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A Special Report by
THE ESGT MEGATRENDS MANUAL An Annual Roadmap for Navigating Risk and Opportunity in Tectonic Times 2022-2023 EDITION
By Andrea Bonime-Blanc
EDITOR ANA C. ROLD ART DIRECTOR MARC GARFIELD PUBLISHER DIPLOMATIC COURIER | MEDAURAS GLOBAL WASHINGTON, DC
IN PARTNERSHIP WITH GEC RISK ADVISORY NEW YORK CITY
DIPLOMATIC COURIER | 3
ABOUT THE AUTHOR Andrea Bonime-Blanc, JD/PhD, is Founder and CEO of GEC Risk Advisory, a global strategic governance, risk, ESG, ethics, and cyber advisor to business, NGOs, and government. A former senior global executive at Bertelsmann, Verint and PSEG, she serves on several boards and advisory boards (including Crisp, WireX Systems, the Cyber Future Foundation & NACD New Jersey Chapter), is Independent Ethics Advisor to the Financial Oversight and Management Board for Puerto Rico, Independent Integrity Advisor to the Platform for Social Impact. She is a life member of the Council on Foreign Relations and the recipient of a NACD Directorship 100 Recognition in 2022. Andrea is a sought-after global keynote speaker, a professor of Cyber Leadership and Resilience at NYU, and has authored many articles and several books, most recently Gloom to Boom: How Leaders Transform Risk into Resilience and Value (Routledge 2020) and the annual e-book The ESGT Megatrends Manual 2022-2023 (Diplomatic Courier 2022). She was born and raised in Germany and Spain, speaks several languages, lives in New York City, and tweets as @GlobalEthicist.
GEC RISK ADVISORY GEC Risk Advisory is a strategic advisory firm delivering governance, risk, ethics, ESG, cyber and crisis advisory services to business, nonprofits and governments around the world. For more information, please visit: www. GECRisk.com.
DIPLOMATIC COURIER Diplomatic Courier is a global media affairs network spanning 182 countries and five continents, connecting global publics to leaders in international affairs, diplomacy, social good, technology, business, and more. Our think tank, the World in 2050, convenes multi-stakeholders in the private and public sectors through a series of global summits and forums, educational material, research papers and reports, and digital and print media.
ACKNOWLEDGMENT The author and the publisher wish to thank Meridian International Center and the Meridian Corporate Council for their partnership in launching this publication as part of Meridian’s new Responsible Business Diplomacy Initiative. The Initiative builds on the foundation of the Meridian Corporate Council’s work to drive global economic security, prosperity, and innovation by aligning private and public sector leaders on ESG priorities and the standards required to build a more sustainable, prosperous world for all.
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TABLE OF CONTENTS 1. Welcome Back! 06 The Year Systemic Situational Awareness Became an Imperative 09 What’s New? The Five Megatrends of 2022-2023 12 Revisiting Key Concepts and Definitions
2. The Five ESGT Megatrends for 2022-2023 16 Megatrend #1 Geopolitical Tectonic Shifts Catalyzing 31 Megatrend #2 Climate and War Propelling Complex Risk 47 Megatrend #3 Tech Disruption Becoming Multidimensional 63 Megatrend #4 Stakeholder Capitalism and ESG Intertwining 79 Megatrend #5 Leadership and Institutional Trust Recalibrating
3. The 2022-2023 Leadership ESGT Blueprint 92 A Leadership Battle Plan to Deal With Geopolitical Tectonic Shifts Catalyzing 92-93 A Leadership Battle Plan to Deal With Climate and War Propelling Complex Risk 93 A Leadership Battle Plan to Deal with Tech Disruption Becoming Multidimensional 94 A Leadership Battle Plan to Deal With Stakeholder Capitalism and ESG Intertwining
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1. WELCOME BACK! The Year Systemic Situational Awareness Became an Imperative It’s time for the world to recognize that we are living in an era of continuous risk and crisis and that denying it, avoiding it, or considering it a passing thing is no longer tenable. The truth is that the 21st Century has been a century—so far—of periodic, diverse, and material environmental, social, governance and technological (ESGT) shocks to the global system. A look at the (incomplete) list in Table 1 should suffice to make this point. Table 1 Most Significant Global ESGT Shocks/Trends of the 21st Century Event/Trend
Year
ESGT Type
Climate Change rises and rages
2000-to date
E
Cyber becomes a new dimension for action, warfare, and crime
2000-to date
T
Al Qaeda terrorists attack the United States
2001
G, S
Afghanistan war begins
2001
G, S
Iraq war begins
2003
G, S
Sustainability, ESG start to gather steam
2003-to date
E, S, G
Democracies begin to decline worldwide
2005-to date
G
2008-11
G, S
Arab Spring fizzles and Syrian civil war begins
2011
G, S
Putin invades Ukraine (Crimea and Donbas) and the global disinformation wars intensify
2014
G, S, T
Donald Trump is elected U.S. President (with alleged Russian interference)
2016
G, S, T
UK “Brexit” Referendum (with alleged Russian interference)
2016
G, S, T
COVID-19 Pandemic hits the world
2019
S
Russia invades Ukraine
2022
G, S, T
The global Great Recession
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A look at Figure 1 from the World Economic Forum’s Global Risks Report 2022 (WEF GRR 2022), which was published before the Russian invasion of Ukraine, should give pause to the optimists. No less than 89.3% of respondents (2000+ risk professionals) paint a gloomy outlook for the next three years, while 10.7% indicate that there will be an “accelerated global recovery.” Alarmingly, because this survey was taken in late 2021, before the Russian invasion of Ukraine, it does not factor in that shock to the global system. If the same people were surveyed in mid-2022, we’d probably have almost all responding negatively. On the other hand, the tectonic shifts we are experiencing because of this violent attack on Ukraine may yield opportunities and even silver linings for the future of democracy, the environment, and global energy security. Figure 1 World Economic Forum Global Risks Report 2022 Outlook Survey
Source: World Economic Forum Global Risks Report 2022 (WEF GRR 2022)
Why is this year’s Megatrends Manual’s subtitle “The Year Systemic Situational Awareness Became an Imperative”? If there ever was a time when each of us—whether we are students, managers, officials, educators, businesspeople, or board members—needed to readjust our gaze on the horizon, it’s now. After two years of a global pandemic, dire climate developments and warnings, the first regional brutal war in Europe in decades and the threat of more of the same for the foreseeable future—pandemics, climate catastrophes and war—we must DIPLOMATIC COURIER | 7
get out of our comfort zones and understand these new dynamics so that we can help steer our respective organizations, communities and nations in the right and most beneficial direction. Figure 2 helps to make my point—we are used to looking at world maps with the Americas on the far left or in the middle, but we are not used to looking at the world from the North or South Poles. With climate change, seismic geopolitical dynamics, shifting supply chains, massive migratory changes and more, it is time to adjust our lenses—glasses, microscopes, and telescopes—to gain a more powerful situational awareness to navigate the new, challenging shoals we are and will be in for decades to come. The answer to the realization that we are living in a time requiring greater situational awareness is that being prepared, resilient, agile, and constructive about dealing with it is the only way to succeed. Figure 2 - North Pole Map Showing Agriculture Climate Change 2001-2099
Source: The Economist.
Each year, the ESGT Megatrends Manual examines a handful of ESGT Megatrends to dissect and illustrate, using some of the best, most useful data from premier global resources ranging from the World Economic Forum and major university research centers to the Allianz Risk Barometer, the Council on Foreign Relations, and other leading practical thought leadership sources. And we provide cases of both risk and opportunity, of downside and upside, that help illustrate the Megatrends. 8 | ESGT MEGATRENDS MANUAL
This publication comes out mid-year for two reasons: 1) ESGT Megatrends are multi-year phenomena and as such don’t begin and end with any particular annual cycle; and 2) by not piling on other superb annual publications published at the end or beginning of each calendar year we are actually able to fully take advantage of their wonderful insights, data, and cases in this publication. The ESGT Megatrends Manual is intended to be a practical handbook for any type of leader of any type of organization or sector to use as a big picture guide to understand ESGT context and critical situational awareness and to help develop actionable ideas for strategy, innovation, resilience, and sustainability. Each megatrend discussion culminates in a “Leadership to Do’s” section providing actionable takeaways to consider. The E-book ends with a summary overview of all five megatrends leadership to do’s laid out as an ESGT Megatrends Blueprint for the coming year.
What’s New? The Five Megatrends of 2022-2023 Last year’s first edition started with: We live in tectonic times. We live in systemic times. We live at a time of deep interconnectedness. We live in times of fast, transformative, and even furious change. We live at a time of global systemic risk and opportunity. ESGT—environment, society, governance, and technology—issues, risks, and opportunities are more deeply (and more rapidly) interconnected and intertwined than ever before in human history if even only because technology has become so intensely fast, disruptive, and life-changing— for both good and bad. The above comments apply to this coming year—with a vengeance. Tables 2 and 3 provide, respectively the new ESGT Megatrends for 2022-2023 and the one’s for last year 2021-2022.
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Table 2 The 5 ESGT Megatrends of 2022-2023 MEGATREND #1 – Geopolitical Tectonic Shifts Catalyzing MEGATREND #2 – Climate and War Propelling Complex Risk MEGATREND #3 – Tech Disruption Becoming Multidimensional MEGATREND #4 - Stakeholder Capitalism and ESG Intertwining MEGATREND #5 - Leadership and Institutional Trust Recalibrating Table 3 The 5 ESGT Megatrends of 2021-2022 MEGATREND #1 – Tech Disruption at the Speed of Light MEGATREND #2 – Leadership and Institutional Trust Plummeting MEGATREND #3 – Complex Interconnected Risk Intensifying MEGATREND #4 – Global Geopolitical Tectonics Shifting MEGATREND #5 - Stakeholder Capitalism Rising The keen eye will note some differences between the first edition and this one. While the overall themes of the megatrends for both years have not changed, their priority, rank, and important nuances have. To save you from figuring it out, below are three more tables: •
Table 4 compares the two years’ reprioritization of the megatrends
•
Table 5 shows how each megatrend evolved from a nomenclature standpoint; and
•
Table 6 shows the two sets of megatrends side by side with arrows to show their evolution from both a priority and nomenclature standpoint.
The reprioritization and recalibration of each megatrend underscore the evolution of these multiyear megatrends which, although continuing to exist from year to year, are morphing because of the dynamics of the global marketplace and conditions, represented by new facts, data, cases, and developments.
