In economics, as in medicine, a recovery is rarely clear cut; different cases respond differently to treatment.
While the international consensus is that global gross domestic product (GDP) will rise this year after last year’s calamitous 4.2% fall caused by Covid-19, the diagnosis varies.
The OECD predicts global GDP will rise by 4.2%, boosted by vaccination campaigns, health policies and government intervention, and the IMF’s latest forecast is even brighter, foreseeing 5.5% growth this year and 4.2% in 2022. Yet, at the same time, the fund highlights real unpredictability — warning the pandemic could yet halt the rebound if surging infections, renewed lockdowns and vaccine distribution problems conspire.
Such uncertainties help to explain diverging regional expectations over the pace of recovery and mixed levels of confidence in the ability of industries to meet growth targets.
A survey of 4050 C-level executives in large companies worldwide by Accenture, for example, reveals that business leaders in Europe and North America foresee a U-shaped recovery taking up to 18 months, while their Asian counterparts anticipate a rebound in 12 months. Indeed, executives in the Asia-Pacific (Apac) region are far more confident about meeting 2021 growth targets (60%) than their European and US counterparts (45% and 48%, respectively).
The crisis has also exposed large differences in the resilience of companies. Just one-third (32%) of Europe’s executives expect profitable growth in the next recovery phase, on par with the US, but behind Apac (41%), and while some European firms (4%) are reinventing themselves and doing better than before, more are doing so in Asia (7%).
This fragmented picture not only highlights the uncertainties of the recovery, but it also offers clues about how companies should respond to the main forces that will shape it. If digital transformation defined the landscape in the 2010s, global change today is being defined by sustainability; those companies pursuing both — and integrating them — are likely to recover faster and emerge stronger.
Research suggests this intersection of digital technologies and sustainability holds tremendous concealed value — and Asian companies have so far been marginally better at tapping it. Accenture data suggest such “twin transformers” are nearly three times more likely to be tomorrow’s market leaders, as resilience during the crisis will catapult them rapidly into a rebound. These companies are unique and display common strategic traits. Most twin transformers (61%) already generate more than 10% of their revenues through business models driven by sustainability and enabled by technology — and nearly 80% expect to do so in three years’ time.
They have learned how to combine resources in order to scale technology applications to sustainable practices. Not only do they plough more into innovation — 45% are investing more than 10% of annual revenue pre-Covid, jumping to 57% over the next year — they target initiatives that combine sustainability impact and technology at scale. They are also distinct for engaging suppliers in their sustainability journeys, forging broad partnerships to ensure sustainable product lifecycles and improve traceability.
Additionally, they assign key performance indicators that go beyond financial results by linking performance to progress on cutting emissions, the share of their products with positive societal impact and the share of the resources they procure from sustainable sources. And if there is one characteristic by which twin transformers can be distinguished above all others, it is their conviction that talent translates into concrete business value.
Data suggest Europe’s twin transformers, for example, believe passionately that failing to nurture their workers will hamper digital and sustainable transformation. These companies take real responsibility for the continued employability of staff in a radically changing labour market, acting decisively to give them the skills they need for the post-Covid future. They realise instinctively that sustainability attracts the very best people, inspired by values and commitment and often at the forefront of efforts to address climate change.
European companies are particularly well placed to undertake this twin transformation — and with the right strategic mix can lead it. That is because success requires a commitment to cutting-edge innovation applied with purpose to enable sustainable solutions — a mix that plays well to traditional European strengths.
The continent already has a global head start in sustainability. In 2020, it created more energy from renewables than fossil fuels and its leaders are collaborating across business, government and society to create an ambitious agenda for sustainable change while investing in green start-ups.
Europe’s companies score more highly in ESG ratings than competitors, and in their post-pandemic rebound and mid-term strategies, they are prioritising both technology adoption and sustainability.
Investors are interested: last year sustainability was featured in far more European earnings calls than in other regions and 53% of Europe’s top companies also discussed technology.
The embodiment of Europe’s potential to lead the twin transformation can be found, for instance, at Schneider Electric. In January, it soared to the top of the annual Global 100 index of green firms to be named the world’s most sustainable corporation. The company epitomises the strategic embrace of technology and sustainability, but also illustrates something that at this juncture is just as important: the concrete business value of doing so. Schneider has doubled its market value to more than €70bn in the past two years alone.
Of course, Schneider is not alone — it is one of nine companies in the Global 100 index based in France, whose neighbour Germany is home to seven of the top 100. Other European companies making the twin transformation also score highly in the rankings — Schneider ousted Danish wind power giant Ørsted from last year’s top spot — or have become household names.
Danish bioscience company Christian Hansen allocates 75% of research and development spending to natural nutrition supported by digital technologies. German engineer Siemens uses simulation and digital twins to green its output, and French luxury goods group Kering has devised digital solutions to slash the environmental footprint of fashion. French personal care company L’Oréal harnesses technology to ensure use of sustainable palm oil, and German delivery group Deutsche Post DHL has empowered consumers to choose low-carbon shipping.
New world order
With their strategic vision and commitment to a way of doing business that prioritises values, these European companies feel very different to their predecessors. That is because twin transformers instinctively understand they are on the brink of a global transformation in which success — indeed survival — is premised on a need to harness the forces of the future.
At the end of the cold war, it was current to talk about the “new world order” — which was as unpredictable as it was exhilarating — and there is little doubt in the context of the digital and sustainable transformations that Covid-19 has brought us to a similar juncture.
Just as it was then, the future will be distinguished by both contradictory and complementary trends — many of which have already played out in Europe. A new multilateralism will tussle with regional divergence as continents cooperate, but also diverge.
A key lesson from the pandemic is the importance of global cooperation to tackle problems that affect the whole human race — and multilateralism will change to reflect this. Yet at the same time, regional supply chains could turn inwards as companies facing shortages and bottlenecks decide to reshore production: a form of “deglobalisation” that will push some to localise business operations favouring national or regional suppliers.
How we view the world economy is also being turned on its head. Striking variations in the impact of Covid-19 have highlighted deep inequalities and drawn attention to the social value of ‘key’ public workers.
Nothing short of the future of capitalism is up for grabs, as the goals for recovery are shaped by a new social contract distinguished by public investment in the care economy, education, and low-carbon infrastructure — features reflected in the fabric of European society.
Twin transformers are ahead of the curve, having instinctively understood the new challenges posed by the pandemic to business models that have in the past allowed companies to shirk responsibility for their workers. The rise of digital behaviour — from remote working and learning to telemedicine — has accelerated alongside automation, meaning the future of work has never been more fluid. This poses huge challenges for businesses, which must address workers’ needs more than ever while preparing them for a workplace revolution.
Against this backdrop, changing dynamics in technology and sustainability investment will reshape international performance, and could result in greater regional levelling — fuelling competition.
As Europe begins to catch up with Asia on technology, for example, Asia will begin to catch up with Europe on sustainability. While before Covid-19 Europeans trailed in the adoption of technologies like artificial intelligence, cloud computing and 5G, nearly 40% are now making large investments. In turn, Europe’s first mover advantages in sustainability look precarious as demand for ESG investment in Asia-Pacific soars.
The rise of the twin transformers represents an evolutionary adaptation to these monumental changes in the business landscape as the recovery gains momentum. They are equipping themselves for a new order shaped by unforeseen change more comprehensively and rapidly than their peers — and immunising themselves against the uncertainties of recovery.
Jean-Marc Ollagnier is the chief executive of Accenture for Europe
This article first appeared in the February/March print edition of fDi Intelligence. View a digital edition of the magazine here.