Five hypotheses for how the world might change

Based on discussions with clients, Critical Resource (an ERM Group company) has developed a framework for how the post-COVID world might look, and how clients could adapt their strategies accordingly.

The results have been captured in five hypotheses for the changes businesses can expect as a result of the pandemic. Originally developed for resource companies in the mining and energy sectors, the framework applies to other industries as well.

Given the uncertainties of the world, the five hypotheses are not predictions. Rather, they highlight an informed view of how the geopolitical and stakeholder changes to a business’ operating context may unfold over the next two years.

Two key considerations are important when thinking about how the world might change. First, given the scale of the crisis, and the multiple potential impacts, it is important to look at the very big picture context. Clearly, there is the pandemic itself and the government responses to protecting human health. There are also economic impacts in terms of job losses, bankruptcies, and government bailout programs. Then there is the political and social fallout.

Second, given the big picture context, each company can trace the particular impacts unfolding for their business-critical stakeholders. Stakeholder impacts will differ by sector and company. Consumer demand is plummeting for some sectors and rising for others. Government intervention in the economy is being accepted on an unprecedented scale. The role of companies in responding to the crisis is already showing a huge gap between the leaders and the laggards in corporate responsibility.

The five hypotheses suggest that:

1. The world is entering a period of much deeper geopolitical uncertainty. With world leaders both stoking and paying much more attention to nationalist and populist currents, the machinery of international collaboration is eroding. If the economic crisis deepens, there will be a temptation for world leaders to blame other countries and foreigners while erecting trade barriers to protect domestic economies at the expense of global economic growth.

2. Host governments will play tougher, but also sing sweeter. Many governments will be looking to raise tax revenue from existing investments, to offset the costs of their bailout programs. This applies to extractive projects and others where capital is immobile. At the same time, governments will try to attract more foreign investment by offering sweeter fiscal terms.

3. Radical new deals will be struck with employees and communities, particularly with respect to corporate health interventions. When employees become infected with the virus, businesses may be seen as a vector of the disease and a threat to local communities. This exposes companies to reputational damage and potentially legal liability. Once a vaccine and treatments are developed for the virus, companies will be under pressure to deliver these treatments to employees. In remote locations where government capacity is lacking, communities will look to businesses to provide and fund access to the vaccine and treatments.

4. More sophisticated in-country management will be critical to success. With reduced ability for headquarters management to fly into remote locations, and reluctance to travel even after travel bans are lifted, headquarters management are unlikely to be the globe-trotting executives they once were. In-country management will need to be trusted more and be at the forefront of managing growing national pressures as well as manage localized and resilient supply chains. We suspect supply chains will be less in control of global procurement functions and more devolved to individual countries.

5. Environmental, social and governance (ESG) pressures will resurge, alongside demands for corporate resilience. In the pre-COVID era, we were seeing a significant increase in pressure from investors on ESG issues as well as growing activism on climate change. In the minds of many governments and communities, there is a much clearer linkage now that when the natural world collides with human activity, some very severe crises can erupt. People have had a visceral experience of such a crisis. We anticipate this will fuel government action and popular mobilization to prevent other crises. We also expect the investor movement, previously focused on ESG issues, will fuse with demands for greater corporate resilience in terms of cash reserves, supply chains and the ability to withstand other pandemics and crises like the climate crisis.

In April 2020, Daniel Litvin, founder and Managing Partner of Critical Resource, presented the five hypotheses during a virtual keynote address at the World Gold Forum. He also shared the five hypotheses as part of a WBCSD webinar series on the key trends and disruptions for the decade ahead - under the auspices of Vision 2050.