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Table 4 2021-2022 Megatrends Compared to 2022-2023 Megatrends – Reprioritization (Reflecting changes in the priority of each megatrend) 2021-2022
2022-2023
1. Tech Disruption at the Speed of Light
1. Geopolitical Tectonic Shifts Catalyzing
2. Leadership and Institutional Trust Plummeting
2. Climate and War Propelling Complex Risk
3. Complex Interconnected Risk Intensifying
3. Tech Disruption Becoming Multidimensional
4. Global Geopolitical Tectonics Shifting
4. Stakeholder Capitalism and ESG Intertwining
5. Stakeholder Capitalism Rising
5. Leadership and Institutional Trust Recalibrating
Table 5 2021-2022 Megatrends Compared to 2022-2023 Megatrends – Redefinition (Reflecting changing circumstances and nuances for each megatrend) 2021-2022
2022-2023
Tech Disruption at the Speed of Light (1)
Tech Disruption Becoming Multidimensional (3)
Leadership and Institutional Trust Plummeting (2)
Leadership and Institutional Trust Recalibrating (5)
Complex Interconnected Risk Intensifying (3)
Climate and War Propelling Complex Risk (2)
Global Geopolitical Tectonics Shifting (4)
Geopolitical Tectonic Shifts Catalyzing (1)
Stakeholder Capitalism Rising (5)
Stakeholder Capitalism and ESG Intertwining (4)
Table 6 - ESGT Megatrends Compared 2021/22 to 2022/23
Revisiting Key Concepts and Definitions If you’re familiar with our first edition from 2021-2022 you will know the who, what, when, why, and how of the annual Megatrends Manual, but if you are not, below are a few basics:
How Is the Approach to Each Megatrend Organized? • • • •
Definition and brief explanation of how it fits into the ESGT discussion—is it primarily an environmental, social, governance, or technological issue, risk, or opportunity? The danger and the risk of the megatrend is explored through illustrative data, cases, and analysis The promise and the opportunity of the megatrend is explored through illustrative data, cases, and analysis Each megatrend discussion concludes with practical, actionable leadership “to do’s” relating to that megatrend
What Is, and Why “ESGT”? My readers are probably familiar with the now ubiquitous concept of ESG (environmental, social, governance) which in the past few years has become a mainstay of the business and financial world and, increasingly, the regulatory as well as the object of politically polarized and even bellicose stakeholder discussions. To level set, here’s a simple definition of ESG from an ESG investment firm that is typical of what people mean by ESG: “ESG means using Environmental, Social and Governance factors to evaluate companies and countries on how far advanced they are with sustainability. Once enough data has been acquired on these three metrics, they can be integrated into the investment process when deciding what equities or bonds to buy.” Source: Robeco 2022. I have argued elsewhere that ESG (or what I like to call ESGT—see below) is about much more than what the investor community says it is. Speaking from the standpoint of an entity and its key stakeholders— whether business, NGO, or even governmental—ESG is about organizational resilience, strategic long-term sustainability, and serving the interests and expectations of key stakeholders. 12 | ESGT MEGATRENDS MANUAL
I developed the concept of ESG + technology or ESGT in my 2020 book Gloom to Boom: How Leaders Transform Risk into Resilience and Value where I made the case that if businesses and other types of organizations are concerned about, and organizing themselves around, the intangible risks and opportunities that we are calling ESG, they would make a big mistake to not think of the many and rapidly surging technological issues, risks, and opportunities we deal with as people, entities, and nations every day. See Table 7. Quoting myself from a piece I wrote for the World Economic Forum in late 2020 called “It’s time we added a letter to ESG. Here’s Why”: “So, why add ‘technology’—another layer of issues, risks, and opportunities that are not directly, or just barely, addressed— to the still-evolving ESG discussion? It’s simple: technology issues—the good, the bad, and the ugly—suffuse everything we do, every minute and hour of every day.” Table 7 A Sampling of ESGT Issues, Risks, and Opportunities
What Are “Megatrends”? The notion of “ESGT Megatrends” also came to me as I was writing Gloom to Boom. Its first chapter is called “The Ten Megatrends of our Turbulent Times” designed to provide readers with situational context and awareness to navigate the remainder of the book, which takes the reader on a journey navigating through what I called the Scylla and Charybdis of ESGT, to reach the twin objectives of organizational resilience and sustainable value creation for all relevant stakeholders. DIPLOMATIC COURIER | 13
Megatrends are trends that are taking place over multiple years—not one year, not a quarter, not a month. These are large scale, multifaceted phenomena that are taking place over larger increments of time, perhaps morphing in new and unpredictable ways, but whose trajectory and impacts are being felt every day, week, month, quarter, and year. The megatrends transcend physical and virtual barriers and are developments that touch on major aspects of life on earth—people, planet, profits, and purpose. Megatrends help provide situational perspective and the tools and methodologies for leaders to adapt and conquer such changes or, in some cases, protect from or combat the worst manifestations of such changes. ***** Before we get started, I’d like to share a beautiful, powerful, and resilient poem from Albert Camus, “The Invincible Summer.” It resonates deeply for me, and I believe it is profoundly applicable to our tumultuous times. “In the midst of the hate, I found that there was, within me, an invincible love. In the midst of the tears, I found that there was, within me, an invincible smile. In the midst of the chaos, I found that there was, within me, an invincible calm. I found out that, despite everything, in the midst of winter, there was, within me, an invincible summer. And that makes me happy. For it says that no matter how hard the world pushes against me, within me, there’s something stronger—something better, pushing right back.” -Albert Camus. The Invincible Summer. 1953.
I dedicate this year’s edition of The ESGT Megatrends Manual to the invincible people of Ukraine. Summer is coming.
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2. THE FIVE ESGT MEGATRENDS OF 2022-2023 MEGATREND #1—GEOPOLITICAL TECTONIC SHIFTS CATALYZING
Source: A. Bonime-Blanc, Gloom to Boom. Routledge 2020.
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Megatrend Definition and Meaning in the Context of ESGT IN 2021-2022 FROM…
…TO IN 2022-2023
Global Geopolitical Tectonics Shifting (#4)
Geopolitical Tectonic Shifts Catalyzing (#1)
“Freedom must be armed.” -Volodymyr Zelenskyy, April 2022. This quote from new global democracy hero, Volodymyr Zelenskyy, President of Ukraine, synthesizes the core meaning of “Geopolitical Tectonic Shifts Catalyzing.” It is the first megatrend of this year (evolving from last year’s #4 Megatrend, “Global Geopolitical Tectonics Shifting”) and has moved in importance to the top spot because already developing international and domestic pressures catalyzed in early 2022 with the brutal Russian invasion of Ukraine, unleashing profound reverberations worldwide. Putin’s aggressive and unprovoked attack on Ukraine of February 24, 2022 presents a rare, historical tectonic moment that will be remembered for years and decades to come as a geopolitical turning point and a catalyst for other changes. It has singularly caused a moment of clarity with major implications for global governance, domestic political governance, societal well-being, and international business. This megatrend belongs squarely in the category of “Governance” because it involves governance at several levels—the international (both governmental and non-governmental) the national (governmental), and corporate governance.
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The Danger and the Risk of Geopolitical Tectonic Shifts Catalyzing Figure 3 High, Medium, and Low Priority Preventive Conflict Priorities
Source: Council on Foreign Relations. Preventive Priorities Survey 2022.
International Reverberations They say a picture speaks louder than words and this is true for me especially when it comes to visualizing data, maps, tendencies, and other developments. This Council on Foreign Relations (CFR) Annual Preventive Priorities Survey 2022 world map, based on survey data collected in late 2021, seems to have it right on where the high, medium, and lower priority global geopolitical governance risks are (even though the full-fledged Ukraine war begun by Putin on February 24, 2022, had not yet happened at the time of the survey). While the survey is U.S. centric in that it highlights what is a high, medium, or low priority for the U.S., it seems to be quite accurate in terms of what is unfolding globally in 2022. The lines of a new cold, lukewarm, or even hot global war have been drawn and it is now clear that those lines are well defined—between autocracies and democracies, between nations run by strongmen and nations purporting to be democracies. Domestically, this clarifying moment may also have major consequences for certain democracies 18 | ESGT MEGATRENDS MANUAL
that have been on the decline, as Figures 4, 5 and 6 demonstrate in terms of: •
The growing democracy gap—16 years of democratic decline tracked by Freedom House in Figure 4.
•
Fewer people living in “free democracies” over the past 16 years and fewer countries improving their democratic bona fides over the same period, with eight out of 10 people worldwide living in a “Partly Free” or “Not Free” country and only two out of 10 in a “Free” country according to Freedom House (Figure 5).
•
Visualized in map form between closed and electoral autocracies (in red and orange) and electoral and liberal democracies (in dark and light blue) in the Our World in Data map shown in Figure 6.
Figure 4 Growing Democracy Gap: 16 Years of Democratic Decline
Source: Freedom House Freedom in the World 2022.
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Figure 5 Living in a Less Free World
Source: Freedom House Freedom in the World 2022.
Figure 6 Map of Types of Prevalent Political Regime in 2021
Source: OurWorldInData.org/Democracy 2022.
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There are additional reverberations from the Russian attack on Ukraine from a geopolitical standpoint—some argue that while the new lines being drawn may appear to be between democracies and autocracies (to include China in its friendship and “commitment’ to Russia), there are large democracies (or hybrid systems)—India, Indonesia, and Brazil—that have not taken a side on the war and indeed may not. Additionally, there are major Asia-Pacific and global governance developments including: •
The AUKUS agreement in September 2021 pursuant to which the trilateral U.S., UK, and Australia formed the Indo-Pacific AUKUS security alliance.
•
The Quadrilateral Security Dialogue (QUAD) alliance between Australia, India, Japan, and the U.S. revived by the Biden Administration around a “shared vision for a free and open Indo-Pacific” in March 2021.
•
The unprecedented third term for Xi Jinping and the serious domestic developments in China in recent times, including continuing COVID-19 reverberations (like whole city lockdowns), labor and supply chain disruptions impacting their economy, etc.
•
The non-aligned world, or most of the Global South, remains largely on the sidelines of this emerging European regional conflict/war.
Implications for Domestic Politics As Freedom House has pointed out in its most recent evaluation of democracies worldwide, Freedom in the World 2022: “Over the past 16 years, internal forces have damaged the pillars of freedom in existing democracies: •
Attacking media freedom. Independent media have suffered from attacks on journalists and blocks on access to information.
•
Undermining the rule of law. Politicians and governments have weakened judicial independence and sought impunity for corruption.
•
Perverting elections. Baseless fraud claims, opaque financing, and manipulation of electoral rules have undercut public faith in democratic balloting. DIPLOMATIC COURIER | 21
•
Discrimination and mistreatment of migrants. Marginalized communities face discrimination in a variety of areas from political participation to asylum rights.
However, with the Russian attack on Ukraine, several interesting domestic political developments have transpired, some of which may not have happened without the invasion. •
Germany’s new government’s complete 360 on Nordstream 2, various other energy relationships with Russia, and most surprisingly pledging 2% of its budget to defense and re-militarizing to assist surrounding countries as well as defend itself from possible Russian aggression.
•
Some shifting and realignment of conservative to right wing politicians in various democracies to either run away from Putin or align with him.
•
The reelection of President Macron in France against Marine Le Pen, an ally of Putin.
•
The resounding return of liberals in Slovenia, against a Putin ally. Although Hungary reelected Victor Orban (who is closely aligned with Putin) there is rising EU discomfort with his continuing degradation of democratic and rule of law principles that might get Hungary marginalized in the EU.
•
The acceleration of Ukraine’s application to join the EU.
The connection between democracy and less corruption and autocracy and more corruption and the idea that Putin’s kleptocracy has infiltrated market democracies to such an extent that we have been seriously and materially corrupted and now need to cleanse ourselves to rescue our democracies is alarming. We explore that further when we discuss leadership trust in the final megatrend.
