THE ESGT MEGATRENDS MANUAL (2023-2024 Edition)

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A Special Report by

THE ESGT MEGATRENDS MANUAL A Simple Guide to Futureproofing in Complex Times 2023-2024 EDITION

By Andrea Bonime-Blanc

EDITOR SHANE SZARKOWSKI ART DIRECTOR MARC GARFIELD PUBLISHER

ANA C. ROLD DIPLOMATIC COURIER WASHINGTON, DC

IN PARTNERSHIP WITH GEC RISK ADVISORY NEW YORK CITY

Contents ESG T M EGATR EN D S M AN U AL I 2 0 2 3 -2024

06 I OVERVIEW AND INTRODUCTION • The Five ESGT Megatrends of 2023-2024 • Plan for the Manual 10 I #1 – TECH DISRUPTION MEGATREND “EXPONENTIAL TECH DEFYING GOVERNABILITY” • Definition and Importance • Situational Awareness: Risk and Opportunity Trends o Trend 1 – Disruptive Tech Paradox: Exponential

Opportunity - Governance Nightmare o Trend 2 – Illustrating the Disruptive Tech Paradox o Trend 3 - Embracing Technology Governance • Leadership To Dos - Futureproofing “Exponential Tech Defying Governability” 18 I #2 - GLOBAL RISK MEGATREND “COMPLEX SOCIO-ECOLOGICAL RISK RISING” • Definition and Importance • Situational Awareness: Risk and Opportunity Trends o Trend 1 - The Socio-Ecological Risk Triangle: Climate,

Biodiversity and Society Interconnected o Trend 2 - Biodiversity Risk (and Opportunity) Rising o Trend 3 - The Corporate Dimension of Socio-Ecological

Risk and Opportunity • Leadership To Dos: Futureproofing “Complex SocioEcological Risk Rising” 4 | D I PLOM AT I C COU R I E R

Contents ESG T M EGATR EN D S M AN U AL I 2 0 2 3 -2024 24 I #3 - GEOPOLITICAL TECTONICS MEGATREND “GEOPOLITICAL TECTONIC SHIFTS CRYSTALIZING” • Definition and Importance • Situational Awareness: Risk and Opportunity Trends o Trend 1 - Internationally: Contours of the Next

Geopolitical Period Crystalizing o Trend 2 - Domestically: Is Democracy Moving

from Life Support to Intensive Care? o Trend 3 - Organizationally: Business Can Ignore

Geopolitics No More • Leadership To Dos: Futureproofing “Geopolitical Tectonic Shifts Crystalizing” 30 I #4 – LEADERSHIP TRUST MEGATREND “LEADERSHIP TRUST AT AN INFLECTION” • Definition and Importance • Situational Awareness: Risk and Opportunity Trends o Trend 1 - Leadership and Institutional Trust Contradictions o Trend 2 - Connecting Leadership Trust to Sustainability,

Resilience and Value Creation o Trend 3 – Mission Critical: Finding Trustworthy Leaders • Leadership To Dos: Futureproofing “Leadership Trust at an Inflection” 36 I #5 – FUTURE OF CAPITALISM MEGATREND “ESG POLEMICS REDEFINING CAPITALISM” • Definition and Importance • Situational Awareness: Risk and Opportunity Trends o Trend 1 – The Noise: ESG Skirmishes, Battles,

Polarization o Trend 2 – The Signal: Sustainability and Resilience

Building o Trend 3 - Quo Vadis Capitalism?

• Leadership To Dos: Futureproofing “ESG Polemics

Redefining Capitalism” 42 I THE LEADERSHIP ESGT FUTUREPROOFING BLUEPRINT 2023-2024

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OVERVIEW AND INTRODUCTION

W

hat will the coming year be all about? Should this year’s manual be a “Silver Linings Playbook” or “The Year of Living Dangerously”? I am torn this year between being mildly optimistic (hence “Silver Linings Playbook”) and cautiously pessimistic (thus “The Year of Living Dangerously”).

Or maybe it will be “Everything, Everywhere, All at Once”?

The bottom line is that we are going through an unprecedented time of fast change, quick U-turns, sudden surprises, grave dangers, and amazing opportunities—none of which the world’s countries, institutions and leaders are fully prepared for—let alone its now 8 billion people.

Thus, 2023-2024 will be a year of zigzagging between silver linings (i.e., smart opportunities) and navigating through dangerous shoals (risky waters). This will require a heightened sense of awareness, collaboration, and action by audacious leaders deeply tuned-into their stakeholders.

The 2023-2024 ESGT Megatrends Manual provides leaders with a birds-eye view of some of the most important big picture, multi-year trends (“Megatrends”) in five spheres that impact all of us: technological disruption, global risk, geopolitical change, leadership trust, and the future of capitalism. And, true to its title and subtitle, the ESGT Megatrends Manual (a.k.a. the “Manual”) also provides a blueprint of actionable environmental, social, governance, and technological (“ESGT”) tactics for leaders to navigate the risks and the opportunities of the coming year.

The ESGT Megatrends Manual is about three things: a. Situational Awareness. The Manual provides a big picture snapshot of five of the biggest multi-year transformations taking place in real time—the Megatrends. Whether you work globally, nationally, or locally, understanding the Megatrends provides critical situational awareness to help you make smart decisions in our fast-moving, complex, interconnected world. b. Sustainability and Resilience. Under each Megatrend, we identify several ESGT “trends” relating to the Megatrend designed to help leaders and their organizations maintain or achieve more sustainable and resilient solutions.

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c. Futureproofing. Each Megatrend and the Manual itself culminate in Leadership “To Do’s” and a “Leadership ESGT Futureproofing Blueprint”—suggesting actionable solutions leaders should consider for futureproofing their organizations.

The Five ESGT Megatrends of 2023-2024 The five ESGT Megatrends for 2023-2024 build upon those from prior annual editions. While the general subject matter of each Megatrend remains intact, in nuance and detail as well as prioritization each Megatrend continues to evolve or devolve.

Figure 1.

