Why social inequality is threat to your business

A new report argues that inequality should no longer be seen as the responsibility of governments alone. Here’s how the world’s yawning wealth gap threatens businesses’ supply chains, sustainability targets and staffing

A new report from the World Business Council for Sustainable Development argues that inequality should no longer be seen as the responsibility of governments alone. 

Here, three of the business leaders involved in the report explain how the world’s yawning wealth gap threatens businesses’ supply chains, sustainability targets and staffing, and why businesses need to take whatever action they can to mitigate that risk.

‘Human rights risks need to be monitored and managed’

Caroline Rees 
President and co-founder, Shift 

The private sector hasn’t historically seen inequality as a business issue, but there’s a strong moral case for it to do so. 

For 50 or 60 years now, the dominant business philosophy has pushed companies to externalise costs to maximise revenues. Much of the brunt of this way of thinking has been felt by vulnerable workers and marginalised communities. It’s natural and logical, therefore, that businesses should help resolve a problem that they’ve had a hand in creating. 

Risk management is another major reason to act. Covid-19 offers a clear example. Years of pressing down on prices have left companies’ supply chains with no buffer whatsoever. In several industries, suppliers can barely pay their workers a decent wage, let alone invest in business resilience. So, when an unexpected event like the global pandemic hit, the whole supply chain just collapsed. 

Good intentions often get trumped by conflicting incentives

Another example is when extractive companies displace communities unfairly or pollute their lands. Very often, these communities are poor, but they can still put up a roadblock. What’s more, they can connect with international campaign groups and get their story into the media. 

Alongside operational and reputational risks like these, there is a wide range of regulatory and legislative risks now emerging. In Europe, we’re seeing legislation on human rights due diligence and reporting really taking off. In North America, customs controls mean that companies cannot import goods from high-risk countries without proving that forced labour has not been used. 

One of the first and most effective steps to mitigate human rights risks is for companies to assess how and where their activities intersect with particularly vulnerable groups – be it in their workforce, in their value chains, or among the wider public. It’s important to actually talk to people because businesspeople often carry false assumptions. Most companies don’t set out to have a deleterious effect on vulnerable people; instead, what usually happens is that good intentions get trumped by conflicting incentives. 

Imagine a company has an ethical code of conduct for its supplier relations. Then imagine that the purchasing department is being incentivised to hit tight price targets. Suppliers will inevitably end up having to reduce wages or cut corners on health and safety. For that reason, human rights risks need to be monitored and managed with the same rigour as every other commercial process. If not, the desire to respect human rights will always lose out to immediate business imperatives.

‘If companies neglect people, then they will experience resistance’

Gerbrand Haverkamp 
Executive director, World Benchmarking Alliance 

The importance of a just transition towards a future that is net-zero and nature-positive speaks for itself. Businesses can’t operate successfully on a broken planet. Yet if companies set out to reduce ‘x’ million tonnes of carbon emissions or to restore ‘y’ million hectares of degraded land but neglect to address the knock-on effects of these changes on people, then at some point they will experience resistance. 

Making sure the transition to a low-carbon and nature-positive economy is centred on people is therefore an imperative. In practice, that means companies not stepping over the interests of their workers, not ignoring the communities where they operate, not failing to support smallholder farmers, and so on. 

Imagine the scenario for a large food producer. Many large companies in the agriculture sector now have ambitious sustainability strategies. Why is this? Because they know that climate change is seriously impacting the quantity and quality of food production. 

Mitigating this risk requires farmers to adopt more climate-sensitive practices. But if they lack the skills and resources to do this, then what happens? It’s not like large food processors or food retailers can swap suppliers at short notice. Climate change is affecting farmers all over the world. So if companies ignore the farmers in their supply chains, they face the risk of supply shortages or of failing to deliver on their public sustainability commitments. 

If companies ignore the farmers in their supply chains, they face the risk of supply shortages

Adopting a people-centric approach will increase the likelihood of workers and communities going along with companies’ transition plans. This involves businesses investing in the skills of their workers (and their suppliers, where relevant), as well as in appropriate technologies and resources. Likewise, it means engaging with impacted communities to understand their needs and take these into account. That way, they will get to see sustained positive benefits from the transition. All of this requires long-term planning. It is not something that can be resolved at the last minute.

If companies centre their transition plans on people as well as the environment, then the benefits for their business can be substantial. We’re seeing this in the energy sector, for example. Right now, there is a huge demand for electrical engineers who understand how clean energy technologies function. Energy companies that invest in training their own engineers effectively remove what is currently a major constraint to their transition plans, thus enabling them to accelerate their business growth.

‘When younger people are out of the workforce, businesses miss out’

Laurent Freixe 
CEO, Nestlé Latin America 

The risk to business of people being out of work or ill-prepared for the changing world of work first hit me more than a decade ago. At the time, I was heading up Nestlé’s operations in Europe, where unemployment after the 2008 financial crash was something like 25%. 

Obviously, this situation is tough for the individuals who find themselves outside the formal workforce. Some find themselves having to work in the informal economy, where they have no contract and no protections. Widespread unemployment also presents a risk for the wider economy: people out of work spend less, which means consumption drops, which leads to a reduction in investment. It’s a vicious downward spiral.

People out of work spend less… which leads to a reduction in investment. It’s a vicious downward spiral

As every businessperson knows, having a skilled workforce is vital to the competitiveness of their business. The world is changing faster than ever due to the rise of digital technologies and to the climate imperative. While it’s good to have older people in any business, it’s the young who are best placed to embrace these changes. They have a sense of the urgency of the issues at play, as well as an appetite to transform how things are done. 

So, if these younger people are out of the workforce, then businesses miss out on these key attributes. Instead of being agile and innovative, there’s a danger they become stuck and start to fall behind. 

At Nestlé, for instance, we’ve introduced programmes to try to better equip young people for today’s changing world of work. Back in 2013, we launched a programme which set out to give 20,000 young Europeans the experience and tools required to get a job. It offers jobs, training in writing CVs, and preparing for interviews, as well as hands-on apprenticeships. 

Personally, I think apprenticeships are a great way for businesses to tackle inequality. We also helped create a similar programme called the Global Alliance for Youth, through which other major companies – including Microsoft, L’Oréal, Starbucks and Cargill – support similar initiatives. 

Our business model ultimately is all about creating shared value – so not just value for us as a business, but all those we interact with. Young people make up a critical part of that value proposition. Bringing the next generation on board not only sets them up for success; it’s good for all of us too.