Throwback Thursday – COVID-19 and inequality

Hope you are doing well and staying safe. Welcome back to our brief thoughts on ESG. This throwback Thursday I want to go back to UN’s 2020 World Social Report and comment on how COVID-19 has changed the story, if it has changed it at all. 

In a year where social issues have become so central to both public and private discussions within the context of the pandemic, it seems like a good idea to see where we were standing in the beginning of the year and how the megatrends that are studied in the report may change after this health emergency.

First, some key quotes from the report:

“Fifteen years ago, the Report on the World Social Situation 2005 warned that growing inequality could jeopardize the achievement of internationally agreed development goals… Inequality has since moved to the forefront of the policy debate. “Leave no one behind” is the rallying cry of the 2030 Agenda for Sustainable Development.”

“Technological change can be an engine of economic growth, offering new possibilities in health care, education, communication and productivity. But it can also exacerbate wage inequality and displace workers.”

“The accelerating impacts of climate change are being felt around the world, but the poorest countries and groups are suffering most, especially those trying to eke out a living in rural areas.”

“Urbanization offers unmatched opportunities, yet cities find poverty and wealth in close proximity, making high and growing levels of inequality all the more glaring.”

“International migration allows millions of people to seek new opportunities and can help reduce global disparities, but only if it occurs under orderly and safe conditions.”

“Income inequality has increased in most developed countries and in some middle-income countries, including China and India, since 1990. Countries where inequality has grown are home to more than two thirds (71 per cent) of the world population.”

“In most countries of Latin America and the Caribbean, income inequality rose during the 1990s – a decade of strong economic instability and widening wage disparities – but has declined since 2000. Inequality stopped declining or has even increased in Argentina (since 2014), in Brazil (since 2015) and in Mexico (since 2010).”

Ok, so income inequality is still far from being solved. Actually, the report estimates a few decades before this happens if the efforts to tend to it remain similar to what we’ve done so far. And that was before the pandemic. We now know with COVID poverty and unemployment are rising and that will give the world less resources to tackle problems such as climate change and inequality. Additionally, the negative social effects of an economic slowdown are massive. Mexico stands out as a country with upsetting levels of poverty, extreme poverty, and inequality. To add insult to injury, the government recently took a stand against clean energy in favor of the state-owned electricity company which is mostly powered by fossil fuel and then officially launched the construction of Tren Maya, a train which will likely wreak havoc in our country’s biodiversity.

So in this pretty complex setting, will COVID-19 alter any of the 4 megatrends analyzed in this report? This is our take:

1. Technological change – COVID-19 did show that technology is fundamental for society today. Even more so than we thought perhaps. We think that investments on this front will increase because of it, but the bigger question is whether this investment and change will provide access for more. To a certain degree we think it will (take as an example the absorption of e-commerce throughout this crisis), but unfortunately we don’t necessarily see equal access to technology as a material topic emerging from the pandemic since it’s likely highly skilled population groups will remain as the main beneficiaries. Proactive policies will continue to be needed here.
2. Climate change – we think there will be more buy in in general to fight climate change after COVID-19. This will hopefully help everyone, and not just the most industrialized societies. As the fight against climate change picks up, the disproportionate risks for developing countries and small islands will diminish. There will be countries which will likely act as outliers (Mexico may be one given what has been going on in the energy space), but society as a whole will likely become more conscious.
3. Urbanization – if anything, COVID-19 only made it worse for inequality within big urban spaces. As privileged sectors were able to stay home, and unprivileged sectors had to keep going out to work, the impact of the virus has been and will continue to make this inequality even more visible. It is likely the impact of this over time is sadly even more inequality as job losses or salary decreases will not be spread equally.
4. International migration – we believe this will still be a good way to alleviate inequality within and among countries. Temporarily migration will be diminished, but perhaps after the initial shock, more people will be incentivized to move (especially if they can move into countries that showed they have better social systems and crisis management capabilities, or countries that can rebound economically faster).

In sum, some megatrends may be altered, some may not. But one thing is clear: inequality is even more problematic today than it was when the study was published. And while that itself is negative, the visibility this is receiving is good news. Let’s now hope positive action comes next.

I hope you found this useful. As usual, if there is anything we can help you with, please reach out. 

Best,

Marimar

Partner, Miranda ESG

This week’s recommended reading

• Your 2030 Sustainability Targets Are Wrong
• Why ESG Matters in a Crisis
• Fighting racism through investment
• The “Dark Side” of ESG
• UN Global Compact defines new level of ambition for corporate sustainability