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The Tech Disruption Megatrend “EXPONENTIAL TECH DEFYING GOVERNABILITY” rockets to first position this year from third last year. Why? Generative AI, including Chat GPT and its competitors. The exponential progress and disruption of AI and other forms of emerging and frontier tech is taking place in the relative vacuum of their ungovernability. In other words, exponential tech is developing at the speed of light without corresponding exponential strides in governance, risk, and ethics guardrails—and the time to tackle and collaborate on this towering challenge was yesterday.

The Global Risk Megatrend “COMPLEX SOCIO-ECOLOGICAL RISK RISING” remains in second place this year, underscoring a long-term set of systemic risks that have not garnered sufficient focused attention: the interconnection between climate, biodiversity, and societal issues. This triangle of complex, systemic global risk relates to life on earth and our survival as a human society that is part of a larger ecosystem. It is time to think of these three core aspects of life on earth in an integrated and holistic way.

The Geopolitical Tectonics Megatrend “GEOPOLITICAL TECTONIC SHIFTS CRYSTALIZING” is third, falling from first last year. We are seeing the “crystalization” of long-term geostrategic and political changes from the past two decades driven by deep challenges to democracy, fault lines between democracy and autocracy, and new fissures between Global North and South. Add to these developments the dynamics of the Ukraine War, the rise of a more assertive China and U.S./China tensions, the possible devolution or even disintegration of Russia, and more globally important roles of India, Saudi Arabia, and maybe even Brazil.

The Leadership Trust Megatrend “LEADERSHIP TRUST AT AN INFLECTION” moves to fourth place. This Megatrend’s importance is fundamental because the decline in leadership and institutional trust of all kinds, everywhere, points to a much larger global social malaise. This malaise explains (and is explained by) trends such as the rise of misinformation and disinformation, political polarization and the weaponization of new tech (think ChatGPT in the wrong hands). Why “an inflection”? Without a predominance of responsible, emotionally intelligent leaders in government, business, society, and media in these deeply untrusted times, the world becomes increasingly dangerous.

The Future of Capitalism Megatrend “ESG POLEMICS REDEFINING CAPITALISM” drops to fifth place. This Megatrend discusses the deepening scrutiny that “ESG” is getting—legally, regulatorily, and politically—while sustainability continues to evolve and possible new forms of capitalism emerge. While ESG polemics are largely centered in the U.S. (and in the U.S. mostly Republican controlled states), the lines between business and politics have been blurred creating much confusion. Add to this the rise of regulatory and investigatory scrutiny of “greenwashers,” new ESG laws and regulations, shareholder activism, litigation, and more.

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Table 2 below provides a deeper dive into the meaning and characteristics of each Megatrend.

Plan for the Manual As in past editions, each Megatrend chapter will take the following approach: • Definition and Importance: The what and why of each Megatrend.

• Situational Awareness: Several key risk and opportunity trends within a Megatrend.

• Futureproofing: Practical leadership ESGT “To Dos” for each Megatrend.

At the end of the eBook, we will have a summary Leadership ESGT Futureproofing Blueprint for 2023-2024 in which the Leadership “To Dos” for each Megatrend are summarized providing a bird’s eye view of practical tips and tools for navigation into 2024 and beyond.

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MEGATREND #1 EXPONENTIAL TECH DEFYING GOVERNABILITY The Tech Disruption Megatrend a. Definition and Importance At the center of “Exponential Tech Defying Governability” is the idea that human ability to keep up with disruptive and exponential tech is fast escaping us. It’s a deep paradox: while much of disruptive tech provides boundless opportunity to improve life on earth, our ability to develop and apply necessary regulatory, governance, risk, and ethics guardrails is fast escaping us, laying unknown risks and dangers bare to future life on earth. b. Situational Awareness: Risk and Opportunity Trends Trend 1—The Disruptive Tech Paradox: Exponential Opportunity—Governance Nightmare At the time of this writing, the earth-shattering double exponential realization of generative natural language processing AI—of which ChatGPT is just one of many incarnations—has impacted human life at every level. It will change us more than the internet has and probably more than any other previous human revolution.

Listening to Tristan Harris and Aza Raskin, experts in safeguarding the world from destructive impacts of tech, is something we should all do. Their clear explanations of deeply complex and unknowable dangers f rom what they call the unstoppable rise of double exponential tech should do more than just give us pause.

More importantly, their words should put a fire under our collective human butts and give us the intestinal fortitude to accelerate global tech governance efforts.

As they state in this must-see YouTube video “The AI Dilemma”: “50% of AI researchers believe there’s a 10% or greater chance that humans go extinct f rom our inability to control AI.” Do the math on that.

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Add to the AI explosion a whole bunch of other disruptive new tech with boundless opportunity and you get a sense of the overwhelming governability challenge. In 2022, McKinsey estimated the following areas to be top tech trends: 1. Applied AI 2. Advanced connectivity 3. Future of bioengineering 4. Future of clean technology 5. Future of mobility 6. Web3 7. Future of sustainable consumption 8. Cloud and edge computing 9. Industrializing machine learning 10. Immersive reality technologies 11. Trust architecture and digital identity 12. Future of space technologies 13. Quantum technologies 14. Next generation software development Take the case of AI (which has been around since the 1950s). Visualized, its exponential growth in the last few years would show a complete hockey stick starting in the late 2010s. The combined power of dramatically increased computational power, communications speed, data availability and processing capacity have allowed the likes of Open AI and others to make huge strides in generative AI, suddenly, apparently out of nowhere. The question we must ask is: are the innovators behind the exponential growth in AI (and other f rontier tech) building appropriate governance, risk, ethics, and transparency guardrails around the development and deployment of their tech?

According to the WEF GRR 2023 report, these are the top global tech risks: • Adverse outcomes of f rontier technologies • Breakdown of critical information infrastructure • Digital inequality and lack of access to digital services • Digital power concentration • Widespread cybercrime and cyber insecurity “Adverse outcomes of frontier technologies”—is defined as follows: “Intended or unintended negative consequences of technological advances on individuals, businesses, ecosystems and/or economies. Includes but is not limited to: AI, brain-computer interfaces, biotechnology, geo-engineering, quantum computing and the metaverse.”

