Focus on sustainable development: The year 2021 was an especially hard one for the world economy. The Covid-19 pandemic triggered disruptions in every sector of the global economy, leading to recession in several large economies. The year saw huge losses to several industrial sectors and large number of job losses across the world. Another major development was the wide acceptance among global political leadership that human activity is a major cause of climate change.
This change was evident at the UN climate change conference in Glasgow where major economies announced fresh net zero targets and pledged to come up with tougher targets to reduce greenhouse gas emissions in the next 10 years. The biggest impact of major economies ending their climate denial was on the economic development discourse.
Gross domestic product is one of the conventional measures used to assess a nation’s economic development. However, GDP overlooks several aspects of the sustainable development of a nation. At present, economies across the globe are looking for “beyond GDP” initiatives. The traditional practice of assessing the economic performance of a nation by observing GDP figures is now shifting to new indicators that measure sustainable development. Now global economies are more concerned over how sustainable their GDP growth is.
GDP growth and sustainable development
In recent years, economies worldwide pay attention towards the environmental sustainability of economic development. Different environmental factors are considered in addition to GDP figures while measuring a nation’s economic success. This exercise is often termed as the Green Gross Domestic Product (GGDP) calculation. GGDP calculations account for the different costs that are caused by climate change. The intended total cost of climate change is subtracted from the GDP figures to estimate the GGDP.
There is no doubt that GGDP will be able to capture more vital aspects of a nation’s economic progress as compared to the traditional GDP measures. However, GGDP fails to measure sustainable growth inclusively. Hence there is a genuine demand for more inclusive measures of sustainable development.
The impact of the Covid-19 pandemic is felt in every sector of the economy. The intensity of this impact varies in different sectors and economies. However, the pandemic has once again highlighted the importance of human capital irrespective of sectors or nations, which is often ignored. Human capital could directly impact a country’s GDP growth in the long run.
Existing business models would evolve continuously over a period of time due to active technological forces. To support such adaptive business models in the coming ages, global economies should invest heavily in building their human assets to foster the process of innovation and accomplish overall cost efficiency.
Energy, financial markets
Two sectors, namely the energy and financial sectors, would get significant attention from global economies in the future. Policy makers will give a lot of attention to the sustainability of these two sectors.
There will be a high demand for energy resources. The world’s ever-increasing energy demand poses a serious challenge to solving the climate crisis. Today, every nation is striving to achieve net zero emissions target to address climate change. Most nations are investing in developing renewable energy sources to meet their energy needs.
Different technologies are used to harness energy from renewable sources and all of these are not environmentally sustainable. However, there is no one-size-fits-all solution to balance the trade-offs between the growing energy need and sustainability. So, it will be interesting to watch how global economies, especially the developing nations such as India, revamp their energy strategies to achieve sustainable development.
The Covid-19 pandemic has put the world into a critical situation. Global economies are struggling under heavy debt because of stimulus spending announced for recovery from the economic crisis triggered by the pandemic. This will have long lasting impact on the economies. These structural changes need huge funds that can be secured only by developing sustainable financial markets.
The pandemic has introduced different types of risks and volatility to the global financial markets. It will be interesting to see how the global economies mitigate these risk factors in the financial markets and maintain liquidity to support economic recovery. Covid-19 presents global economies with several opportunities as well as threats.
The pandemic highlights the importance of human factors that have been ignored for long. The nations are giving more attention to sustainability factors while making policies. The future will see a combination of technological innovation, human factors and environment factors dominating policy discourse. As the climate change gains the attention of policy makers, sustainability will become the most important measure of success for nations and businesses.
(Dr Moinak Maiti is Associate Professor, Department of Finance, National Research University, Saint Petersburg, Russia.)