The Global Recession has tremendously impacted sustainable development worldwide, particularly affecting developing countries. In 2008 the world was hit by the most severe economic crisis since the Great Depression of 1929, not only affecting the US and Europe but also bringing about a wave of economic Recession to the rest of the world, causing a sharp decline in economic growth in many countries, reducing spending capacities, eroding job security and leading to a decrease in the income levels of households. It further considerably impacted sustainable development, which can be seen in health, education, infrastructure, and environmental protection.
In terms of health, the Global Recession has negatively affected access to healthcare in many countries. Nations had to cut back on spending and reduce public services to address budgetary deficits; health services have been badly affected. Health spending has been reduced, resulting in fewer resources available to address public health issues, such as providing essential health services, medicines, and vaccinations. It also caused a decrease in the quality of health services and has harmed the health of individuals and communities.
The Global Recession has also negatively impacted the education sector. Governments were forced to reduce their spending on education, resulting in reduced resources and funding for educational institutions. It further led to a decrease in the quality of education, particularly in developing countries, with fewer resources available to provide quality education to children. Furthermore, it had a detrimental effect on developing skills and knowledge essential for sustainable development.
The Global Recession has also significantly impacted infrastructure worldwide, particularly in developing countries. The Governments reduced their spending, and infrastructure projects have been put on hold or scrapped in many cases. The reduced focus decreased the quality of infrastructure and the availability of services, such as transport, power, water and sanitation. It also directly impacted sustainable development, as access to reliable infrastructure is essential for economic growth and development.
Finally, the Global Recession has had a significant impact on environmental protection. Since nations focused on basic amenities, environmental protection was the first sector affected. Further, it decreased the resources available to protect and preserve the environment, decreasing the quality of the environment and increasing pollution, thus directly impacting sustainable development, as a healthy environment is essential for economic growth and development.
Overall, the Global Recession has considerably impacted sustainable development, negatively affecting health, education, infrastructure, and environmental protection. Governments and international organizations must work together to ensure that countries can address the impacts of the Global Recession and ensure that sustainable development is not compromised.
It is evident that the Recession impacts every spectrum of sustainable development; a very pertinent question that comes into mind is How will companies managed with a focus on sustainable development be impacted by the Recession? However, a few studies address the question and all those addresses the same, explaining that sustainability-focused companies outperform during the Recession.
According to a study published by BlackRock, an investment company, along with investment research firm Morningstar, companies with solid profiles on material sustainability issues have the potential to outperform those with relatively weak profiles. In particular, companies managed with a focus on sustainability should be better positioned versus their less sustainable peers to weather adverse conditions. The study also reported that during the first quarter of 2020, when the economy started taking a downturn, 51 out of 57 companies they were following “outperformed their [non-sustainable]… market counterparts.” Thus, the report concluded that sustainability-focused companies do better in economic downturns.
Some of the reasons that the study conducted by the two agencies for outperforming are:
- Job satisfaction tends to be higher in sustainable companies, resulting in enhanced customer relations
- Organizations practising sustainability possess a robust corporate culture
- Investors are more willing to invest in companies that practice sustainability, helping them overcome financial hurdles
- Companies practising sustainability tend to have more effective boards, making them better equipped to deal with market turbulence and economic uncertainty
- Companies practising sustainability overall have greater resilience during downturns
Some of these factors talk about adopting sustainability at every level of the organization, thus ensuring that economic slowdown does not impact their optimization levels.
A Sustainable Edge
There are five ways the companies can provide an edge to their sustainable strategies. These are:
1. Purpose:
It is essential to help frame decision-making and keep the employees engaged.
Crisis impacts decision-making in challenging to determine how to act, what initiatives to implement, and how best to support the efforts. Purpose-driven sustainability strategy encourages companies to distil their purpose and reason for existing. Purpose-driven employees know how the company can best contribute to society, particularly in times of crisis, thus providing them with an edge.
Research conducted by The Conference Board explains an increase in the number of companies publishing purpose statements, i.e., in 2019, 77 companies in the S&P 500 had published a purpose statement, more than two and a half times as many as in 2015.
Of the companies mentioned, about one-fourth claim to be purpose-driven. Purpose enables these companies to perform well during volatility and ensures employee engagement and decision-making during uncertainty.
2. Materiality: to zero in on what matters most
The Environmental, Social and Governance (ESG) issues that companies deal with are overwhelming and aim to identify the problems that are material to the company or where the company can have the most significant impact, then focus resources and strategy around those issues. Since a company observes several ESG issues like climate change, water scarcity, child labour, sexual harassment, cybersecurity, and many more, a materiality analysis distils the list of ESG issues into a handful of genuine material issues.
Therefore, a focused list of ESG priorities can facilitate decision-making during a crisis. The materiality analysis process provides external input, a critical perspective helping companies uncover issues that an organizational process may overlook. The process can further lead to an appreciation for external stakeholders and help companies better understand their role in society and how best to support their communities.
3. The Sustainable Development Goals (SDGs)
To provide context on the company’s role in society, the United Nations Member States adopted the SDGs in 2015 as a universal call to action by governments and various stakeholders to end poverty, protect the planet, and ensure that all people enjoy peace and prosperity by 2030.
The SDGs provide a framework for addressing some of the most significant issues facing society, and many companies have aligned their sustainability targets and goals with those of the SDGs.
However, if the company chooses not to use the SDGs as the framework for its sustainable targets, many SDGs go beyond providing sustainable goals and adopting sustainable strategies. As part of the strategic planning process, they can encourage long-term, creative, and big-picture thinking that spurs innovation. Similar to purpose, aligning corporate targets with societal challenges can also give companies and their employees a new appreciation for their societal role.
4. Reporting and Engagement:
To provide guidance and transparency, a sustainability strategy encourages regular Engagement with stakeholders. A vital component of this Engagement is reporting on a company’s non-financial impacts, risks, and opportunities, along with the progress a company is making toward achieving its sustainability targets. Reporting, i.e., tracking, collecting, and analyzing the non-financial data, sheds light on a company’s most significant impact areas. Thus, the information received can help expedite allocation of resources and efforts during a crisis.
Transparency through regular reporting manages stakeholder expectations by providing clear guidance on a company’s priorities, strategies, and long-term goals, enabling investors, employees, and other stakeholders to anticipate a company’s actions and prevent surprises during the crisis.
5. Collaboration:
To catalyze innovation, companies integrate sustainability into the business by breaking down silos and encouraging a culture of collaboration both internally and externally. A high level of collaboration is necessary to tackle issues beyond the company’s four walls.
A sustainability strategy is a collaboration of innovation and risk reduction wherein such collaboration can be a catalyst for innovating solutions to society’s challenges. Collaboration can yield heightened levels of inward and outward awareness, i.e., employees know whom to go to for information and resources, regardless of their function, department, or region, and they are empowered to tap into resources outside of the organization. This level of awareness and connectivity is crucial in a crisis and can speed up the deployment of resources and innovation.
The global financial crisis and economic slowdown spur much-needed structural reform, which could result in environmental gains and poverty reduction. The situation provides an opportunity to reform or remove policies that may be expensive, socially inefficient, and environmentally harmful.