If we only look at what is happening with AI and advanced natural language processing through ChatGPT and its ilk, the fact 12 | DI PLOM AT IC COU R IE R

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that innovators are innovating at the speed of light while ethicists, regulators and boards are increasingly trailing and falling behind, speaks to the gaping disconnect between innovation and governance that is currently taking place.

Put it this way—when you have AI experts and scientists testing ChatGPT for whether AI can “escape into the wild” or worry that their chats with the AI are becoming emotional or romantic, you know the smartest people in the room are concerned. One can only wonder why the likes of Google and Microsoft are firing AI ethicists due to staff reductions at a time of exponential tech change. That is deeply penny wise and powerfully pound foolish.

What about the bad or negligent actors? Let’s put that in the context of national and international security where bad actors have access to and use these tools for nefarious purposes? There are already many reports of cyber-hackers and other bad actors using ChatGPT to help them with their cyber-attack plans. Not to mention the use of almost undetectable surveillance tools (like the Pegasus software that got NSO, an Israeli company, in such trouble) in our phones, devices, computers, etc.

Trend 2—Illustrating the Disruptive Tech Paradox Bioengineering and Self-Driving Cars Here’s an example f rom Musk-world: U.S. regulators initially rejected but then accepted his bid—through his company Neuralink—to test brain chips in humans, citing safety risks. Indeed, the idea behind his company is to help paralyzed people walk, the blind see, and otherwise help with other body functions controlled through a brain implanted chip. While the ideal of such tech is wonderful, the reality of it may be quite different. Look at the self-driving car concept which has not yet been properly developed and has led to injuries and death. Now think about what could go wrong with neural chips implanted into someone’s brain. And what could go wrong if it works well for the wrong reasons? Picture killer robots, but instead they are humans manipulated by neural chips.

Open-Source Intelligence (OSINT) Take also, for example, the rise of open-source intelligence (aka OSINT) where the use of multiple open-source technologies (geospatial, social media, etc.) is allowing the likes of Bellingcat, other investigative journalists, and social and governmental entities to reconstruct step by step (and identify those involved in) crimes against humanity in Ukraine. But that same set of tools can be used in reverse by bad actors for nefarious purposes—to hunt ESGT MEGATRENDS 2023-2024 | 13

down their “enemy” which in some cases may be what many of us may consider the “good guys”.

Disinformation Then there’s the whole area of “fake everything” being created massively through AI and other techniques and technologies.

There are numerous efforts at trying to tame this beast, but the beast is moving too fast and replicating itself logarithmically, making it almost impossible to keep up from a governance standpoint. ChatGPT and its ilk are contributing exponentially to the rise of massive fakery.

Conventional wisdom suggests that disinformation and misinformation must be fought with good, accurate, objectively provable information. While true, this is reductive. Doing so requires a massive and perhaps coordinated effort that is complex, novel, and challenging to deploy.

Despite this caveat, there is an important silver lining to acknowledge—within the Ukraine war where NATO, its member nations, and Ukraine together have developed a powerful software-based intelligence alliance that is helping with anticipating and combating disinformation from the Russians. They have been relatively successful by either anticipating disinformation and fighting it with good information or they are countering existing disinformation with quality information. While they will not convince the inconvincible, they are making a difference in the information wars.

TikTok and Social Media When the most popular form of social media anywhere today— TikTok—is pervasive and embedded in almost every person’s handheld phone in the U.S. and Europe is alleged to be a Chinese government manipulated form of infiltration into the privacy of each user, we now have ourselves a national security concern.

This is where the government, regulators, and others must work together to explore what is acceptable and what not and deliver the solutions.

Trend 3—Embracing Technology Governance Governmental entities around the world are grappling with how to apply governance, risk, and ethics requirements around emergent technologies. The EU as always is ahead of the pack especially when it comes to AI and data protection and privacy.

See Figure 1.

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Table 2.

The cybersecurity risk and governance space—which is more mature at least at scale than many of the f rontier technologies we are currently grappling with like AI, Quantum, bioengineering—can offer some valuable lessons on how to apply a customized, adapted, and adaptable governance and risk management framework. Under President Biden, the U.S. government has seriously stepped up its game on cyber regulations and resilience building and is looking more proactively at AI and other forms of tech and their governance.

By adopting the 2023 U.S. National Cyber Strategy, the U.S. has created a holistic f ramework to tackle all aspects of cybersecurity—at the organizational, national, and international levels. And in the governmental, business and NGO spaces. Beginning with a section on defending critical inf rastructure, the strategy focuses on disrupting and dismantling threat actors, shaping market forces to drive security and resilience, investing in resilience, and forging international partnerships to secure the future.

At the end of the day the paradox of disruptive tech is that more efforts must be made now on collaboration for global digital ESGT MEGATRENDS 2023-2024 | 15

trust. The WEF has developed useful frameworks to think about this at the organizational level—including business.

Figure 2.

Source: World Economic Forum. c. Leadership To Dos: Futureproofing “Tech Disruption Defying Governability” Here are several things leaders can do to futureproof their organizations against these risks and to encourage and provide opportunity.

1. Ignore Tech Disruption at Your Peril. Boards and management do not have the option of ignoring tech disruption—hire management and recruit board members with tech governance, ethics, or risk expertise.

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2. Heighten and Broaden Continuing Education at all Levels.

Continuing education on tech disruption is a must have not a nice to have—do it and do it periodically.

3. Get Ready: Privacy is Dead—Surveillance is Alive. Privacy (as we knew it) is dead—watch how much you are being surveilled by your competitors and nation state enemies and watch what you do to your own people in terms of surveillance and/or invasion of privacy.

4. Up Your Competitive Strategic Analysis like Never Before.

Tech will disrupt you and your business potentially out of existence and possibly f rom the least expected places—make sure your business strategy is looking outside of the box laterally, up, and down, inside, and out.

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MEGATREND #2 COMPLEX SOCIO-ECOLOGICAL RISK RISING The Global Risk Megatrend a. Definition and Importance: “Complex Socio-Ecological Risk Rising” captures the idea that the trio of climate, biodiversity, and societal risks and opportunities are more interrelated than ever. The interconnection between multiplying climate catastrophes worldwide, the rapid decline in biodiversity, and mounting societal issues is becoming increasingly apparent. This means that we—in government, business, and society—must view these multidimensional issues as part of an integrated whole at every level: internationally, nationally, locally, and organizationally—and develop policies and programs accordingly.

