Wednesday, October 4, 2023

Geopolitics & sustainability: The twin challenge for CEOs


Global CEOs across different sectors have been facing a two-pronged challenge. While on one hand geopolitical situation is a challenge, sustainability is another puzzle they are facing.

Exactly a year ago, when war broke out in Europe, nearly 1000 global companies exited Russia. According to some accounts, business losses reached nearly US$60 billion. With rising techno nationalism birthed from the growing tensions between the United States and China, businesses had to halt or pull out operations from the latter.

In India, companies like TikTok were banned. Politics has entered the boardroom; organizations today are required to take a stand or even participate in events. SpaceX is a major participant in the Ukraine-Russian conflict; its satellites supply strategic geospatial information to armies.

Sustainability adds to the challenge

To make matters even more complicated, geopolitics and sustainability became interconnected challenges that boardrooms must manoeuvre. In fact, the pandemic—along with contemporaneous social unrest and increased pressure from stakeholders—generally accelerated corporate sustainability efforts. While the Ukraine invasion is a vastly different crisis from the pandemic, and each company’s response will reflect its unique circumstances, these can offer insights into what the conflict may mean for corporate sustainability efforts.

Time to react is limited

The increasingly complex geopolitical system is moving at an accelerated pace with few guardrails. Outcomes are hard to predict without careful focus. Time to react is limited. Only by moving politics to the forefront of strategy and personally being the point (wo)man for geopolitics can a CEO lead their organization to success in turbulent times.

CEOs today must learn to read geopolitical signals well in advance to navigate such new kinds of risks, apart from the usual ones like technology disruptions, pandemics, government policy shifts, tougher regulatory environment, climate change, and of course, people issues. For CEOs, it’s no longer about People; the Planet; Profits but Politics; People; the Planet; Profits, all of which are closely entangled to create new complexities.

In the past, high politics would play out over months and years of negotiations at the United Nations or the G20. There were rules of engagement and competing interests to be balanced. When all else failed, the country with the upper hand could simply impose its will. For businesses caught in the middle, they had time to react and reposition — and often could ensure away core business risks like civil war or political violence.

Resilience & responsibility

According to the Conference Board, companies will be taking (yet another) fresh look at their supply chains, with an emphasis on both resilience and responsibility. Some European firms may supplement their energy needs with a greater share of fossil fuels, likely slowing progress related to climate commitments in the near term.

Politics at the speed of social media

Today, politics moves at the speed of social media. Rifts are instantly public, and opinions are shifted and shaped in hours. Politically expedient labelling of other countries can fundamentally change the playing field for an entire sector virtually overnight. Even within a nation’s boundaries, shock-and-awe political moves like demonetization in South Asia or a corruption purge in the Middle East can unleash a decade’s worth of change in days. In essence, the global economy is more exposed to political instability than at any point in recent memory.

Perhaps the thorniest issue of all is connecting with employees and customers by taking public positions on politicized issues. Some will expect the company to take a public position — and those that do might be on opposite sides of the issue — while others would rather see it kept quiet.

A new CEO playbook

The Edelman Trust Barometer 2022, which surveyed 14,000 respondents from 14 countries, reported that ~60% of CEOs believe that addressing geopolitical risks is now a priority. The stakes for businesses failing to take a stand and engage in societal and geopolitical issues have never been higher. Riding geopolitical issues is not one of the new skills that the CEO must master today. That apart, s/he must be digitally literate, have a clear understanding of data analytics to create a data-driven-decision making company;

With the increasing importance of digital technology in all aspects of business, CEOs need to be digitally savvy and able to leverage technology to drive growth and innovation; drive sustainability to appeal to new-age customers and employees who care about climate issues; use these challenges to drive innovation to create new competitive advantages, e.g. cleantech to innovate new products, services and optimize costs; use stricter regulatory environments to make cyber-security, especially data usage policies more robust, and design a more compassionate people-centric organization.

This will need a new kind of emotionally intelligent CEO who can balance these contrasting priorities. It’s not too difficult if we do the right things instead of always doing things right.

Also Read: How robust government regulations make ESG a critical compliance issue?


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