Implications for International Business “When I hear businesses say ‘Babies deserve to have baby food,’ I say ‘Babies in Ukraine deserve to live.’” -Natalie Jaresko, Former Minister of Finance, Ukraine, during an Athena Alliance Salon on April 13, 2022. Source, YouTube. The Ukraine invasion, brutalization and genocide of its people, and destruction of its cities has given rise to the largest, organized inter22 | ESGT MEGATRENDS MANUAL
national anti-country boycott and sanctions since the South Africa anti-apartheid boycotts of the early 1990s. This has led to the politicization of business—Russia v. Ukraine has put business squarely in the middle of the democracies v. autocracies debate as well as into a supply chain restructuring discussion. Major campaigns have been mounted by pro-Ukraine, anti-Putin forces to name and shame companies that didn’t quickly, decisively, and publicly leave Russia—if they were present physically through people and/or assets—or leave figuratively if they were using Russian products and services via the supply chain. Either way, the public opprobrium and debate has been swift, intense, and durable. Witness one of the most notable attempts at naming and shaming international business doing business in Russia after the invasion put together by Yale University School of Management Professor Jeffrey Sonnenfeld via his continually updated website illustrated in Figure 7. Figure 7 International Companies Still Doing Business In Russia
Source: Yale University School of Management. 2022. (Accessed on 4.23.22) DIPLOMATIC COURIER | 23
Amongst the most critical underlying themes in this geopolitical global crisis of democracy v. autocracy and domestic crisis of democracy in existing democracies is the scourge of kleptocratic corruption. One of the reasons why democracies have suffered so much in terms of the decline of freedoms over the past 16 years (as meticulously documented by Freedom House and The Economist Intelligence Unit) is a dual set of intertwining developments: 1) Complacency about rule of law and democratic rights not needing care and nurturing in our own democracies, and 2) The slow but highly effective penetration of democracies by kleptocratic, corrupt actors—some of them state actors like Putin’s oligarchs and others purely corrupt local or international business people, politicians, or criminals, who have infected the health of democracies. However, Putin’s aggression against Ukraine, which elicited broad coordinated sanctions against Putin’s oligarchs, has revealed the deep-seated intertwining of the economic interests of the oligarchs in numerous countries around the world aided and abetted by local businesses, professional services firms, and politicians that have become ensnared in the many headed hydra of these corrupt kleptocratic networks. Finally, enveloped in this massive mess is the disinformation war that has been raging and increasing over the past decade (more on that under Megatrend #3 Tech Disruption Becomes Multidimensional). This has serious implications for all businesses no matter where they are located or what footprint or profile they hold. As the Yale University Russian business tracker demonstrates, no one is safe from the potential reputational and financial consequences of being or appearing to be associated with the dark, corrupt side of the Putin regime. It behooves businesses to pay close attention, understand what their stakeholders expect from them on Russia and related issues, and devise an action plan that is consistent with their deemed mission, vision, values, and purpose. The results of Just Capital’s surveys of U.S. public company stakeholders (they measure five: workers, communities, shareholders, environment, and customers) provide some important insights into what stakeholders expect from business on these and related ESG issues, risks, and opportunities. Significantly, 70% of stakeholders expect large companies to have a great deal or some responsibility to protect the democratic process, and 81% of stakeholders say it is important that large companies publicly report data about their impact on society regarding political donations and lobbying. See Figures 8 and 9. 24 | ESGT MEGATRENDS MANUAL
Figure 8 2022 Survey On Large Company Social Responsibilities
Source: Just Capital 2022.
Figure 9 2022 Survey On Large Company Responsibility for Reporting Social Impact Data
Source: Just Capital 2022.
The Promise and the Opportunity of Geopolitical Tectonic Shifts Catalyzing Depending on where one sits both geographically and in terms of whether they favor democracy, they may view the first few months of 2022 with either a hopeful eye (if democracy is their thing) or a more suspicious eye (if what they like is more autocracy). Either way, there is little doubt that the first few months of 2022—catalyzed by the Russian invasion of Ukraine—shook global geopolitical tectonic plates into greater definition and clarity. Table 8 provides an overview of just some of the major events taking place in early 2022 that help illustrate how much the “geopolitical tectonic plates” were shaken in such short a time. But let there be no doubt about it: these seismic shifts were building up for some time. DIPLOMATIC COURIER | 25
Table 8 Early 2022: Months that Shook Global Geopolitical Tectonic Plates • •
• • • • • •
•
•
NATO is more unified today than in most of its multi-decade history and expects to expand to new members (Finland and Sweden). NATO will have a new Strategic Concept document in June 2022, which will outline their strategic posture for the coming decade—something that without the Ukrainian invasion may have been very different. The EU is more unified today than ever in its history. NATO Cyber cooperation while relatively cohesive in the past, is now turbocharged and more coordinated than ever The United Nations roundly condemns the Russian invasion with a majority of nations voting against Russia, with a pivotal speech from the Kenyan Ambassador. The alliance of nations imposing dramatic sanctions on Russia goes beyond the EU and NATO to include South Korea, Japan, and Australia. Formerly neutral European countries—Finland, Sweden, and Switzerland—have broken their neutrality and have expressed an interest in joining NATO and/or the EU. Formerly right-of-center EU/NATO members (Poland comes to mind) have realigned with democracies in no uncertain terms, though their long-term status remains unclear (as the recent reelection of Victor Orban as President of Hungary, for yet another term shows). China, suffering from a resurgence of COVID-19 cases and other economic woes, potentially suffers the consequences of aligning too closely with Putin and antagonizing the global marketplace. India, traditionally an ally of Russia, remains in contact but begins to show signs of maybe disengaging a little.
It would appear from the many statements we are hearing from leading democracies (the U.S., European countries, and several Asia-Pacific countries) and western democratic country alliances (NATO, EU) that the lines between the autocratic world and the democratic world are being etched as perhaps the new global divide. Moreover, this divide is reflected in the fight between the far right, anti-democratic forces and the right, center and center left within democracies, as well as in the corporate world where political polarization is creeping into risk governance, decision-making, strategy, private/public relationships, and talent management.
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Unlike last year, when we were positing the possibility of a democracy v. autocracy division of the world, now we can actually say that not only is this the case but that the events of February 24, 2022, with Putin’s invasion of Ukraine have done more to rehabilitate the appeal and value of democracy than anything else in the last few decades. Indeed, the Ukrainian esprit de corp and intensely emotional defense of democracy and freedom has become infectious in other democracies leading some scholars and observers of these regimes to note that this could be a turning point for democracies, which as Figure 4 above from Freedom House have been in serious decline over the past 16 years. Thought leaders on this topic, like Michael Abramowitz, Executive Director of Freedom House, are speculating that the dramatic geopolitical events of this year may already be providing a boost to democracies as the populace and leaders of democracies that have been in decline (and perhaps illiberal societies yearning for more democracy) see the benefits of more freedom rather than less:
The Washington Post, April 2022 Ishaan Tharoor
The implications of these changes to business are complex and multifaceted but if your business is largely in democracies and your revenues are politically neutral or come from mostly democratic, liberal, or progressive customers and markets, how you handled the Russian boycott will have greater, or lesser reputational and financial deleterious consequences on you. Figures 8 and 9 above provide some feedback from Just Capital surveys of stakeholders of the largest publicly traded companies in the United States that point in a very strong direction that key stakeholders expect business to be responsible for a wide variety of social and political issues. Indeed, when it comes to political disclosure—such as those associated with political contributions, the polarization or political divide between republicans and democrats in the U.S.—is not that great as per Figure 11, and thus as companies navigate these complex DIPLOMATIC COURIER | 27
waters it would behoove them to stick to their professed purpose and cater to their key stakeholders’ expectations and wishes. Figure 10 2022 Survey Showing Bipartisan Support for Corporate Disclosure
Source: Just Capital.
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A Leadership Battle Plan to Deal With Geopolitical Tectonic Shifts Catalyzing AN ESGT LEADERSHIP BLUEPRINT FOR 2022-2023 Megatrend #1
KEY LEADERSHIP ACTIONABLE TACTICS
Geopolitical Tectonic Shifts Catalyzing
1. Leadership teams (management and boards) must have access to real time international geopolitical, national, and local political data and advice relating to their strategic footprint, geography, supply chain, and planning. 2. A designated member of management should oversee geopolitical and political developments with the assistance of solid intelligence and advisors reporting to c-suite and board periodically and coordinating in real time with risk management. 3. Add geopolitical risk and opportunity considerations to the yearly budgeting and strategy planning exercises. 4. Understand how international and national politics affect your business/entity through the eyes of your stakeholders. Understand the reputation risk and opportunity embedded in such views and add them to corporate/entity internal and external messaging and communications. 5. Make sure all political content messaging is 100% aligned with your organization’s purported mission, vision, values, and purpose.
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MEGATREND #2—CLIMATE AND WAR PROPELLING COMPLEX RISK Megatrend Definition and Meaning in the Context of ESGT
Source: A. Bonime-Blanc, Gloom to Boom. Routledge 2020.
IN 2021-2022 FROM…
…TO IN 2022-2023
Complex Interconnected Risk Intensifying (#3)
Climate and War Propelling Complex Risk (#2)
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Just when we thought that the pandemic and/or climate change were the drivers of the “complex interconnected risk” we talked about last year, this year what was Megatrend #3 becomes Megatrend #2— Climate and War Propelling Complex Risk—as a major war enters the world of interconnected complex risk. That war engenders a series of societal (humanitarian, mental health, food security) and technological (cyber and disinformation warfare) foreseen and unforeseen consequences that have propelled complex interconnected risk to new heights this year. The basic premises of what we talked about last year remain in place—the world is becoming increasingly complex, increasingly risky, and increasingly interdependent. This year, with the worsening of climate trends, the continuation of the pandemic (though somewhat abetted but with the expectation that new pandemics will be with us again), and the outbreak of the largest, most complex land war in Europe since WWII, the reverberations of complex interconnected risk will continue to manifest themselves. Below we examine three such reverberations leaders should keep their eyes on. 1. Climate trends continues to deteriorate worsened by the twin effects of pandemics and war. 2. War interconnects with massive foreseen and unforeseen societal and humanitarian crises, including mass migration, global food crises, and supply chain disruption. 3. A strange new silver lining emerges from the current cluster bomb of interconnected risk: the recent deep dependency on Russian and other autocratic regimes for oil and gas turbocharges reasons for developing renewable energy sources, possibly returning to nuclear and accelerating the overall energy transition. While this megatrend is primarily about climate change as the most pervasive and long-term set of risks and opportunities confronting life on earth today, it is closely followed by the governance crises and challenges thrown up by the Russian war on Ukraine, and the concomitant deep and damaging societal reverberations therefrom, already prepped and exacerbated by two years of COVID-19.
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The Danger and the Risk of Climate and War Propelling Complex Risk Complex Interconnected Risk Propelled What we have seen over the past year are increasingly more alarming climate developments and climate analyses that point in one direction and one direction only: a dramatically heating world, the multi-risk effects, causation and correlation that such heating has on other big categories of risk (economic, social, technological, geopolitical, and governance) and how inaction, meek and uncoordinated global action, bad-action and the effects of other global calamities like pandemics and wars, will continue to impede and even obliterate existentially needed global progress. For those unfamiliar with the WEF GRR annual reports, they provide surveys and data around five major categories of global strategic risk defined as: “The possibility of the occurrence of an event or condition that, if it occurs, could cause significant impact for several countries or industries.” The five categories of risk examined in the WEF GRR Annual Reports are the following (showing examples of each): 1. Economic. • Asset bubble bursts in large economies. • Collapse of a systemically important industry. 2. Environmental. • Biodiversity loss and ecosystem collapse. • Extreme weather events. 3. Geopolitical. • Collapse of multilateral institutions. • Geopolitical contestation of strategic resources. 4. Societal. • Collapse or lack of social security systems. • Employment and livelihood crises. 5. Technological. • Adverse outcomes of technological advances. • Breakdown of critical information infrastructure. DIPLOMATIC COURIER | 33
The World Economic Forum’s GRR 2022 graphic below (Figure 11)— showing the interconnectedness of primarily environmental and societal issues—once again speaks louder than words. Indeed, the top 10 global risks forecast for the next 10 years (see Figure 12 assembled prior to the beginning of the Ukraine war), also underscores how important it is for decisionmakers regardless of role, location, or sector, to understand how environmental and societal issues are deeply and inseparably intertwined, made ever so by the new geopolitical and geo-economic consequences of the war in Europe. Figure 11 World Economic Forum - Global Risks Effects 2022
Source: World Economic Forum Global Risks Report 2022. 34 | ESGT MEGATRENDS MANUAL
Figure 12 Most Severe Global Risks For The Next 10 Years
Source: World Economic Forum Global Risks Report 2022 (WEF GRR 2022)
The War Indeed, the WEF GRR 2022 report was prescient enough to state the following (again, prior to the Ukraine war happening): “Geo-economic confrontations” will emerge as a critical threat to the world in the medium and long term and as one of the most potentially severe risks over the next decade. While pressing domestic challenges require immediate attention, the pandemic and its economic consequences have proven once again that global risks do not respect political frontiers. Humanity faces the shared and compounding threat of economic fragmentation and planetary degradation, which will require coordinated global response.” -Source: World Economic Forum. Global Risks Report 2022.