Figure 3.

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b. Situational Awareness: Risk and Opportunity Trends Trend 1—The Socio-Ecological Risk Triangle: The Interconnectedness of Climate, Biodiversity, and Society The long-term deleterious effects of climate change and the decline in biodiversity are everywhere. The global physical and mental health and other societal reverberations of COVID-19 continue.

Add to that the impact of continuing and worsening humanitarian crises (in Ukraine, Somalia, Yemen, Sudan, Myanmar, and elsewhere) occasioned by war, climate, and other systemic causes and we have ourselves the rise of socio-ecological risk.

The World Economic Forum (WEF) Global Risks Report 2023 (GRR 2023) illustrates the dominance of societal risks and their interconnectedness to environmental issues including biodiversity.

The report found there are more societal risks than any other category (economic, environmental, geopolitical, and technological).

It also found that societal risks overall are relatively riskier than any other category—and that societal risks overall have a greater degree of interconnectedness with other risk categories.

Figure 4.

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Under WEF’s “Currently Manifesting Risks” category for 2023— 3 out of the 5 are societal—energy supply crisis, cost-of-living crisis, and food supply crisis. And the other two—rising inflation and cyber-attacks on critical infrastructure—have serious selfexplanatory societal effects as well.

Looking at the GRR 2023 2-year and 10-year outlook for severe global risk, the green (environmental) and the red (societal) colors completely dominate the risk horizon.

Figure 5.

Amongst the most notable societal risks that WEF tracks are: 1. Chronic diseases and health conditions 2. Collapse or lack of public infrastructure and services 3. Cost of living crisis 4. Employment crises 5. Erosion of social cohesion and societal polarization ESGT MEGATRENDS 2023-2024 | 21

6. Infectious diseases 7. Large scale involuntary migration 8. Misinformation and disinformation 9. Severe mental health deterioration Trend 2—Biodiversity Risk (and Opportunity) Rising The WEF GRR 2023 pinpoints “Biodiversity Loss and Ecosystem Collapse” as one of the material global environmental risks and defines it as “severe consequences for the environment, humankind and economic activity due to destruction of natural capital stemming from a result of species extinction or reduction spanning both terrestrial and marine ecosystems.” The state of biodiversity loss—including the rapid extinction of many species of animals is alarming and unprecedented and will lead to additional dire consequences on socio-ecological welfare on our planet.

On the more positive, opportunity side of the ledger, a groundbreaking event took place in early 2023—the signing of the United Nations High Seas Treaty—which will allow for the protection of a third of the world’s open, non-territorial seas by 2030. The treaty aims to protect vast portions of shared ocean around the world from climate change, overfishing, and seabed mining.

The UN signatories also agreed to do the same for 30% of the world’s land. In that regard, the return of Lula as President of Brazil has literally breathed new hope into the halting and reversal of the destruction of the Amazon. Scientists from Brazil’s government agency INPE estimate that 17% of the Amazon has already been destroyed. Worse, reaching a level of 25% destruction would present an existential threat with irreversible consequences to both the Amazon itself and the world as the Amazon is often referred to as the lungs of the earth.

Trend 3—The Corporate Dimension of Socio-Ecological Risk and Opportunity The corporate world lags in seeing the interconnectivity of climate, biodiversity, and societal issues. The PwC Global CEO agenda survey for 2022 found that CEOs are failing to recognize the risk that loss of biodiversity poses to their business and yet they expect natural capital to be there for the taking—when needed. In the 2022 survey, only 18% of CEO’s saw biodiversity as a priority, ranking as the lowest of all sustainability initiatives.

In the 2023 Edelman Trust Barometer, global stakeholders’ (from 27 nations) response to the question “I expect CEOs to take a public stand on this issue” resulted in the following: • 89% - “treatment of employees” • 82% - “climate change” 22 | D I PLOM AT I C COU R IE R

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• 80% - “discrimination” • 77% - “wealth gap” • 72% - “immigration” Combining these survey results with the results of the WEF GRR list of top societal risks points to the need for the business sector—and its leadership—to pay greater attention and devote more resources to the socio-ecological issues, risks and oportunities that are most relevant to their business footprint. c. Leadership To Dos: Futureproofing “Complex SocioEcological Risk Rising” Here are several things leaders can do to futureproof their organizations against these risks and to encourage and provide opportunity.

1. Integrate Socio-Ecological Issues into Risk Management and Governance. Ensure that all relevant social, biodiversity and environmental risks and opportunities are integrated into organizational risk management and governance.

2. Embed Socio-Ecological Issues into Strategy. Integrate key societal, environmental and biodiversity risks and opportunities into your business plan and strategy.

3. Understand Socio-Ecological Issues in the Supply Chain.

Undertake a serious supply chain analysis for all your upstream and downstream supply chains and make sure that alternative, diversified arrangements and back up plans are made for contingencies.

4. Focus on Improving Stakeholder Wellbeing. Understand the key societal issues of your key stakeholders—especially employees, but also customers, and communities—and develop programs and plans to address such key issues such as health (mental and physical), safety, and crisis management.

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MEGATREND #3 GEOPOLITICAL TECTONIC SHIFTS CRYSTALIZING Geopolitical Tectonics Megatrend a. Definition and Importance: We are witnessing the rise of a new global geopolitical order in the making since the end of the Cold War. These tectonic shifts have impacts at the organizational, national, international, and virtual levels. To better futureproof their organizations, leaders at every level must understand how these various converging and diverging geopolitical and political shifts affect their footprint and strategy. b. Situational Awareness: Risk and Opportunity Trends Trend 1—Internationally: Contours of the Next Geopolitical Period Crystalizing The relatively unsettled nature of these geopolitical tectonic shifts over the past 2-3 decades are beginning not only to catalyze but to crystalize into a clearer picture.

