To build long term sustainability, envision the future first

This is part 1 in a pair of stories about how businesses can use scenarios to shape sustainability. Read part 2 here.

When the World Economic Forum prepared its 2013 Global Risks Report, it surveyed more than 1,000 experts worldwide to rank the future risks facing the global economy in terms of their severity and probability of occurring. Over half the risks ranked as having a high severity and a high probability of occurring had to do with social or environmental sustainability.

Respondents from Latin America and respondents younger than 40, moreover, were more likely than others to rank sustainability risks higher on both dimensions. They are both more exposed to the challenges of sustainability and more aware that they will have to address these challenges in their lifetimes.

I’ve recently joined other experts to form Sustainability Foresights, an organization that specializes in scenarios. At the GreenBiz VERGE conference in Boston in May, Suman Bery of Shell described the use of scenarios, which Shell pioneered 40 years ago. I was struck by the similarity of our conclusions over the past half-decade using scenario planning sessions to those that Shell has reached, particularly concerning the food-energy-water nexus (to which I would add poverty alleviation).

Sustainable competitiveness

Scenario session participants seek to attain sustainable competitiveness — the capacity to compete for the long term by anticipating the challenges of the future and converting them into environmentally and socially sustainable opportunities. The sessions are designed to promote systematic and creative thinking about the future, to train leaders to understand future risks and opportunities, and to devise creative strategies based on innovation and resiliency — the capacity to adapt to an uncertain future.

Over 1,000 individuals from North and South America and Europe — representing major corporations, entrepreneurial startups, nonprofit organizations, national, regional, state and city governments and business school students — have gone through our scenario sessions. Participants “live” in one of several alternative future “worlds” and devise strategies for their organizations in that world. They then meet with others who have lived in different worlds to identify transcendent strategies that will serve their organizations well independently of what world they actually face in the future. The process ends with agreements on specific next steps to take “Monday morning.”

Megatrends and discontinuities

Scenarios are based on the interplay of megatrends that we can anticipate with some certainty, and discontinuities that are less certain. Megatrends are present across scenario “worlds” while discontinuities differ across scenarios and amplify or mute the impacts of megatrends. Scenarios are not normative — they are not the world we would prefer (even the largest and most powerful nations and firms acting alone cannot control either megatrends and many discontinuities), but the world we may have to deal with.

Megatrends. Among the megatrends that will affect the future of firms and nations are:

• Growth of the middle class. While definitions of “middle class” vary, projections of trends are in agreement. The middle class in emerging nations is expanding rapidly, and that expansion carries with it rising expectations for an improved quality of life.
   
• A resource crunch. As a growing proportion of the world’s poor adopts middle-class lifestyles and consumption patterns, energy, water, food and other basic commodities will become increasingly scarce.
   
• Persistent inequality. Despite the growth of the middle class, global poverty will not soon diminish. Societies and businesses will be faced with persistent, and possibly growing, divisions between their poorest segments and their middle and upper socio-economic strata. These divisions will be the sources of both “base of the pyramid” business opportunities and of social instability and volatility.
   
• Major demographic changes. For Europe, Russia and Japan, aging populations rapidly are becoming a dominant demographic reality; China and the United States are not far behind. Latin America can reap a “demographic dividend” for one or two decades, but it too must prepare for an aging of its population. For the Middle East, Africa and parts of Asia, the challenge is the opposite extreme – over half the population of many countries in these regions is 25 or younger and lacks adequate employment opportunities.
   
• Urbanization. Rural populations will continue to migrate to cities in search of economic opportunities, creating new infrastructure, water and resource demands. Growth will take place primarily in emerging mid-sized cities and new mega-cities.
   
• Growing human health vulnerability. An aging, more sedentary population with changing diets will be vulnerable to chronic diseases such as obesity, diabetes and cancer; a globally more mobile and interconnected world will be more vulnerable to pandemics and antibiotic-resistant bacteria.
   
• Increasing environmental vulnerability. Water scarcity, pollution, waste and biodiversity loss will diminish the natural buffers that ecological services provide against natural and man-made perturbations. Climate change will have a systemic multiplier effect that, in addition to its own direct impacts, will amplify the impacts of health, urbanization, water scarcity and biodiversity loss and diminish the resiliency of natural systems.
   
• Growing connectivity. In just the past half-decade we have witnessed an astonishing surge in the effect (both positive and negative) of social media and its concurrent empowerment of individuals. The coming of Big Data, cloud computing, machine-to-machine communications and artificial intelligence will compound and magnify this trend.

Discontinuities. How these megatrends play out, and how they affect citizens of nations, regions and cities, as well as firm shareholders, customers and stakeholders, depends importantly on their interplay with less predictable (but no less important) discontinuities. These are key uncertainties that play a vital role in thinking about, and planning for, the future and give rise to organization-specific scenarios. They happen in all societies, communities and businesses at some point, and come in many forms. They include (but are not limited to):

• National and global governance. While we may prefer and work toward collaborative national and global governance, we must be prepared for governance failures at a national, regional or global level.
   
• Shifts in global economic and political power. It is commonplace to say that the locus of political and economic power will shift to the south and east, but the extent and timing of this shift and whether it happens in a smooth or in a fractious manner is less certain.
   
• Technological progress. Technology may avert an environmental/resource crisis. In “Abundance,” Peter Diamandis and Steven Koller argue that technological progress will solve humanity’s key problems. Or it may not. In a widely noted recent article, Robert Gordon argues that the era of strong, technologically driven economic growth is over.
   
• Human behavior, the PATH factor. In the 1970s, Paul Ehrlich and proponents of the “limits to growth” developed the concept that environmental burden (EB) as a function of population (P), affluence (A) and technology (T): EB=P x A x T. Will a new equation, EB=PATH that factors in human behavior (H), be more accurate?
   
• “Co-opetitor” responses and strategies. Both nations and businesses will be in a state of “co-opetition” with their peers, simultaneously collaborating and competing.
   
• Idiosyncratic factors. Will difficult-to-predict idiosyncratic factors: economic booms and busts, catastrophic natural or man-made events, political developments and sudden or gradual leadership changes in individual countries or organizations become game changers? 

My next story discusses the insights businesses have gained through the scenario process.

Image by Lightspring via Shutterstock.