Given that the Russian invasion of Ukraine had not yet begun when the WEF GRR 2022 was published in January 2022, we only see one geopolitical risk highlighted as serious risk #10 for the coming decade “geo-economic confrontation” defined above. But it bears looking at the additional Geopolitical Risks WEF generally identifies in the 2022 report as these may become much more relevant to the short- and medium-term future because of the Ukraine war. See Figure 13.
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Figure 13 World Economic Forum - 2022 Geopolitical Risk Categories
Source: World Economic Forum. Global Risks Report 2022.
The Climate Conundrum
Source: Diplomatic Courier
Figures 14 and 15—one from the WEF GRR 2022 showing very dire scenarios for global temperatures by 2100 and the other from NOAA, the U.S. Agency that evaluates and reports on climate issues and provides annual catastrophic climate financial impact studies and charts, show dramatically the climate truth and climate consequences of climate inaction.
Climate Truth… Figure 14 Global Temperature Scenarios By 2100
Source: World Economic Forum Global Risks Report 2022.
Climate Consequences… Figure 15 2021 U.S. Billion Dollar Weather and Climate Disasters
Source: NOAA 2022. DIPLOMATIC COURIER | 37
There are a couple of major interconnected or cluster risks relating to climate, geopolitics in the societal realm: the risk of forced, involuntary migrations—happening because of poverty, violence, climate change, political conditions, and war. Figures 16 and 17 show such serious risk clusters: 1) that the volume of refugees and asylum seekers over the past 20 years has been steadily increasing, especially in the last half decade; and 2) how poorer countries are at vastly greater risk of physical climate shocks and thereby income inequality. Figure 16 Refugees, Asylum Seekers & Displaced Persons 2000-2020
Source: World Economic Forum Global Risks Report 2022
Figure 17 S&P Global Ratings Climate Change and Greater Risk In Poorer Countries
Source: Bloomberg April 26, 2022. 38 | ESGT MEGATRENDS MANUAL
The Business Lens on Interconnected Risk Bringing the “complex interconnected risk” lens a little closer to dayto-day business, the annual Allianz Risk Barometer (ARB) provides a bird’s eye view of the top business risks for 2022. See Figure 18. In contrast to last year when the Allianz Risk Barometer 2021 signaled the “Covid Trio”—cyber, business interruption, and the pandemic—this year cyber returns to the top of the list closely joined by the other two and a fourth risk—natural catastrophes. Perhaps business (and other organizations) needs to think of the “Interconnected Quad”—of cyber, pandemic, climate, and business interruption—as threats that are likely to stay at the top of business risks, affecting, correlating and/or having potential causational relationships with each other, exacerbating risk for those who do not build sustainable resilience measures. Figure 18 Allianz Risk Barometer — 2022 Most Important Business Risks
Source: Allianz Risk Barometer 2022 DIPLOMATIC COURIER | 39
Indeed, Figures 19 and 20 provide further evidence and data about how business will be preoccupied and tackling head-on both cyber insecurity and supply chain disruption for the foreseeable future. Once again, climate, pandemics, and the war will be complicating interconnected factors further propelling the level, extent, and reach of such risks especially for entities that do not prepare properly for these pervasive risks. Those who do will be their more successful resilient peers and competitors. Figure 19 Supply Chain Bottlenecks 2007-2021
Figure 20 Global CEO Survey Shows Cyber-Attacks as Greatest Threat to Growth
Source: PwC CEO 2021 Survey. 40 | ESGT MEGATRENDS MANUAL
The Promise and the Opportunity of Climate and War Propelling Complex Risk Even though the news and recent global developments have been undoubtedly on the high risk, gloomy side of things, there are always opportunities embedded in risk and potentially silver linings as well. On the climate front, despite the ongoing inability to even make a small dent on emissions worldwide, and the fact that emissions have gotten worse in the past year, despite COP26 and the ongoing climate engagement worldwide, it is possible to distinguish several positive developments with potential long-term upside. For example, there may be a boost to the green energy transition occasioned by the shift from reliance on Russian oil and gas undertaken for geopolitical and domestic political reason. The fact is that we have made some substantial progress for several decades in various areas— witness the anecdotal evidence embedded in Figure 21 about the improvement over the past four decades of air pollution in Los Angeles. Figure 21 Los Angeles Air Quality Index Improvements 1980-2021
Source: The Economist 4.24.22 and the U.S. EPA.
Though frustrating, there is continual engagement on the topic of climate change through multiple important venues, the most visible of which is COP (with Glasgow being the host of COP26 and Egypt to host COP27 November of 2022). Below are some of the key takeaways from COP26, Glasgow, November 2021: •
India pledged to reach net zero emissions by 2070, with a renewable energy target of 50% by 2030. DIPLOMATIC COURIER | 41
•
46 countries pledged to transition from coal to clean energy by 2040.
•
104 countries pledged a 30% reduction in methane emissions by 2030.
•
141 countries, accounting for 91% of global forests, pledged to end deforestation by 2030.
Though many are worried about the worst or second to worst case scenarios for global greenhouse gas emissions (the current pathway takes us to 2.7 to 3.1 and the pledged pathway to 2.1 to 2.4 degrees Celsius increase by 2100), others are optimistic that we can do better than that. The consensus is that we need to push for less than a 1.5-degree Celsius increase if we are to avoid some of the more catastrophic climate consequences. See Figure 22 showing the four estimated temperature trajectories. Figure 22 Pathways of Global Greenhouse Gas Emissions 2000-2100
Source: The New York Times 2022. 42 | ESGT MEGATRENDS MANUAL
There is good news in all this on the business front as well. Just Capital has named the following U.S. public companies “America’s Top Ten Companies for Environmental Performance in 2022” based on an in-depth analysis of their environmental policies, disclosures, commitments, and strategy. See Table 9. Table 9 Just Capital’s “America’s Top 10 Companies for Environmental Performance in 2022 1. VMware 2. Microsoft 3. Intuit 4. Apple 5. Moody’s 6. Mastercard 7. PayPal 8. Etsy 9. HP Inc. 10. PVH Corp. Source: Just Capital.
Finally, other developments are militating in favor of a more conscientious approach to climate change management in many different quarters—from the financial sector, insurance sector, investment world, consumers of products and services, talent search, and retention. This more conscientious approach may be too little too late but it has a chance of gathering momentum, especially as the downsides of climate denial and outright negligence continue to swirl around us. Another silver lining to the terrible destruction and warfare taking place in the heart of Europe today is that not only will it help potentially with the green climate transition, it is already helping with creating more cyber-resilience and private-public collaboration and operationalization of cyber-resilience than we have ever seen before. This is also bringing into much greater relief the importance of resilience generally. How to build resilient organizations was a core part of my book Gloom to Boom where Chapter 7 “Metamorphosis: Achieving Organizational Resilience” offers an exploration of four types of organization depending on how well developed their eight elements of organizational resilience are. Figure 23 shows a bird’s eye summary overview of each of these forms of organizational resilience lifecycle—and it pays to be on the high reDIPLOMATIC COURIER | 43
silience side of this spectrum: The Robust Resilience Lifecycle or even better the Virtuous Resilience Lifecycle. Figure 23 Four Models Of “Organizational Resilience”
Source: A. Bonime-Blanc. Gloom to Boom. Routledge 2020.
To end on a positive note, there are some great studies showing how companies that invest in innovation and resilience during times of crisis outperform those who do not. This is about value protection, sustainability, resilience, and value creation after all. See Figure 24. Figure 24 Innovative Companies Are More Resilient
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A Leadership Battle Plan to Deal With Climate and War Propelling Complex Risk Megatrend #2 Climate and War Propelling Complex Risk
KEY LEADERSHIP ACTIONABLE TACTICS 1. Does the organization have an Enterprise Risk Management framework? Make sure climate, geopolitical and societal risks are part of the considerations. 2. What’s the state of your risk governance and oversight? • •
Is the board of directors risk-savvy and experienced? Is there a risk oversight committee?
3. Does the company have a savvy Chief Risk Officer and team? Do the team members have the resources and tools necessary for foresight and futureproofing? 4. Is there a crisis management plan and team, including a board liaison or member? Is scenario planning integrated into such plans and periodically conducted? 5. Is there organizational resilience management and oversight, business continuity, and data protection? What’s the state of your organizational resilience?
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MEGATREND #3—TECH DISRUPTION BECOMING MULTIDIMENSIONAL Megatrend Definition and Meaning in the Context of ESGT
Source: A. Bonime-Blanc, Gloom to Boom. Routledge 2020.
IN 2021-2022 FROM…
…TO IN 2022-2023
Tech Disruption at the Speed of Light (#1)
Tech Disruption Becoming Multidimensional (#3)
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Tech Disruption Becoming Multidimensional means disruption continues apace just like last year but it’s becoming increasingly clear that much of this disruption is taking place in multiple dimensions. We used to just have the “real” world and the “internet.” Over the years, other related dimensions have popped up and evolved into bigger and more extensive areas of reality or unreality—virtual games, social media, internet, dark/deep web, space, and cyber. Now we also have the metaverse, crypto, blockchain, NFTs, the deep dark world of disinformation, surveillance capitalism, quantum computing, the nanosphere, Web 3.0, etc. This megatrend belongs squarely in the category of “Technology” because it’s first and foremost about technology and innovation. But it is also heavily about governance as all of the issues, risks, and opportunities associated with the development of multi-dimensional tech require governance in one form or another and, more importantly, governance, risk, and ethics innovation to understand and adapt to these new dimensions to keep people and planet safe from the intended and unintended negative consequences.
The Danger and the Risk of Tech Disruption Becoming Multidimensional The Metaverse and its Denizens “What happens in the Metaverse* doesn’t stay in the Metaverse*” *(replace with: Cyber, Blockchain, Crypto, Quantum, Space, etc.)
At a tech conference I spoke at recently, I made the above quip to describe my reaction to the much-touted emergence of the Metaverse, especially as announced by Mark Zuckerberg as he renamed Facebook “Meta” in this video).
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So, what is the Metaverse? Here’s a good definition from Investopedia: “The metaverse is a digital reality that combines aspects of social media, online gaming, augmented reality (AR), virtual reality (VR), and cryptocurrencies to allow users to interact virtually. Augmented reality overlays visual elements, sound, and other sensory input onto real-world settings to enhance the user experience. In contrast, virtual reality is entirely virtual and enhances fictional realities.”
