options in more detail how quickly and decisively it) is already available in our in its Return to “Normal” Vision 2050 issue brief on the Scenarios project. governments, business and Macrotrends and Disruptions society can act when an shaping 2020-2030 (also backed We will at all times continue emergency is perceived to be up by supporting research to evaluate the impacts of the real. We must acknowledge into the 2020-2030 Operating COVID-19 pandemic, working to that we have not seen similar Environment). We will also be keep transformation of systems, levels of action taken when it releasing a Vision 2050 issue in support of our Vision 2050 of 9+ billion people, living well, comes to challenges such as brief that will more deeply within planetary boundaries, at climate change, biodiversity examine the role that business can and should play in bringing the heart of business’ response and inequality. Nonetheless, about changes in support of to this crisis and to our long-term change nearly always follows Stakeholder Capitalism. recovery efforts. a shock, and change is at the heart of all human progress. It is up to each and every one of us to drive the recovery in the direction of greater economic, social, and environmental resilience.

18 Vision 2050 issue brief The consequences of COVID-19 for the decade ahead ACKNOWLEDGEMENTS ABOUT WBCSD DISCLAIMER This issue brief was developed WBCSD is a global, CEO-led This publication has been as part of our work to update organization of over 200 leading developed in the name of WBCSD’s Vision 2050, a project businesses working together WBCSD. Like other WBCSD that is being driven forward with to accelerate the transition to publications, it is the result of a the support and leadership of a sustainable world. We help collaborative effort by members 40 WBCSD members and the make our member companies of the secretariat and senior WBCSD Executive Committee. more successful and sustainable executives from member The issue brief was produced by focusing on the maximum companies. A wide range of in partnership with Volans. positive impact for shareholders, members reviewed drafts, It was reviewed by both WBCSD the environment and societies. thereby ensuring that the members and Vision 2050 document broadly represents Refresh project members. Our member companies come the perspective of the WBCSD We thank all reviewers for from all business sectors and all membership. Input and feedback their valuable inputs. major economies, representing a from stakeholders listed above combined revenue of more than was incorporated in a balanced USD $8.5 trillion and 19 million way. This does not mean, employees. Our global network however, that every member COORDINATORS of almost 70 national business company or stakeholder agrees councils gives our members WBCSD: Julian Hill-Landolt with every word. unparalleled reach across the Volans: Richard Roberts globe. Since 1995, WBCSD has been uniquely positioned to work with member companies Copyright along and across value chains ABOUT VOLANS to deliver impactful business Copyright © WBCSD, May 2020. solutions to the most challenging Volans is a transformation sustainability issues. agency and think tank. Its work is about challenging and Together, we are the leading guiding leaders within global voice of business for companies, government, civil sustainability: united by our society and innovative start-ups vision of a world where more to address systemic challenges than 9 billion people are all living and catalyse change that goes well and within the boundaries beyond the incremental. of our planet, by 2050.

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