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Resilience for sustainable, inclusive growth

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Børge Brende is the president of the World Economic Forum and Bob Sternfels is the global managing partner of McKinsey & Company.

Society is enduring several crises with disparate origins that overlap, complicating each other. When institutions react separately to each crisis, the next one often arrives before they can recover. Leading organizations estimate the pace of annual GDP growth partly depends on organizational and societal resilience, with growth differentials between 1% and 5% globally depending on how leaders respond.

An enhanced resilience agenda must address such interconnectedness. Accordingly, the World Economic Forum’s initiatives addressing current disruptions comprise seven resilience themes.

1: Climate, food, and energy

Climate change is triggering droughts, flooding, and wildfires, increasing food insecurity. The 2021 UN Climate Change Conference (COP26) focused on greenhouse gas emissions. Reduction requires the replacement at scale of the global economy’s productive asset base.

2: People, education, and organizational resilience

The UN calculates that each additional year of schooling adds 0.37% to GDP. The benefits of a widely educated population multiply this advantage for society [1].

3: Healthcare

Resilience can improve with government financing for healthcare systems, digital innovation, virtual care, regulatory harmonization, investment in preventative care, workforce reskilling, and incentive structures for value-based outcomes.

4: Sustainable economic development

For developing economies, resilience-building benefits businesses, government and society while reducing historical vulnerabilities. This requires massive investments in housing, agricultural diversity and food supply, water infrastructure, and sewerage.

5: Trade and supply chain

Public and private collaboration can target investment and avoid duplication of effort toward flexible supply-chain designs. Governments can connect segregated data and accelerate regulatory approvals. Design solutions combine a just-in-case approach with redesigned inventory holding, an expanded supply base, vertical integration, radical transparency, and new operating models.

6: Digital resilience, trust, and inclusion

Research suggests the digital economy accounts for 15% of global GDP today and could expand to 26% by 2040 [2]. Investments are needed in digital education, cybersecurity, digital trust, equipment, and infrastructure so that poorer nations join the digital ecosystem.

7: Finance and risk capacity

The financial sector’s greatest responsibility and growth opportunity is financing the transition to a low-carbon future [3]. Most investment will come from the private sector, with the public sector mitigating risk for renewable energy projects.

Meeting the challenges crises pose to sustainable, inclusive growth

Managing disruptions equals managing continuity: Rebuilding strengthens foundations. The pandemic accelerated digitalization, reorganized supply chains, and boosted climate investment. Crises force change upon recalcitrant institutions. Resilience is thus more than protective measures—it is the ability to innovate in response to disruption.

There are no single-point solutions for crises: Crises break through predefined areas of expertise and responsibilities, gaining momentum. Responses to primary issues produce secondary and tertiary effects that can give rise to a new primary issue. To navigate these rapid interactions, organizations need correlated, adjustable solutions.

Networks hide interdependencies: The extent of networks among societies and industries is only partly visible. In a disruption, hidden interdependencies emerge, accelerating impact. However, networks can also provide more flexibility, permitting varied, shareable solutions. Understanding networks better is a key aspect of resilience.

Be prepared: Under pressure, leaders tend to favor quick action. This can entail unintended consequences. A resilience framework encourages thoughtful decision making – knowing when to act and when to slow down, engaging people outside of core leadership in crisis-specific decisions.

Crises affect the most vulnerable: Inequalities create unequal baselines for building resilience. Stimulus measures in richer countries pressured supply chains, raising prices and inflation which hits lower-income countries hardest. Other global developments, such as pressures to reduce carbon emissions, likewise have disproportionate impact on poor nations.

Having buffers in place: In crises, half the impact arises from the crisis itself, while the other half is determined by the response. Optimal crisis preparedness includes both defense and response, so organizations can adapt and pursue new opportunities; e.g., the pandemic led to growth of the digital economy, remote meetings, etc.

A common resilience framework

Governments and companies need to develop a resilience muscle that features flexibility and speed.

Prepare: Investing ahead of large disruptions reduces the magnitude and speed of the impact. This includes designing flexibility with viable alternatives, building buffers for added redundancy, and strengthening networks to share information.

Perceive: The resilience muscle detects disruptions, discovers their extent and implications, and defines responses. This is best managed with a business resilience framework that uses scenarios to categorize risks and considers hidden dependencies.

Propel: The resilience muscle engages cross-functional teams that can function in uncertainty and cut through silos without destroying trust. This enables public- and private-sector organizations to pivot, accelerating out of the disruption quickly.

By developing a muscular resilience framework, companies and governments will realize the advantages of a more preventive position that considers potential disruptions. It will foster smart action amidst to future overlapping crises, helping leaders see past short-term financial goals and ensure sustainable responses that benefits all of society.

References

[1] [1] UNESCO, Education counts: towards the Millennium Development Goals, 2010, https://unesdoc.unesco.org/ark:/48223/ pf0000190214.

[2] Goldin, Ian, Robert Muggah and Rafal Rohozinski, “The dark side of digitalization – and how to fix it”, World Economic Forum, 23 September 2020, https://www.weforum.org/agenda/2020/09/dark-side-digitalization/

[3] “New Energy Outlook 2021”, BloombergNEF, n.d., https://about.bnef.com/new-energy-outlook/; “Aligning portfolios with climate goals: A new approach for financial institutions”, McKinsey.com, 1 November 2021, https://www.mckinsey. com/business-functions/risk-and-resilience/our-insights/aligning-portfolios-with-climate-goals-a-new-approach-forfinancial-institutions.

The following is an excerpt from a joint article published by the World Economic Forum and McKinsey & Company on June 7, 2022, titled “Resilience for sustainable, inclusive growth.”

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