What prompted my contortion of the old Vegas saying is that wherever humans roam—whether it is in the physical world, the virtual world, or outer space, the possibility and even certainty of unexpected, unbridled bad or damaging behaviors is likely to follow closely. While I am a believer in the essential goodness of humanity and that most humans are essentially well intentioned, we sadly live in a world where the few ill-intentioned, ill-incentivized, power hungry, and corrupt will seize the reins of the day. It is because of that minority of power-seeking bad actors that most of humanity must be protected from the intended and unintended negative consequences of the wildly optimistic, innovative, inventive yet often power-hungry, pushy and/or megalomaniacal few through good governance, effective risk management, and actionable ethics. The Metaverse will be yet another “location” for churlish, nasty, repugnant, or even criminal behaviors as the following troubling headlines denote: •
“Metaverse App Allows Kids into Virtual Strip Clubs” BBC, February 23, 2022.
•
“Woman Says She Was ‘Gang-Raped’ in Facebook’s Metaverse” Vice News, February 1, 2022.
•
“How will Facebook Keeps its Metaverse Safe for Users?” Financial Times, November 12, 2021.
•
“Come the Metaverse, Can Privacy Exist?” Wall Street Journal, January 4, 2022.
•
“The Metaverse is Everything you Hate about the Internet Strapped to Your Face” Grid, February 4, 2022.
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And my personal favorites: •
“Why the Hell Are People Getting Married in the Metaverse? The Bride Wore Blockchain” Daily Beast, April 23, 2022.
•
“Virtual High? Rapper Snoop Dogg Wants to Grow Weed in the Metaverse” Bitcoinist, April 22, 2022.
A Technopolar World? Adding to the phenomenon of a possible Metaverse (or other “verse”) is the increasing power and control—beyond borders and despite them—of Big Tech and even more so of the Big Tech elite. A late 2021 article by Ian Bremmer for Foreign Affairs titled “The Technopolar Moment: How Digital Powers Will Reshape the Global Order” connects the dots between the super-powerful tech elite, geopolitics, and the increasingly borderless future of the world. In essence, he points out that: • • • • •
Technological companies are increasingly geopolitical actors in and of themselves. Technological companies are shaping the global environment in which governments operate. Governments and technology companies are poised to compete for influence. Big Tech is transforming human relationships. People are increasingly living out their lives in digital space, which governments cannot fully control.
And therein lies the rub: we are living through the boldest transformation of humans in history because tech is altering our behaviors, and the physical barriers that existed for centuries and millennia are disappearing (with a few exceptions). We really don’t know how this unfolds. That is exactly why creating the proper governors, risk parameters, and ethical boundaries in real time as these tech changes unfold isn’t just desirable. It is necessary. And so is the rising, dire need for trustworthy, non-corrupt leaders as I discuss under Megatrend #5 “Leadership and Institutional Trust Recalibrating.” That brings us to Figure 25, which shows the current state of international risk mitigation efforts as compiled by the WEF GRR 2022. While the general tenor of the Figure is alarming in that many critical risks of all kinds are not properly addressed from a risk mitigation standpoint, it is several critical technology risks that are the least well-handled, indeed the top three least mitigated risks, to wit: 50 | ESGT MEGATRENDS MANUAL
• • •
#1 least mitigated: Artificial intelligence. #2 least mitigated: Space exploitation. #3 least mitigated: Cross-border cyberattacks and misinformation.
Figure 25 Current State of International Risk Mitigation Efforts
Source: World Economic Forum Global Risks Report 2022. DIPLOMATIC COURIER | 51
What is the significance of this to humanity? We need to pool our resources together across borders, sectors, and industries in a public/private/nonprofit way to build the governance, risk and ethics safeguards necessary to protect humanity. If we don’t, it’s only a matter of time before these risks become material, global, and potentially existential.
Digital Distortions Another dimension of the tech multidimensional disruption continues to be one quite familiar to all of us: cyber but with an important twist. The third one listed in the WEF most unmitigated list is “Cross Border Cyberattacks and Misinformation” brings me to another deeply important “verse” in our limited exploration of the multidimensional “verses”: the cyber-verse or the place where cyber-attacks and the world of disinformation, misinformation, and weaponization cohabitate and meet. But first, let’s set the record straight on something that suffuses our daily lives: the global pervasiveness of fake information, disinformation, mal-information, and misinformation. According to the Edelman Trust Barometer 2022, fake news concerns were at an all-time high. In 27 countries, the answer to the question “I worry about false information or fake news being used as a weapon” went up 4% points from 2021, with Saudi Arabia clocking by far the largest percentage gain (+18%) and several African and Asian countries also striking notable increases from 2021—Kenya with 10%+ and China and Indonesia at 9%+. See Figure 26. Figure 26 Fake News Concerns at All Time Highs 2022
Source: Edelman Trust Barometer 2022.
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Figure 27 shows a Venn diagram that explains categories of information disorder where there is 1) false information “Misinformation” and there is 2) intentionally harmful information “Malinformation” and where the two overlap we call it “Disinformation.” Figure 27 Categories of Information Disorder
Source: Crisp Presentation 2022.
It is critical to put this development into context. The volume, velocity, and sometimes ferocity of the unleashing of information and disinformation suffusing social media today is not only breathtaking but unbridled. Let’s start with the fact that there are almost 4.5 billion individuals on earth who have social media accounts. And let’s continue by looking at the breathtaking volume and speed of information spread on social media every 60 seconds of every single day and the problem becomes exponential. See Figure 28.
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Figure 28 What Happens In Data Every 60 Seconds Around the World
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At Crisp, an actor risk intelligence firm, the focus is on understanding and finding the actors that engage in the phenomenon of “Digital Chatter” in the deep and dark webs before they weaponize misinformation and disinformation on the surface web and social media. To quote an article I co-wrote with Vikram Sharma, President of Crisp: “Digital chatter comprises all the conversations happening among users online, whether on the surface or the deep web. It includes open, indexed, and closed, and dark social media channels. It also includes forums and messaging apps. Several recent examples include the deliberate use of social media influencers to attack COVID-19 vaccine providers, the online planning of an insurrection at the U.S. Capitol, and the coordinated efforts by a subreddit to short squeeze stocks. Companies are taking notice: A recent Crisp survey of more than 100 corporate leaders, most CEOs from companies with revenue over $1 billion, found that— similar to what happened with cybersecurity 10 years ago—61% report their boards and leadership teams are already pursuing new skills, capabilities, or resources to keep up with risks that originate from or become amplified online by digital chatter.”
Surveillance Capitalism: A Many Headed Hydrae Another area of multidimensional tech disruption is what has been coined to be “surveillance capitalism.” I like to think of it as a many headed hydrae—when you cut off its heads, additional ones sprout up. In this era of exponentially transforming technology this is a big problem for everyone. Simply put, “Surveillance Capitalism” is a recent technologically enabled form of capitalistic economic power where the capitalists (tech firms) harvest private data (largely unbeknownst to its donors (us). In exchange, we (the donors) get “free” social media or platform experiences like Facebook, Instagram, Twitter, and TikTok. In turn, tech firms monetize our “free” data via advertising and other data selling techniques into millions and billions in revenue. Think about it as a compendium of everything the great author Shoshana Zuboff crammed into the following fulsome definition in The Age of Surveillance Capitalism: The Fight for a Human Future at the New Frontier of Power: “Sur-veil-lance Cap-i-tal-ism, n. 1. A new economic order that claims human experience as free raw material for hidden commercial practices of extraction, prediction, and sales; 2. A parasitic economic logic in which the production of goods and services is subordinated to a new global architecture of behavioral modification; 3. A rogue mutation of DIPLOMATIC COURIER | 55
capitalism marked by concentrations of wealth, knowledge and power unprecedented in human history; 4. The foundational framework of a surveillance economy; 5. As significant a threat to human nature in the twenty-first century as industrial capitalism was to the natural world in the nineteenth and twentieth; 6. The origin of new instrumentarian power that asserts dominance over society and presents startling challenges to market democracy; 7. A movement that aims to impose a new collective order based on total certainty; 8. An expropriation of critical human rights that is best understood as a coup from above: an overthrow of the people’s sovereignty.”
A recently exposed example of deleterious surveillance capitalism occurred involves NSO, an Israeli-based, privately held technology company founded in 2010 until recently primarily known for its proprietary spyware Pegasus, which is capable of “remote zero-click surveillance of smartphones” and was supposedly sold only to and used by governments and law enforcement (and, by implication, not the “bad guys” according to NSO). It is a technology that is surreptitiously embedded into people’s phones without their knowledge, and which tracks their every move, content, and communications. What could go wrong? Just about everything. An obvious problem is that not all governments or law enforcement agencies are created equal in terms of observing proper rule of law or human rights protections. While one can posit that authoritarian regimes and the usual underworld suspects (criminals, hackers, and spies) will not comply, sadly, democratic governments, their agencies, and politicians cannot be trusted either, nor can private interests for that matter. Witness the recent revelations of the use of Pegasus by ruling party Polish government officials against out-of-office democratic political party contenders in (mostly) democratic Poland. Thus, is born another nuance in the story of Surveillance Capitalism. The implications for all manner of business, NGOs, educational, and research organizations everywhere couldn’t be clearer: when and if a competitor, hostile government, criminal, or underworld entity wants to get protected information and data from one or more of your people, all they need to do is to pay NSO (or one of their competitors) for this kind of surveillance. Meta issued an alarming “Threat Report on the Surveillance for Hire Industry” in which, among other things, they conclude that a “global surveillance-for-hire industry” has emerged that targets individuals for the collection of data, intelligence and the manipulation and compromise of their devices and accounts. The Report calls these entities “cyber mercenaries” and (like NSO in its public statements) claim
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to only target “criminals and terrorists.” However, this months-long study showed that the net of people caught in this mostly nefarious practice includes human rights activists, political opponents in both democratic and authoritarian regimes, as well as journalists and other private citizens.
The Promise and the Opportunity of Tech Disruption Becoming Multidimensional What Are We To Do? While the above headlines focus on the Metaverse and other multi-dimensional tech developments are alarming, they point in one direction that some governments—most notably the EU—have begun to tackle from a privacy protection, data collection, and protection standpoint but it is truly an uphill battle. How leaders and organizations handle these multidimensional tech developments and their challenges from a governance, risk management, and ethics perspective will have major effects on their success or failure—at the end of the day, stakeholder trust is in the balance. There are a few things leaders of every type of entity—whether in business, NGO, education, research, media—can do, to wit: 1. Deploy appropriately sophisticated and effective cyber-security protections at all key entry points guarding crown jewels (including data). 2. Establish disciplined governance, quality and ethical filters and protocols to prevent/disable the implanting of dangerous software and/or misuse of data. 3. Scrub—and have the talent to understand how to scrub and evaluate—supply chain software coming in and going out. 4. Prevent the illegal (and even legal but problematic) use of spyware in the workplace (in and out of the office including work from home) to track employee movements, productivity, communications, and other activities. 5. Understand that external surveillance tech may very well be deployed against its own employees, executives, and board members by nefarious competitors, officials, criminals, or other bad actors, and be prepared from a crisis management standpoint to deal with it. DIPLOMATIC COURIER | 57
6. Have a transparent policy framework, related training and communications for all affected stakeholders explaining what the entity does to protect them, providing reporting helplines and protocols to protect against data and tech misuse and abuse. 7. Gauge the challenge of maintaining high ethical, legal, and transparency standards in the various countries you are present in—you will be challenged and thwarted in authoritarian countries (and maybe even in some democratic or hybrid ones). 8. Understand the essential nature of private/public collaboration while being cognizant of the dangers thereof especially in less than democratic countries. A final and critical component for dealing with the multiplying challenges of surveillance capitalism and related tech issues is that all entities need to have tech savvy executives and boards who understand the need for a permanent, cross-functional, transversal team of internal and external experts looking at these interconnected issues as they affect the entity, the sector, and the stakeholders in real time and continuously. At a time when we are in dire need of good news, here are three excellent examples of deploying cutting-edge technologies to achieve ESGT good: Table 10 What’s Next? 22 Emerging Technologies to Watch In 2022 Solar geoengineering
Heat pumps
Hydrogen-powered planes
Direct air capture
Vertical farming
Container ships with sails
VR workouts
Vaccines for HIV and malaria
3D-printed bone implants
Flying electric taxis
Space tourism
Delivery drones
Quieter supersonic aircraft
3D-printed houses
Sleep tech
Personalized nutrition
Wearable health trackers
The metaverse
Quantum computing
Virtual influencers
Brain interfaces
Artificial meat and fish Source: The Economist. The World Ahead. November 21, 2021.