A rising Cold War between China and the U.S. instigated by a variety of factors including the legacy of the Trump administration and the more assertive policy stance of the Biden Administration. Also critical: the unprecedented third term of Xi and massive increase in his power especially as COVID-19 turbocharged the Chinese surveillance state, and the alignment of China with Putin’s Russia. Plus, in the medium to longer term, a potentially catastrophic war could occur in and about Taiwan. The contours of U.S. versus China alliances around such a war are already being painted (see AUKUS treaty, new Philippines/U.S. military collaboration, rise of Five I’s collaboration, etc.).

A rising coalition of democracies versus autocracies (or rule of law versus lawlessness) may be best exemplified by the reESGT MEGATRENDS 2023-2024 | 25

surgence and expansion of NATO due to the Ukraine War. Additionally, the growing recognition that populism, polarization, and assaults on the rule of law pose serious and even existential threats to democracy. This recognition brings a rising silver lining: the reawakening of pro-democracy, rule of law and human rights sentiment within established, at risk, democracies (Israel, U.S., UK). Conversely, we are also seeing some social movements against autocratic rule in deeply authoritarian states like Iran.

Rise of Global South countries like India, Saudi Arabia, and Brazil that are not interested in aligning with Global North democracies indiscriminately but deciding on a caseby-case basis when and with whom to align if at all. India provides a powerful case study of this reality—an enormous but flawed democracy that aligns sometimes with Russia and sometimes with the West. Throw into this mix the effects of China’s Belt and Road Initiative throughout the Global South as well as Russia’s meddling in various Af rican and Middle Eastern countries, and a messy, dynamic picture emerges nicely illustrated in the EIU world map in Figure 6 below.

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Trend 2—Domestically: Is Democracy Moving from Life Support to Intensive Care?

The annual Freedom House “Freedom in the World 2023 Report” which measures democracy and freedoms the world annually provides the following key findings.

1. Global freedom declined for the 17th consecutive year 2. The struggle for democracy may be approaching a turning point 3. While authoritarians remain extremely dangerous, they are not unbeatable 4. Infringement on f reedom of expression has long been a key driver of global democratic decline 5. The fight for f reedom persists across decades Figure 7.

The silver linings, if any? Points # 2, 3, & 5 above give hope. Making that hope reality requires all of those living in democracies or interested in freedom to work together both on preserving and reforming our own democracies as well as helping those in more challenged countries.

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The Freedom House Report ends with an important statement.

“More than anything else, five decades of Freedom in the World Reports demonstrates that the demand for freedom is universal.”

There is new resource that sheds light on why democracy may be in decline in some places and that may provide an explanation as to why we have seen the rise of populism and polarization in long-standing democracies. It is called the Atlas of Impunity and it applies five additional criteria to nations and societies that help explain why these negative developments are taking place. The criteria are: 1. Unaccountable Governance 2. Abuse of Human Rights 3. Economic Exploitation 4. Conflict and Violence 5. Environmental Degradation While there are complex criteria to be considered in understanding why democracy is at risk, this new entry into the debate is worth exploring and keeping in mind when trying to understand what is happening within democracies and autocracies.

Trend 3—Organizationally: Business Can Ignore Geopolitics No More After the deep geopolitical systemic shocks of the past year—the Russian invasion of Ukraine and the mounting tensions between China and the U.S.—it is negligent for businesses to ignore geopolitical risk and opportunity. Integrating geopolitical considerations into planning and strategy is a new imperative.

In a PwC CEO survey, in response to asking about what actions if any is your company considering to mitigate against geopolitical exposure over the next 12 months, the dominant answers revolved around increasing investment in cybersecurity, data privacy, supply chains and looking at alternate markets.

In addition to the above, and especially in view of the deteriorating U.S. /China and EU/Australasian based countries relationship with China, businesses should consider the following lenses and strategies (adapted f rom this article): Lens #1 - Economic - What are the economic and financial implications of continuing to do, beginning to do, or cutting off business relationships in or with China?

Lens # 2 - Geopolitical - What are the implications of the major geopolitical shifts between China, Russia, the U.S. and the EU to our business and third-party relationships?

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Lens # 3 - Legal – What are the governance, contractual, regulatory, compliance, corruption, ethics, human rights implications?

Lens # 4 – Technological – What are the tech development, IP protection, surveillance, cybersecurity, export/import controls, implications of our business in or with China?

Lens # 5 – Reputational – How will our company’s continuing or new business activities in a compromised location—or abrupt departure therefrom—affect stakeholder expectations and perception of the company?

Strategic Imperative #1 - Construct a long-term China or other key country strategy.

Strategic Imperative #2 - Build internal organizational resilience. c. Leadership To Dos to Futureproof “Geopolitical Tectonic Shifts Crystalizing” Here are several things leaders can do to futureproof their organizations against these risks and to encourage and provide opportunity.

1. Include Geopolitical Risk and Opportunity in Strategy.

Integrate geopolitical situational awareness relevant to your business or organization into your business strategy and budgeting—at the international, national, and local levels as well as physical and virtual.

2. Develop a Truly Diversified Approach to Supply Chain.

This must be done both downstream for purposes of engagement with customers, partners, regulators, and other relevant parties as well as upstream for sourcing of raw materials, products and services needed to build your product or service.

3. Provide Management and Board Periodic Geopolitical Trend Updates and Analysis. While this needs to be relevant to your business or organizational footprint—both physical and virtual—it’s important to provide a bigger megatrends view of the world to understand shifting risks and opportunities to your business.

4. Speak Up on Political and Geopolitical Issues Consistently with Your Organizational Values. This is even more important for organizations and businesses enjoying the benefits of democracy and rule of law, even when it jeopardizes actual or potential business. Long term trust is in the balance.

