Inequality is a systemic risk that threatens the political and economic foundations that businesses rely on to operate, innovate and grow. Tackling inequality is a key driver of long-term, sustainable economic growth. We must act to strengthen the “S” in ESG. This is an important pillar of action that has been overlooked for far too long. As the consequences of inequality continue to become clearer, the cost of inaction will increase dramatically.
Inequality undermines human dignity and social progress. This is a systemic risk that threatens not just individual communities and businesses, but society and the economy as a whole. It undermines trust in our political and economic systems, increases the damage caused by crises like COVID-19 and climate change, constrains economic growth, and addresses complex global challenges. It undermines our collective ability to address. This therefore represents significant and growing business risks that impact performance, limit productivity and innovation, destabilize supply chains, and weaken consumer confidence and consumption.
Our world today is characterized by deep inequalities in income, wealth, and happiness.
- Top Ten% Those who earn money take it home 52% Which country has the lowest wage in the world? 50% just receive 8.5%. On the other hand, the richest people Ten% More than three-quarters of the world's population owns all the wealth, and the poorest 50% own something just 2%*
- 19% All workers around the world earn less than they need to lift themselves out of poverty*
- Literally one person dies every four seconds due to inequality-related issues*
Business risks posed by inequality
Businesses provide the majority of the products, services and jobs that people need to sustain themselves and their families, so the business case for tackling inequality is fundamentally a combination of system risk and business risk. It will reduce both.
- Business environment becoming increasingly unstable – Difficult long-term strategic planning.
- Supply chain anxiety – Companies are only as resilient as the ecosystems, communities, economies, and societies in which they operate. When workers and farmers in supply chains are unable to meet their basic needs and are susceptible to shocks, businesses are at risk of supply shortages, price fluctuations, and other disruptions.
- Decline in productivity and innovation – Wide disparities in income and assets affect worker motivation, while also limiting access to education and skills, reducing labor productivity and contributing to critical skills shortages. When people from diverse backgrounds are not represented in business at the same level as the general public, companies miss out on their talents and perspectives when developing new products, services, and business models.
- Regulatory and compliance risks – In the face of increasing systemic risk, many governments around the world are being called upon to take decisive action against inequality in ways that will change the landscape of business for years to come. For example, governments are enforcing regulations regarding unacceptable labor practices, such as forced labor and child labor, through mandatory human rights due diligence activities and import restrictions. More than 15 countries in Europe, Asia and North America have already enacted supply chain transparency laws.
- reputational risk – As the systemic risks of inequality become more acute, so too is the scrutiny of corporate behavior and the role of business in society. Social controversies currently account for 67%* of all ESG controversies facing companies around the world, far exceeding environmental and governance controversies. If a business is not recognized as part of the solution, it will be seen as part of the problem and will face increasing challenges in terms of its long-term license to operate, innovate and grow. Masu. At the individual company level, companies that do not appear to be taking actions to help tackle inequality will struggle to attract and retain talent and may be held accountable by consumers. there is.
- access to capital – Currently +220* investors have signed up to the UN PRI Advance initiative. The initiative aims to promote respect for human rights and positive outcomes for people through investor stewardship. Meanwhile, themes such as living wages and diversity, equity and inclusion are increasingly emerging as key focus areas for shareholder resolutions, and therefore also central considerations when it comes to the cost of equity and debt. .
the price of doing nothing
The costs of action must be balanced against the costs of inaction, but costs can increase dramatically as the consequences of inequality continue to become apparent.
Many leading companies are already embracing their role in working towards leveling the playing field. A call to action now: all Businesses can maximize their potential by avoiding the risks posed by growing inequality and ensuring equal opportunities and better outcomes for all.
Digital transparency and access
Technology provides the necessary trust and business responsibility, strengthening an organization's ability to identify, prevent and mitigate human rights risks through integrated value chains. Digitally-driven business processes enable transparency and accessibility across the complexity of global human and labor rights regulations and standards, distributed data, and stakeholder collaboration. Companies need to re-evaluate their entire business processes, policies and practices and make respect for human dignity a core part of the culture of how they do business.
Tackling inequality can strengthen the business environment by building trust, increasing social and political stability, and containing crises. There is also growing evidence that tackling inequality is a key driver of long-term, sustainable economic growth. Corporate-level benefits associated with tackling inequality include attracting and retaining talent, winning over consumers, building resilient supply chains, and staying ahead of policy and regulatory changes.
We need to act proactively and purposefully to strengthen the “S” in ESG, a key pillar of action that has been overlooked for far too long. Tackling inequality now is a critical investment in the sustainable success of your business.
Gitte Winther Bruhn, Global Head of Social Responsibility Solutions, SAP
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*sauce: “Tackling inequality: A challenge for business action” By the Business Council to Combat Inequality (BCTI), established by the World Business Council for Sustainable Development (WBCSD). Published on May 3, 2023.