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1) Table 10 based on an Economist “The World Ahead 2022” feature shows 22 technologies that are currently under development and are designed to do mostly ESGT good, especially in areas of climate-tech and health-tech, often through the multidimensional tech world including Space, Quantum, the metaverse, etc. 2) Figure 29 from the Edelman Trust Barometer provides some hopeful feedback on one of the most intractable problems of our times: how to combat misinformation and disinformation. Their conclusion: Information quality is the most powerful contributor to institutional trust building. We are possibly seeing the beginning of a tide against disinformation taking place once again through the Ukraine war where both the U.S. and the Ukrainian governments have shown great savvy in combatting Russian misinformation and where civil society entities have too. Figure 29 Information Quality Is an Institutional Trust Builder
Source: Edelman Trust Barometer 2022.
3) Finally, there are many private and public efforts, at the government level, company level, association level, research level, and private/public levels to create governance, risk, and ethics parameters for the variety of technologies under development. Figure 30 shows one such from an unexpected place: The Business Roundtable, which is represented by the CEOs of 100+ largest U.S. companies.
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Figure 30
Source: The Business Roundtable 2022.
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A Leadership Battle Plan to Deal with Tech Disruption Becoming Multidimensional Megatrend #3 Tech Disruption Becoming Multidimensional
KEY LEADERSHIP ACTIONABLE TACTICS 1. Figure out what tech dimensions are relevant to your footprint and pursue the necessary governance, risk management and ethical boundaries around it. 2. Undertake a technology stakeholder analysis relevant to your business footprint to understand what your stakeholders’ tech expectations are. 3. Ensure cyber-hygiene. What is the state of cyber-security risk management at your organization? Is it effective? 4. Ensure that your organization is vigilant about information and data integrity in your products and services. 5. Integrate digital chatter vigilance into your internal/external communications strategy as well as enterprise risk management.
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MEGATREND #4—STAKEHOLDER CAPITALISM AND ESG INTERTWINING Megatrend Definition and Meaning in the Context of ESGT
Source: A. Bonime-Blanc, Gloom to Boom. Routledge 2020.
IN 2021-2022 FROM…
…TO IN 2022-2023
Stakeholder Capitalism Rising (#5)
Stakeholder Capitalism and ESG Intertwining (#4)
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“Stakeholder Capitalism and ESG Intertwining” zeroes in on a general trend and some nuances. The general trend is that terms like stakeholder capitalism and ESG continue to be thrown around and debated increasingly because of the deeply transformational moment traditional shareholder centric capitalism is undergoing. This ongoing socio-economic transformation, in turn, is a reflection of, and reaction to, the convergence of several deep global, even existential, risks (mostly environmental and social) that also afford broad opportunity (clean-tech, health, social justice). The nuances come from both misunderstandings and disagreements about what each of these terms really means, as well as how these concepts intertwine, converge, or conflate. The bottom line, however, is that there is pervasive change in how socioeconomics are unfolding and how the shareholder-centric capitalism of the past half century is giving way to a broader-based concept of capitalism that includes a broader set of stakeholder considerations, expectations, and interests—whether in the business, social, or government sectors—where employees, customers, regulators, suppliers, and others are playing a more important role. This megatrend is broadly categorized under the “Society” category of ESGT because it is above all about how society deals with socio-economic risk and opportunity. One can view it as a glass half empty—a set of risks and dangers—or as a glass half full—a series of opportunities for impact, growth, and value creation. I choose the latter.
The Danger and the Risk of Stakeholder Capitalism and ESG Intertwining As a refresher, Figure 31 shows several forms of capitalism extant today, which were discussed in greater detail in the 2021-2022 edition of the ESGT Megatrends Manual.
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Figure 31 Types of Capitalism
What we mean by “intertwining” is that each of the “Stakeholder Capitalism” and “ESG” concepts is misunderstood in and of itself and both concepts are becoming interrelated and often conflated. So, on the one hand, each concept can mean different things to different people. On the other hand, both concepts are inextricably interconnected because of their general thrust as part of the transformational socioeconomic moment we are living through—a moment that seems to be moving us from a Milton Friedman-dominated notion of “Shareholder Capitalism” to a broader concept of capitalism that we are loosely calling “Stakeholder Capitalism.” In addition, ESG is roaring into the scene of late as well—impelled mostly by the investor, asset management, and nonprofit sectors even though it has a much longer history around sustainable, ethical, and environmentally friendly investing. See Figure 32 for a sense of the sweep of the historical antecedents. Figure 32 A Sweeping Historical View of the Evolution of ESG
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So, what are the risks and pitfalls of this convergence, interconnectedness, and conflation? There are several nuances to this transformational moment that can be considered problematic, though addressing and resolving these issues and risks can create vast opportunity as we discuss in the next section. But first, let’s examine some of the problems.
Too Many ESG Issues and Stakeholders, Too Little Time One of the complaints one hears from more traditional, shareholder-centric, financially focused businesses is that focusing on too many stakeholders dilutes the focus on the fiduciary duty of maximizing returns and profits to the owners. The counter to that is that we are living in a world that is different from decades ago where environmental and social issues (as well as technological ones) have become strategic, global, inevitable, and potentially existential and ignoring those issues and their primary stakeholders undercuts value preservation, protection, and enhancement. These issues and these stakeholders aren’t going away so better to tap into their perspectives than not. Many shareholders and their advisors and representatives are acknowledging the importance of these ESG issues (that in turn relate to multiple stakeholders) as illustrated in Figures 33, 34, and 35. Figure 33 Shareholder Resolution Proposals In the U.S. by Topic and Outcome 2013-2022
Source: The Economist April 2022 66 | ESGT MEGATRENDS MANUAL
Figure 34 U.S. Shareholder Resolutions on Environmental and Social Proposals 2013-2022
Source: The Economist April 2022
Figure 35 Corporate Governance Exceeded Half of All Shareholder Activist Campaigns in 2020
Source: S&P Global 2021
The ESG Tower of Babel One of the concerning areas is the absolute avalanche or tsunami of information—useful and non-useful information. The adage “garbage in/garbage out” can very well apply to this data tsunami generated by myriad sources—both established and new, reliable, and not. DIPLOMATIC COURIER | 67
Part of the problem is the lack of nomenclature clarity and the fact that we are in a wild west period for ESG that will eventually yield common words, categories, data sources, etc. But in the meantime— during this period of competition to see who survives—we are bound to continue to struggle with data, concepts, nomenclature, and the ability to compare apples to apples. Finally, until the various frameworks for reporting in ESG metrics and results begin to speak to each other and the accounting firms understand how to measure ESG matters for accounting and assurance purposes, we will continue to have this challenge of the ESG Tower of Babel. Figure 36 makes this point louder than words. Figure 36 The ESG Ecosystem In 2021
ESG Regulatory Creep The EU has been ahead of the rest of the world when it comes to providing guidance on what they expect from larger companies within their jurisdiction on ESG disclosure. The regulatory stance in the United States has been a lot more confusing, especially under the previous administration where a lot of push-back on environmental and 68 | ESGT MEGATRENDS MANUAL
ESG issues took place (now being reversed by the Biden Administration). For example, Chairman Gary Gensler of the U.S. Securities and Exchange Commission has introduced a vast and deep sweep of proposed regulatory changes affecting many ESGT issues from environment to cyber, which includes most notably a major 550-page proposal on climate disclosure which is likely to be finalized and implemented later in 2022. Table 11 provides an overview of the key points in the U.S. SEC’s climate proposal published in the Spring of 2022. TABLE 11 U.S. Securities and Exchange Commission Fact Sheet: Enhancement and Standardization of Climate Related Disclosure 2022 •
Climate-related risks and their actual or likely material impacts on business, strategy, and outlook.
•
Details about governance practices on climate-related risks and relevant risk management processes.
•
Scope 1 and Scope 2 greenhouse gas emissions, which would require attestation reports for accelerated filers.
•
Scope 3 emissions reports if either of two conditions are present: 1) if Scope 3 emissions are material to the company or 2) if the company has set emissions target or goal that includes Scope 3 emissions.
•
Certain climate related financial statement metrics and related disclosures in a note to audited financial statements.
•
Information about climate-related targets and goals, and transition plan, if any.
Source: U.S. Securities and Exchange Commission Fact Sheet: Enhancement and Standardization of Climate Related Disclosure 2022
Greenwashing/ESG Washing? Given the concept and nomenclature confusion and the absence of clear and effective regulation mentioned above, one of the biggest challenges of these times is figuring out which companies are greenwashing or what I like to call ESG-washing (if they are obfuscating or lying on more than environmental results) and which funds or investment vehicles are doing the same in terms of not having a rigorous and high integrity approach to choosing companies for their funds. Thus, something that is a rising reality is the expansion of litigation, shareholder derivative lawsuits, and shareholder proxy strategies. Indeed, greenwashing disputes, litigation, and other regulatory action is probably about to explode. If we take a look at this story from DIPLOMATIC COURIER | 69
Fast Company, it’s only a matter of time as the technological tools to unearth greenwashing are also working in overdrive:
Source: Fast Company July 20, 2021.
Business Walks a Political Tightrope In all this, business—management and the board—is left in the unenviable position to chart its own stakeholder capitalism/ESG strategy. On top of everything listed above and in previous megatrends (climate crisis, Ukraine War, and supply chain challenges), businesses, especially in the United States but in other advanced democracies as well, are subject to the vicissitudes of political polarization, socio-economic tensions, pandemic fallout, and other stresses to their sociopolitical systems that are creeping more deeply every day into the workplace. Indeed internal (employees) and external (customers) stakeholders are demanding that companies take a political stance. What to do? The Ukraine war is helping to push this along in two major ways by 1) creating solid lines over which a “good ESG” company won’t cross (doing business in or with Russia) and 2) exposing the global energy co-dependencies and fault lines that have made EU democracies dependent on or beholden to kleptocratic oil states like Russia. 70 | ESGT MEGATRENDS MANUAL
Table 12 shows an array of ESGT issues, risks and opportunities that companies located in or doing business with Russia and Ukraine must consider. Table 12 Sampling of Potential ESG/ESGT Issues, Risks, Opportunities of Companies Located or Doing Business in Russia and Ukraine Environment
Society
Governance
Technology
•
•
•
•
•
• •
•
Destruction of habitats, cities, plants, infrastructure, facilities, offices Pollution from destruction – water, air, earth Destruction of agriculture, food supplies Vicinity of nuclear plants, potential ecological disaster Biodiversity loss
• • • • • • • •
Health, safety, wellbeing of employees, contractors, partners, their families Human rights Political speech Labor rights Migration issues Discrimination Harassment Bullying Social media use
• •
• •
• •
Reputation risk management Resilience building CEO public comments/ support for democracy Sanctions understanding & compliance Review of investments, partnerships & joint ventures Review of supply chain contracts Review of sales contracts
• • • • • • • • • •
Internet access/usage Social media Digital chatter Cyber-security Data privacy Data back up Damage or destruction of technology Hardware maintenance Device maintenance IoT Drones
Source: GEC Risk Advisory 2022
The Promise and the Opportunity of Stakeholder Capitalism and ESG Intertwining Workers Are the Most Important Stakeholders—Focusing on Them Adds Value After shareholders, the most important stakeholder for business is workers. Especially as we emerge from the worst of the pandemic, employees sit in the catbird seat—call it the Great Resignation, or the Great Reset, or the Future of Work. Whatever you call it, workers have—at least temporarily—some power, and they are armed with ESG and other issues that will drive them into your more reputable competitor’s arms if you don’t achieve good ratings amongst peers or literally rate well as in a Glassdoor company profile, for example. The surveys referenced in Figures 37 and 38 make these points clear. DIPLOMATIC COURIER | 71
Figure 37
Source: Oxford Globescan 2021.