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MEGATREND #4 LEADERSHIP TRUST AT AN INFLECTION Leadership Trust Megatrend a. Definition and Importance: Why is “Leadership Trust” at an “Inflection”? Because as the world travels through an unprecedented, multi-dimensional poly-crisis hurtling toward large scale uncertainty, we need trustworthy leadership more than ever. Sadly, there is a def icit of such leadership to take us through the multiple climate, political, social and tech disruption crises of our times. As social trust declines, and there is a dearth of trustworthy leadership, the world risks declining further. The inflection point at which we must do something about leadership at every level and in every sector is here and now. b. Situational Awareness: Risk and Opportunity Trends Trend #1—Leadership and Institutional Trust Contradictions The concepts of social fabric, civilization, and trust are all intertwined. When countries’ social fabric weakens or breaks bad things follow—polarization, civil war, external war, oppression, and/or authoritarianism. When the social fabric is strong, countries can build or maintain democracy, the rule of law and human rights, giving society the opportunity to not only survive but thrive. Having trustworthy leaders can make all the difference.

The Edelman Trust Barometer 2023 asked the following question of stakeholders in 27 countries and got the following answers: • 65% said “The lack of civility and mutual respect today is the worst I have ever seen”.

• 62% said “The social fabric that once held this country together has grown too weak to serve as a foundation for unity and common purpose”.

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From the surveys they conduct each year, Edelman concluded in 2023 that of the four institutions they measure (government, business, NGOs, and media), business was the only trusted one. Their results on an x/y axis measuring competency and ethicality shows “Business” for a third year running as the most trusted.

Some take issue on such a sweeping conclusion about business. Edelman itself has received serious push back from critics claiming that their surveys are not scientific and are skewed to protecting and growing their business client base. Survey companies that do nothing but surveys—Gallup is an example—have shown that in the U.S. except for “small business” (which has the highest stakeholder trust of all institutions), business—notably “big business”—stakeholder trust is very low and declining.

Factoring heavily into the leadership trust equation are the twin pandemics of misinformation and disinformation, on the one hand, and political polarization, on the other hand, turbocharged by the age of exponential social media that penetrates everything: “Everything, everywhere, all at once”. According to Edelman, the most polarized countries in the world are Argentina, Colombia, the U.S., South Africa, Spain, and Sweden, and the least are Indonesia, China, Saudi Arabia, Singapore, UAE, Malaysia, and India. Draw your own conclusions.

Trend #2 - Connecting Leadership Trust to Sustainability, Resilience, and Value Creation In my book Gloom to Boom, I developed a typology of ESGT leadership from “Irresponsible” and “Superficial” to “Responsible” and “Enlightened” when it comes to ESGT issues, risks, and opportunities. It is my contention that when we understand where leadership of an organization or country falls on this trustworthiness spectrum, we can understand better why there is generalized failure or generalized success at those companies or countries on ESGT issues, risks, and opportunities.

See Figure 8 below.

ESG T M EGATR EN D S M AN U AL I 2 0 2 3 -2024

The Just Capital rankings of U.S.-based public companies provide fertile ground to illustrate the ESGT Leadership Typology. The annual ranking looks at how companies treat five categories of stakeholders on 19 ESG issues. An analysis of the top and bottom performing companies’ leaders (executive and board) provides a rich source of data on the value creation power of responsible to enlightened leaders and the value destruction potential of superficial and irresponsible leaders.

Another deep factor in the development of trustworthy leadership is whether the leaders at any level are creating the organizational resilience systems needed for success.

When one combines the type of leader at an entity with the type of ESGT organizational resilience lifecycle in place at such entity (or country), one gets something like Figure 9 below when it comes to value creation and sustainability.

Figure 9.

As a stark political example, imagine putting Former New Zealand Prime Minister Ardern in the purple quadrant and Putin and Russia in the pink. As to business examples, the top ten companies in the Just Capital 2023 rankings would generally f it in the purple section. While more sophisticated than the ESGT MEGATRENDS 2023-2024 | 33

crypto crowd, banks like Credit Suisse and SVB were still seriously flawed f rom a leadership standpoint and would probably make it into the lower right hand, turquoise section of Figure 9.

Why? Because leaders that are paying attention to their key stakeholders, ESGT as well as their core business and strategy are building the long-term sustainability and resilience we often talk about and rarely see.

Trend #3—Mission Critical: Finding Trustworthy Leaders Each of us has a role to play in this diff icult and challenging world as individuals, professionals, or leaders. I’ve discussed elsewhere 10 key questions we should ask ourselves and our leaders about how committed we/they are to the climate emergency and other important ESGT issues. Here are several of these questions: • Is leadership focused on the big picture or little picture?

Short term or medium/long term?

• Decision-making: Is it purely economic or broader, including relevant ESGT issues?

• How inclusive or exclusive are we about key stakeholders and their issues?

• Are you risk-blind or risk-savvy?

• Governance: Inclusive or exclusive? Command and control or emotionally intelligent?

• Values and ethical principles: Are they core to your strategy, performance, cultural ethos?

Why is this important? There are many arguments in favor of good leadership and good governance. One that resonates emotionally is in the World Happiness Index that is partly based on Gallup poll results. As they explain it: “We use observed data on the six variables and estimates of their associations with life evaluations to explain the variation across countries. They include GDP per capita, social support, healthy life expectancy, freedom, generosity, and corruption. Our happiness rankings are not based on any index of these six factors—the scores are instead based on individuals’ own assessments of their lives, in particular, their answers to the single-item Cantril ladder life-evaluation question, much as epidemiologists estimate the extent to which life expectancy is affected by factors such as smoking, exercise, and diet.”

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Maybe trust in our leaders and institutions is like the good glue that holds communities, entities, and countries together? c. Leadership To Dos to Futureproof “Leadership Trust at an Inflection” Here are several things leaders can do to futureproof their organizations against these risks and to encourage and provide opportunity.

1. Hire Leaders for their Emotional Intelligence. Boards and other responsible oversight bodies should do proper in-depth due diligence on potential new leaders that includes (1) competence/expertise, (2) finances, tax returns, (3) reputation, (4) psychological profile. The latter is critical because sociopaths and similar non-emotionally intelligent people should not be put in positions of power.

2. Understand and Cater to Your Key Stakeholders. Study and solicit their views on key issues, understand their pain points and their desires whether they are employees, customers, partners, the regulators, or the media.

3. Engage in Continuous Governance Ref resh. The composition of oversight bodies like boards of directors and boards of trustees should be periodically (annually) reviewed through self-assessments, third party assessments and other tools and techniques for “fitness for purpose” in our exponentially changing world.

