Scaling initiatives on empowerment and net zero

Authors: Abhishek Ahuja | Rajat Dhawan | Amit Khera | Anu Madgavkar, associated with Mckinsey 

The September, 2023 edition of The Hub highlights a research report from Mckinsey & Co which examines what it would take for G20 economies to deliver on two bold aspirations for 2030: making progress toward raising minimum living standards for everyone and accelerating low-emissions investments to get on track to meet 2050 net-zero commitments.

As per the analysis, the highest proportion of population (as a share of the country total) below the economic empowerment line live in India and South Africa (more than 75 percent), followed by Brazil, China, Indonesia and Mexico (more than 50 percent) and closing this empowerment gap in G20 economies would require a cumulative increase in spending on essentials to the tune of $21 trillion over the decade to 2030. Business-led innovation can account for about 30 percent of the financing required to meet the sustainability and inclusion goals.

G20 economies could advance more rapidly toward empowerment and net-zero by learning from each other's best practices in both areas. For the net-zero goals, economies and companies can rapidly scale burgeoning technologies to move away from fossil fuels, retire carbon-heavy assets such as coal, and adopt low-emissions technologies including in hard-to-abate sectors such as cement and steel.

New technologies including AI and a robust digital backbone infrastructure have cross-cutting positive impact on the productivity of large, small, and micro enterprises and can make public services more efficient. Thoughtful efforts will be needed to ensure sufficient capital can flow across economies and sectors to scale initiatives and drive innovation, including to poorer countries that may require support.

1. Progress on sustainable and inclusive growth in G20 economies

Tremendous advances have been made in the past half century in raising living standards and, more recently, in the commitment to address climate change. Yet several trends across the G20 economies, which constitute about 85 to 90 percent of global GDP and 65 percent of the world’s population, underscore the need for further action: global growth has slowed; new technologies including AI promise future productivity growth but may come with potentially significant labor displacement; and net-zero goals remain elusive despite global commitments under the Paris Agreement.

This report focus on two specific aspects of sustainable and inclusive growth that are widely articulated aspirations. The first aspect, relating to inclusion, examines what it would take to lift everyone to a state of “economic empowerment.” The second aspiration is getting on track to reduce greenhouse gas emissions to achieve net zero by 2050. Meeting this goal will require rewiring the world’s energy systems and making substantial changes across every sector—a process that needs to begin in this decade.

2. Bridging inclusion and sustainability gaps: Examples from G20 economies

Stronger economic growth, more gainful employment, and increased productivity growth that includes upgrading workforce skills can close as much as 80 percent of the empowerment gap. Making essential goods and services more accessible and affordable is another key ingredient. Growth in developing countries depends crucially on accelerating investment in infrastructure, modernizing agriculture, expanding jobs in higher-productivity industrial and services sectors and businesses, and undertaking institutional reforms that support and facilitate growth. Technological progress can substantially contribute to productivity gains, but it can also lead to labor market disruptions, with demand for some jobs declining while demand for others increases.

3. Making progress toward empowerment and net zero

The journey toward sustainable and inclusive growth is a multifaceted and complex endeavour. It has been articulated in the report that there is no one-size-fits-all strategy; for each country, the path will vary depending on regional dynamics, economic structures, resources, and many other factors. However, certain common factors can drive progress in most countries. With the majority of the funding required for empowerment and net zero (80 percent and 36 percent respectively) attributed to economic growth and business-led innovation, three factors will be essential. The first is a pivot to high-growth opportunities across the economy. The second is harnessing the digital technologies (including generative AI), to accelerate growth and innovation. The third is to ensure capital can flow to support high-priority projects, including to poorer countries that may require support.

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(IICA acknowledge the ownership / authorship of the research report and republishing the same only for educational purpose only.)