Just Capital’s top 8 issues of the 19 they measure are dominated by “worker” stakeholder issues (numbers 1, 4, 6 and 7 below): Figure 38 Top Stakeholder Issues For 2021
Source: Just Capital 2021. 72 | ESGT MEGATRENDS MANUAL
Indeed, workers—especially the younger generations—are no longer as loyal to their employers as they used to be and are tying much of their mobility to whether their employers take sustainability, ESG issues, and corporate responsibility seriously. See Figure 39. Figure 39 Employee Job Change and Sustainability
Source: IBM Institute for Business Value 2022.
The bottom line is that each company needs to figure out who their key, most critically important stakeholders are and, in the process, prioritize their issues and expectations. Figure 40 shows the top issues for each of the five stakeholder groups that Just Capital analyzes and Figure 41 shows the power of the customer stakeholder cohort. Figure 42 shows a number of concrete, bottom line ESG benefits and advantages that Just Capital found from its in depth analysis of leading companies. Figure 40 Stakeholder Priority Issues 2021 by Stakeholder
Source: Just Capital 2021. DIPLOMATIC COURIER | 73
Figure 41 Consumers and Sustainable Products
Source: IBM Institute for Business Value 2022.
Figure 42 The Just Capital Just 100 Companies Bottom Line Advantages
Source: Just Capital 2021.
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ESG Nomenclature and Metrics Convergence Even though we are still in the wild west phase of ESG frameworks, reporting and metrics, there is hope on the horizon for a convergence of quantitative and qualitative standards, principles both in the disclosure process as well as in the accounting/assurance methodology that will eventually be used. Figure 43 speaks to this important trend. Figure 43 Convergence of Sustainability Reporting Frameworks
Businesses that “Get It” Get More Value, Sustainability, and Resilience Studies show that businesses that get that we’re undergoing a major socioeconomic transformation from what was shareholder centric to something more broadly inclusive of stakeholders and their issues, risks, and opportunities, are not only protecting the downside but turbocharging the upside of value protection and preservation (see Figure 44) and value creation (Figure 45).
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Figure 44 Companies with Strong ESG Performance are More Resilient
Source: Edelman.
Figure 45 ESG Focus Provides Positive Returns
Source: McKinsey 2020.
And, finally, very hopeful results came from in a recent study that sought to understand whether implementing a multi-stakeholder strategy leads to better returns. The explanation of the study and its top-level results are contained in Figure 46.
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Figure 46 Stakeholder “Talk” Equates with Stakeholder “Walk”
Source: Report: Walking the Talk: Valuing a Multi-Stakeholder Strategy. FCLT and Wharton. 2022.
A Leadership Battle Plan to Deal With Stakeholder Capitalism and ESG Intertwining Megatrend #4
KEY LEADERSHIP ACTIONABLE TACTICS
Stakeholder Capitalism and ESG Intertwining
1. Where does the entity fit in the spectrum of Milton Friedman shareholder capitalism to stakeholder capitalism? 2. Do you have an interdisciplinary team of ESG/ESGT experts working together at various levels of the organization to create order from the ESG chaos? 3. Do you understand who your most important stakeholders are and their expectations? 4. What is the state of your ESG or ESGT strategy, risk management and governance? Engage in a self-evaluation (SASB) regardless of whether you are private, public, nonprofit, governmental to find out. 5. Develop a long-term strategy with practical milestones, metrics, resources and budgeting and stick to it.
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MEGATREND #5—LEADERSHIP AND INSTITUTIONAL TRUST RECALIBRATING Megatrend Definition and Meaning in the Context of ESGT
Source: A. Bonime-Blanc, Gloom to Boom. Routledge 2020.
IN 2021-2022 FROM…
…TO IN 2022-2023
Leadership and Institutional Trust Plummeting (#2)
Leadership and Institutional Trust Recalibrating (#5)
This year’s megatrend “Leadership and Institutional Trust Recalibrating” (ranked #5) feeds off of last year’s similar megatrend “Leadership and Institutional Trust Plummeting” (ranked #2), with some interesting differences. DIPLOMATIC COURIER | 79
The trendline in leadership and institutional trust continues to be relatively negative and even alarming but there are several green shoots of what might be considered a recalibration, or at least a temporary equilibrium taking place in both the business and political leadership and institutional spheres. Key themes in this discussion include the role of corruption, competency, and ethics in calibrating the ESGT leadership of people and institutions (business, government, media, and nonprofits). This megatrend is squarely about governance as it is all about how leaders lead and how well institutions are structured to provide the necessary “governors” or governance for good strategy, effective risk management and healthy ethics and culture—or not.
The Danger and the Risk of Leadership and Institutional Trust Recalibrating Trust While leadership and institutional trust has been steadily declining over the past decade according to the Edelman Trust Barometer, over the past two years we have seen something interesting: a recalibration of trust in the business community—whether deserved or not. See Figure 47. Figure 47 Edelman Trust Barometer 2022: Business Most Trusted
Source: Edelman Trust Barometer 2022.
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It’s not clear if this has something to do with business taking on more responsibility for the global commons, seeing greater potential for profits through purpose or because others—like governments—have dropped the baton on social, socioeconomic, and political responsibility. A glimpse at political trust in the United States as illustrated in Table 13 shows that trust in the United States clearly continues on a decline, despite (or maybe because of) the change in administration in the U.S. from President Trump to President Biden. The tenor of political and ideological polarization in the U.S. has not been this extreme in generations. Table 13 Pew Research Center – Key Findings About Americans Declining Trust in Government and Each Other April 2022 1. Americans think the public’s trust has been declining in both the federal government and in their fellow citizens. 2. Nearly two-thirds (64%) say that low trust in the federal government makes it harder to solve many of the country’s problems. 3. Most think the decline in trust can be turned around. 4. Nonwhites, poorer and less-educated individuals, and younger adults have lower levels of personal trust than other Americans. 5. Levels of personal trust tend to be linked with people’s broader views on institutions and civic life. 6. Majorities believe the federal government and news media withhold important and useful information. 7. Democrats and Republicans think differently about trust, but both groups wish there would be more of it. 8. On a scale of national issues, trust-related issues are not near the top of the “very big” problems Americans see. But people often link distrust to the major problems that worry them. Source: Pew Research Center. 2022.
Trust, Ethicality, and Competency Whatever the reasons, business leaders are leading more effectively than any other category of leader, according to the Edelman Trust Barometers from 2020 through 2022, at least in terms of competency and ethics. See Figures 48 and 49. In Figure 48 showing the difference between 2020 to 2021, Edelman compares the overall results of competency and ethicality (on an x/y axis) for the four institutions they examine—business, NGOs, media, and government—reflecting the results of the global stakeholder surveys they conduct each year. DIPLOMATIC COURIER | 81
Looking at the difference between 2020 and 2021 one can observe the following: •
Business moves from being considered slightly unethical to slightly ethical while remaining somewhat competent.
•
NGOs, while considered generally ethical, are considered slightly incompetent.
•
Media and government are considered both less competent and less ethical with government being in the worst shape.
Figure 48 Business is Both Competent and Ethical
Source: Edelman Trust Barometer 2021.
However, if we move to the comparison between 2021 and 2022 there are some interesting improvements where: •
Business moves up substantially on ethicality.
•
NGOs move substantially forward into the ethical/competent quadrant, scoring especially high on ethicality.
•
Media generally remains in a similar negative (unethical, incompetent) quadrant.
•
Government is in the worst shape, continuing a steady decline in both competency and ethicality.
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Figure 49 Business & NGOs Most Stabilizing Institutions
Source: Edelman Trust Barometer 2022.
Trust, Transparency, and Democracy Much of the leadership and institutional trust discussion must be framed in the context of the debate on transparency, corruption, democracy, and autocracy. The Transparency International Annual Corruption Perception Index (TI CPI) for 2021 provides some big picture takeaways. Each year it scores around 180 countries and territories by “their perceived levels of public sector corruption, according to experts and businesspeople.” It uses a scale of 0 to 100 where 100 is “very clean” and 0 is “highly corrupt.” In 2021, 2/3 of the 180 countries scored below 50 and the average score was a 43. Both measures were quite disappointing. See Figure 50. As usual, there are a few dominant Nordic countries that make up the top 10 of least corrupt countries. These same countries often show up on lists of the happiest countries, the most democratic countries, and the most egalitarian countries. Sadly, as we look at the bottom ten or most corrupt countries on the TI CPI for 2022, they are mostly countries that are suffering through serious and lengthy civil unrest or war. See Figure 51.
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Figure 50 2021 Corruption Perceptions Index Report
Source: Transparency International. Corruptions Perception Index Report 2022.
Figure 51 2021 Corruption Perceptions Index Report: Top 10 and Bottom 10 Countries
Source: Transparency International Corruption Perception Index 2022
Interestingly, the “perception” of corruption doesn’t always coincide with the reality of corruption or the reality of a systemic, pervasive form of what I refer to as “systemic legalized corruption” evident in advanced market democracies where the economic and political system are organized in such a way that the corrupt aspects of it become buried in everyday life. 84 | ESGT MEGATRENDS MANUAL
For example, while the United States ranks 27th in TI’s 2021 CPI (falling from 23 in 2019 and 25 in 2020) and the United Kingdom has ranked in the 11th and 12th position in each of these years, how do we explain why both countries are a magnet for criminal money laundering, shell companies, and opaque investments by the world’s criminals like the Russian oligarchs that are in the current eye of the Russia/ Ukraine storm? Both the U.S. and the UK are amongst the most established democracies and market systems in the world, have highly developed legal, accounting, lobbying, tax, and corporate opacity that allow international criminals and others to hide behind dummy entities. The Russia/Ukraine conflict has helped to put in stark relief this paradox. What this conflict has also cast great clarity on is how open democratic systems have been complacent about corruption, allowing themselves to become more corrupt than before, through the allure of wealth, riches, and power and in the process weaker from a rule of law and democratic rights standpoint. Throw misinformation and disinformation warfare into the mix and we have some root causes for the decline of democracy worldwide (discussed under Megatrend #1 - Geopolitical Tectonic Shifts Catalyzing). The Ukraine/Russia conflict has made another thing extraordinarily clear: the difference between democracy and autocracy and the difference between a responsible/enlightened leader and an irresponsible/corrupt and criminal leader. Using the typology of ESGT leadership I developed years ago and explained in great detail in my book Gloom to Boom, here is what I would say about current political leadership in the context of the new global conflict and on whether a leader is walking the ESGT talk (the Enlightened or Responsible Leader); merely paying lip service to ESGT (the Superficial Leader); or completely oblivious to, or negligent or criminal toward, ESGT issues (the Irresponsible Leader). Table 14 provides a summary overview of such leaders with examples and explanations.