Those no longer fit should not receive new terms.

4. Nurture a Culture of Governance, Ethics and Transparency.

Build your internal culture meticulously, carefully, and deliberately to ensure that governance, ethics and transparency systems and practices are core, paramount and subject to metrics. Hold leaders—at every level but especially top management—accountable for a failure to build and maintain a strong, ethical culture.

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MEGATREND #5 ESG POLEMICS REDEFINING CAPITALISM Future of Capitalism Megatrend a. Definition and Importance: “ESG Polemics Redefining Capitalism” zeroes in on the fact that the world is hurtling toward finding sustainable solutions to protect and preserve life on earth giving rise to potentially new forms of capitalism. In the process, we are navigating and negotiating a tsunami of activity ranging f rom ESG political polarization in the U.S., wider regulatory crackdowns on greenwashing, greenhushing by companies quietly implementing ESG programs, and the rise of local and global ESG cooperation, among others. b. Situational Awareness: Risk and Opportunity Trends Trend #1—The Noise: ESG Skirmishes, Battles, and Polarization Capitalism as we have known it (including the newer form of stakeholder capitalism) is still undergoing massive change with new shoots popping up everywhere—f rom more state capitalism in market economies in such surprising places like the U.S. to the continuing development of regenerative capitalism as a potential new wing of stakeholder capitalism and more.

Even though ESG and sustainability initiatives continue to move forward forcefully in most parts of the world (including the U.S.), the debate in the U.S. is stuck. There is an ongoing politically charged debate between those attacking ESG and “woke capitalism” and those—a majority of the business world—who continue to make progress on what is considered a business imperative.

Some businesses are quietly keeping their heads down while making progress (some call them “greenhushers”). And then there are those who cannot avoid the limelight and are engaging in polarized political skirmishes (Disney and its ongoing fight with the Governor of Florida comes to mind).

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While this phase too will pass, it will create in the meantime more chaos, wasted time and investment hesitation that the world can ill afford at a time of deep climate and socio-ecological crisis. Trends taking place in this space today and into the medium-term future are discussed in this Latham & Watkins Environment, Land & Resources blog.

Trend #2—The Signal: Sustainability and Resilience Building Martin Luther King said that “the arc of the moral universe is long but it bends towards justice.” Though ESG and sustainability are not the equivalent of “the moral universe”, something similar can be said about them in terms of global progress. See Figure 10.

Figure 10.

There are five large-scale converging reasons for this longer-term arc of progress despite the temporary setbacks and skirmishes: 1. The ESGT megatrends (examined in this manual) 2. The rise of interconnected systems thinking 3. Demographics and stakeholders are destiny 4. Tech turbocharge 5. Planetary love Central to the development of this arc is the rise of the SocioEcological Triangle described under Megatrend #2. In a recent UN Global Compact and Accenture report, they bust several myths about the difficulty of measuring societal risk: 38 | D I PLOM AT IC COU R IE R

ESG T M EGATR EN D S M AN U AL I 2 0 2 3 -2024

• Myth #1 that “Social performance is less financially material than environmental performance.”

• Myth #2 that “It is too difficult to know how and where to start assessing social performance.”

• Myth #3 that “The “S” indicators are too hard to measure, there is no reliable and comparable data.”

• Myth #4 that “Qualitative surveys or questionnaires are the best method for tacking social issues and analyzing the social aspects of performance.”

• Myth #5 that “Integrating “S” factors is only relevant to impact investors.”

On a more granular level, the UN Global Compact and Accenture have produced a valuable report that looks at busting the overall myth that social issues cannot be measured and/or are not material to the ESG/sustainability f ramework. Their analysis used the rights in the Universal Declaration of Human Rights to inform their take on appropriate social indicators: • High risk labor and land issues • Socio-economic inequality • Diversity and inclusion • Digital rights Trend #3—Quo Vadis Capitalism?

Anyone who follows the world of ESG and sustainability anticipates with interest BlackRock CEO Larry Fink’s annual letters to CEOs and shareholders. In 2023, he combined the two into one lengthy treatise on the future, generally avoiding direct talk about ESG and focusing instead on how serving his key stakeholder group—customers—serves his other key stakeholder—shareholders.

While the lingo is a little less obvious, the focus remains on achieving long-term success. Fink makes clear that can only be done if asset managers and company boards exercise long term good business judgment by serving all key stakeholders focusing on key risks and opportunities of which in addition to traditional financial metrics, climate, supply chains, geopolitics, human capital and other key indicators are a part.

Another interesting development in advanced economies has been the resurgence of directed government capitalism. Recently governments have created largescale incentives for business to develop key and strategic products, services, and industries relating to the geopolitical rebalancing that is happening worldwide. They’ve also begun to move vital supply chains closer to home. The U.S. Interest ESGT MEGATRENDS 2023-2024 | 39

Reduction Act of 2022 (which happens to be the largest climate tech investment ever anywhere) makes this amply clear.

Figure 11.

Above is a chart that posits different trajectories for capitalism based on who the primary beneficiaries are (stakeholders) and what the principal purpose and horizon of a business is—pure profit, profit and purpose, or pure purpose, and short-term or long-term value creation horizon.

Starting with the 19th Century Industrial Revolution, below is a historical overview of the varieties of capitalism past, present, and potential future.

Which trajectory is your business on? (See Figure 12) c. Leadership To Dos to Futureproof “ESG Polemics Redefining Capitalism” Here are several things leaders can do to futureproof their organizations against these risks and to encourage and provide opportunity.

1. ESG Noise—Sustainability Signal. Consider the ESG polemics as the noise, the sustainability war as the signal—arm yourself accordingly with the talent, tools, and culture your organiza40 | DI PLOM AT I C COU R IE R

ESG T M EGATR EN D S M AN U AL I 2 0 2 3 -2024

Figure 12.

tion needs to survive and thrive through the next few years. This means having the right CEO and governance.

2. Put Socio-Ecological Risk and Opportunity at the Core of your ESG/Sustainability Strategy. This should include critical social risks and opportunities such as mental and physical health and safety, human rights, mass involuntary immigration and privacy—add them to your risk register and strategy.