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Table 14 A Geopolitical Typology of ESGT Leadership Based on “Gloom To Boom” Book Typology Type of Leader
Example(S)
Why
Enlightened Geopolitical/ Political Leaders
President Zelenskyy, Ukraine Prime Minister Ardern, New Zealand President Tsai Ing-Wen, Taiwan
• • • • •
Responsible Geopolitical/ Political Leaders
President Biden, US Prime Minister Marin, Finland Prime Minister Andersson, Sweden Secretary General Stoltenberg, NATO
• • • • •
Superficial Geopolitical/ Political Leaders
Prime Minister Johnson, UK Prime Minister Orban, Hungary Prime Minister Modi, India
• •
•
Irresponsible Geopolitical/ Political Leaders
President Xi, China President Putin, Russia Crown Prince Mohammad Bin Salman, Saudi Arabia
• • •
•
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Sets an inspiring leadership tone Focused on transforming ESGT risk into value Innovates, thinks outside the box Shows deep responsibility to stakeholders Devotes personal time, effort to lead change, lead teams, motivate nation Sets a positive leadership tone Understands key ESGT issues, risks, and opportunities Can be innovative Shows responsibility to stakeholders Devotes personal time, effort to lead change Does not set an inclusive leadership tone Cares only about ESGT issues that further own power, influence, longevity, or reach Cares only about stakeholders that support him/her Sets an exclusive, partisan, autocratic leadership tone ESGT issues are mostly not on the radar May engage in kleptocratic corruption to advance own power and wealth Abuses human rights, conducts domestic or international violence to maintain power
The Promise and the Opportunity of Leadership and Institutional Trust Recalibrating Perhaps one of the lessons learned from the ranking of most “Just Companies” according to their stakeholders is that leadership and institutional trust is possible, but it requires deliberate, conscientious action, tone from the top, not just in words but in deeds. That is the thinking behind my typology of ESGT leadership shown in Figure 52 below and discussed in depth in Chapter two of my book, Gloom to Boom. In this typology, I gauge a leader’s commitment (or lack thereof) to the ESGT issues, risks and opportunities that are most relevant to that leader’s institution—whether it’s a business or some other entity. The range of leadership styles goes from the worst—the Irresponsible Leader who ignores or is hostile to such issues, risks, and opportunities; to the mediocre and manipulative—the Superficial Leader who uses ESGT issues, risks, and opportunities as a marketing or greenwashing ploy; to the Responsible and Enlightened Leaders, whose only difference is that in the case of the enlightened they not only walk the talk and provide substantive support in budget and resources on all things ESGT, but they also integrate ESGT into product and service development, innovation, and the overall culture of the institution. Figures 52 and 53 show examples of leaders that fit these categories in politics and business. Figure 52 ESGT Leadership Typology Applied to Government Leaders in 2022
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Figure 53 ESGT Leadership Typology Applied to Business Leaders in 2022
More than anything else this year, the extraordinary leadership example that President Volodomyr Zelenskyy of Ukraine has shown in dire times is serving both as a wake-up call and shining example of what responsible, trustworthy, ethical leadership looks like, especially in contrast to the other extreme represented by the sociopathic, non-leadership of President Putin of Russia. And this applies not only to political leaders but also to any kind of leader (management or board) in business, nonprofits, universities, etc. At the crux of good leadership and effective institutions is trust by stakeholders in leaders and institutions. Also, at the crux of this matter is the idea of transparency—the opposite of corruption. Leaders and institutions that are considered untrustworthy are often such because of some form of actual or perceived corruption as well. But what is trust? Trust is at the core of a successful and enduring culture. Trust is created, modeled, and earned every day by the leadership team, especially the CEO/Executive Director/President. Trust is the glue that keeps the organization and its internal and external stakeholders focused, motivated, and productive. Enduring trust only happens when an organization’s leadership lives and breathes trust daily by encouraging a robust speak-up, listen-up, and follow-up culture that empowers stakeholders—especially staff—to speak up without fear of retaliation, and where leadership listens and implements responsive continuous improvement. Transparency International has a few recommendations for the triangulation of the multifaceted problem that is corruption. In their 2021 88 | ESGT MEGATRENDS MANUAL
TI CPI they highlight the four illustrated in Figure 54. Figure 54 Transparency International 2021 Report Anti-Corruption Recommendations
Source: A. Bonime-Blanc. Gloom to Boom. Routledge 2020.
But the issue of leadership and institutional trust recalibrating and the possible silver lining of business becoming a more trusted institution globally seems to have some validity. In his exceptional 2021 book “Corruptible,” Brian Klaas puts his finger on the pulse of why we have poor leadership, and by implication institutions, and it gets back to something I have been analyzing, living through, and writing about throughout my career as well: why do we seem to have more sociopathic, hubristic, and corrupt people on average in positions of power than in the general population? To oversimplify what Klaas says: it boils down to one of two things: •
The corrupt tend to seek power and the non-corrupt are not as interested in entering the fray. DIPLOMATIC COURIER | 89
•
The non-corrupt become corrupted as the gain power.
Either way, this is a problem. Klaas concludes his very well researched book offering 10 lessons. They are listed in Table 15. Table 15 The Ten Lessons of Brian Klaas’ Corruptible: Who Gets Power and How it Changes Us (Scribner 2021) 1. Actively recruit incorruptible people and screen out corruptible ones 2. Use sortition and shadow governance for oversight 3. Rotate to reduce abuse 4. Audit decision-making processes not just results 5. Create frequent, potent reminders of responsibility 6. Don’t let those in power see people as abstractions 7. Watched people are nice people 8. Focus oversight on the controllers not the controlled 9. Exploit randomness to maximize deterrence while minimizing invasions of privacy 10. Stop waiting for principled saviors, make them instead Source: Brian Klaas. Corruptible: Who Gets Power and How it Changes Us. Scribner 2021.
I will close with an offering of my own from Gloom to Boom. What I call the Resilient Leadership Manifesto—something most of us need these turbulent days. See Figure 55. Figure 55 The Resilient Leadership Manifesto
Source: A. Bonime-Blanc. Gloom to Boom. Routledge 2020. 90 | ESGT MEGATRENDS MANUAL
A Leadership Battle Plan to Deal with Leadership and Institutional Trust Recalibrating AN ESGT LEADERSHIP BLUEPRINT FOR 2022-2023 Megatrend #5
KEY LEADERSHIP ACTIONABLE TACTICS
Leadership and Institutional Trust Recalibrating
1. How is your leadership at various levels (from the very top to junior management) selected? Are there behavioral and other psychological tests and profiles, especially for the most powerful positions? 2. Tie leadership traits that go beyond the core financial, operational and leadership characteristics you have typically used to reward staff and leadership to include qualities associated with non-toxic cultures. 3. Understand the culture of your organization by doing an independent culture assessment and surveys to determine the gaps. 4. Integrate findings from the culture assessment into governance, strategy, and compensation structures. 5. Whatever you do, do not reward toxic leaders— indeed, get rid of them as soon as possible.
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3. THE 2022-2023 LEADERSHIP ESGT BLUEPRINT A Leadership Battle Plan to Deal With Geopolitical Tectonic Shifts Catalyzing Megatrend #1
KEY LEADERSHIP ACTIONABLE TACTICS
Geopolitical Tectonic Shifts Catalyzing
1. Leadership teams (management and boards) must have access to real time international geopolitical, national, and local political data and advice relating to their strategic footprint, geography, supply chain, and planning. 2. A designated member of management should oversee geopolitical and political developments with the assistance of solid intelligence and advisors reporting to c-suite and board periodically and coordinating in real time with risk management. 3. Add geopolitical risk and opportunity considerations to the yearly budgeting and strategy planning exercises. 4. Understand how international and national politics affect your business/entity through the eyes of your stakeholders. Understand the reputation risk and opportunity embedded in such views and add them to corporate/entity internal and external messaging and communications. 5. Make sure all political content messaging is 100% aligned with your organization’s purported mission, vision, values, and purpose.
A Leadership Battle Plan to Deal With Climate and War Propelling Complex Risk Megatrend #2 Climate and War Propelling Complex Risk
KEY LEADERSHIP ACTIONABLE TACTICS 1. Does the organization have an Enterprise Risk Management framework? Make sure climate, geopolitical and societal risks are part of the considerations.
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Megatrend #2 Continued Climate and War Propelling Complex Risk
KEY LEADERSHIP ACTIONABLE TACTICS 2. What’s the state of your risk governance and oversight? • •
Is the board of directors risk-savvy and experienced? Is there a risk oversight committee?
3. Does the company have a savvy Chief Risk Officer and team? Do the team members have the resources and tools necessary for foresight and futureproofing? 4. Is there a crisis management plan and team, including a board liaison or member? Is scenario planning integrated into such plans and periodically conducted? 5. Is there organizational resilience management and oversight, business continuity, and data protection? What’s the state of your organizational resilience?
A Leadership Battle Plan to Deal with Tech Disruption Becoming Multidimensional Megatrend #3 Tech Disruption Becoming Multidimensional
KEY LEADERSHIP ACTIONABLE TACTICS 1. Figure out what tech dimensions are relevant to your footprint and pursue the necessary governance, risk management and ethical boundaries around it. 2. Undertake a technology stakeholder analysis relevant to your business footprint to understand what your stakeholders’ tech expectations are. 3. Ensure cyber-hygiene. What is the state of cyber-security risk management at your organization? Is it effective? 4. Ensure that your organization is vigilant about information and data integrity in your products and services. 5. Integrate digital chatter vigilance into your internal/external communications strategy as well as enterprise risk management.
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A Leadership Battle Plan to Deal With Stakeholder Capitalism and ESG Intertwining Megatrend #4
KEY LEADERSHIP ACTIONABLE TACTICS
Stakeholder Capitalism and ESG Intertwining
1. Where does the entity fit in the spectrum of Milton Friedman shareholder capitalism to stakeholder capitalism? 2. Do you have an interdisciplinary team of ESG/ESGT experts working together at various levels of the organization to create order from the ESG chaos? 3. Do you understand who your most important stakeholders are and their expectations? 4. What is the state of your ESG or ESGT strategy, risk management and governance? Engage in a self-evaluation (SASB) regardless of whether you are private, public, nonprofit, governmental to find out. 5. Develop a long-term strategy with practical milestones, metrics, resources and budgeting and stick to it.
A Leadership Battle Plan to Deal with Leadership and Institutional Trust Recalibrating Megatrend #5
KEY LEADERSHIP ACTIONABLE TACTICS
Leadership and Institutional Trust Recalibrating
1. How is your leadership at various levels (from the very top to junior management) selected? Are there behavioral and other psychological tests and profiles, especially for the most powerful positions? 2. Tie leadership traits that go beyond the core financial, operational and leadership characteristics you have typically used to reward staff and leadership to include qualities associated with non-toxic cultures. 3. Understand the culture of your organization by doing an independent culture assessment and surveys to determine the gaps. 4. Integrate findings from the culture assessment into governance, strategy, and compensation structures. 5. Whatever you do, do not reward toxic leaders— indeed, get rid of them as soon as possible.
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