3. Acknowledge the Central Role of Tech in ESG/Sustainability. Technology has a central and crucial role to play in advancing sustainability and resilience—make sure you know what you need to do technologically.

4. Live Your Organizational Values Consistently. Speak up consistently with your organizational values even when it jeopardizes actual or potential business. This is a long-term play not a day-trader’s game.

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THE LEADERSHIP ESGT FUTUREPROOFING BLUEPRINT | 2023-2024

In this last section, we bring together the leadership to dos from each of the five Megatrends into a summary “Leadership ESGT Futureproofing Blueprint” for the coming year.

Whether you are a business, NGO, governmental or other type of decision-maker, these high-level tactics for the coming year bucketed into the five categories of Megatrend—Tech Disruption, Global Risk, Geopolitical Tectonics, Leadership Trust and the Future of Capitalism—are designed to spark practical action that is relevant to your organization.

Thank you for reading but more importantly thank you for doing all you can to make your entity, community, nation, and the globe safer, healthier, and more resilient for the short and longer term.

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MEGATREND #1 | LEADERSHIP TO DO’s Exponential Tech Defying Governability 1.

Ignore Tech Disruption at Your Peril. Boards and management do not have the option of ignoring tech disruption—hire management and recruit board members with tech governance, ethics, or risk expertise.

2. Heighten and Broaden Continuing Education at all Levels. Continuing education on tech disruption is a must have not a nice to have – do it and do it periodically.

3. Get Ready: Privacy is Dead—Surveillance is Alive.

Privacy (as we knew it) is dead—watch how much you are being surveilled by your competitors and nation state enemies and watch what you do to your own people in terms of surveillance and/or invasion of privacy.

4. Up Your Competitive Strategic Analysis like Never before. Tech will disrupt you and your business potentially out of existence and possibly from the least expected places—make sure your business strategy is looking outside of the box laterally, up, and down, inside, and out.

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MEGATREND #2 | LEADERSHIP TO DO’s Complex Socio-Ecological Risk Rising 1.

Integrate Socio-Ecological Issues into Risk Management and Governance. Ensure that all relevant social, biodiversity and environmental risks and opportunities are integrated into organizational risk management and governance.

2. Embed Socio-Ecological Issues into Strategy.

Integrate key societal, environmental and biodiversity risks and opportunities into your business plan and strategy.

3. Understand Socio-Ecological Issues in the Supply Chain. Undertake a serious supply chain analysis for all your upstream and downstream supply chains and make sure that alternative, diversified arrangements and back up plans are made for contingencies.

4. Focus on Improving Stakeholder Wellbeing.

Understand the key societal issues of your key stakeholders—especially employees, but also customers, and communities—and develop programs and plans to address such key issues such as health (mental and physical), safety, and crisis management.

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MEGATREND #3 | LEADERSHIP TO DO’s Geopolitical Tectonic Shifts Crystalizing 1.

Include Geopolitical Risk and Opportunity in Strategy. Integrate geopolitical situational awareness relevant to your business or organization into your business strategy and budgeting—at the international, national, and local levels as well as physical and virtual.

2. Develop a Truly Diversif ied Approach to Supply Chain. This must be done both downstream for purposes of engagement with customers, partners, regulators, and other relevant parties as well as upstream for sourcing of raw materials, products and services needed to build your products and services.

3. Provide Management and Board Periodic Geopolitical Trend Updates and Analysis. While this needs to be relevant to your business or organizational footprint—both physical and virtual—it’s important to provide a bigger megatrends view of the world to understand shifting risks and opportunities to your business.

4. Speak Up on Political and Geopolitical Issues Consistently with Your Organizational Values.

This is even more important for organizations and businesses enjoying the benef its of democracy and rule of law, even when it jeopardizes actual or potential business. Long-term trust is in the balance.

ESGT MEGATRENDS 2023-2024 | 45

MEGATREND #4 | LEADERSHIP TO DO’s Leadership Trust at an Inflection 1.

Hire Leaders for their Emotional Intelligence. Boards and other responsible oversight bodies should do proper in-depth due diligence on potential new leaders that includes (1) competence/expertise, (2) finances, tax returns, (3) reputation, (4) psychological profile.

2. Understand and Cater to Your Key Stakeholders. Study and solicit their views on key issues, understand their pain points and their desires whether they are employees, customers, partners, the regulators, or the media.

3. Engage in Continuous Governance Refresh. The composition of oversight bodies like boards of directors and boards of trustees should be periodically (annually) reviewed through self-assessments, third party assessments and other tools and techniques for “fitness for purpose” in our exponentially changing world. Those no longer fit should not receive new terms.

4. Nurture a Culture of Governance, Ethics and Transparency. Build your internal culture meticulously, carefully, and deliberately to ensure that governance, ethics and transparency systems and practices are core, paramount and subject to metrics. Hold leaders—at every level but especially top management—accountable for a failure to build and maintain a strong, ethical culture.

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MEGATREND #5 | LEADERSHIP TO DO’s ESG Polemics Redefining Capitalism 1.

ESG Noise—Sustainability Signal. Consider the ESG polemics as the noise, the sustainability war as the signal—arm yourself accordingly with the talent, tools, and culture your organization needs to survive and thrive through the next few years. This means having the right CEO and governance.

2. Put Socio-Ecological Risk and Opportunity at the Core of your ESG/Sustainability Strategy. This should include critical social risks and opportunities such as mental and physical health and safety, human rights, mass involuntary immigration and privacy—add them to your risk register and strategy.

3. Acknowledge the Central Role of Tech in ESG and Sustainability. Technology has a central and crucial role to play in advancing sustainability and resilience—make sure you know what you need to do technologically.

4. Live Your Organizational Values Consistently. Speak up consistently with your organizational values even when it jeopardizes actual or potential business. This is a long-term play not a day-trader’s game.

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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 WireX Systems, the Cyber Future Foundation, Athena Alliance, XRSI, and 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 (Diplomatic Courier, 2021-2022, 2022-2023 & 20232024). 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, 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.

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