65% of the empowerment gap can be addressed by growth and business-led innovation: McKinsey's Sven Smit

The world is at a crossroads, grappling with the dual challenges of poverty and empowerment globally. This was the focal point of a report by the McKinsey Global Institute, aiming to analyse and understand strategies to uplift the underprivileged while addressing environmental concerns.

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"I just want to reinforce that when we looked at this question of sustainable, inclusive growth, we try to do that not by looking at silos, growth, sustainability or empowerment, but all three simultaneously. And look at the interactions. Why is that? If you would look at sustainability alone, you could say let's do that at any cost. But that might impede growth and impede the empowerment of people," said Sven Smit, Chairman and Director at McKinsey, who shared insights during the second edition of the BT India@100 Summit held on Saturday in New Delhi.

The discourse weighed on breaking down the traditional silos of growth, sustainability, and empowerment. They must be approached not individually but comprehensively, acknowledging the growth-sustainability trade-off. Exclusive focus on one aspect may hinder progress in the others. For instance, a myopic focus on sustainability may hamper growth and impede empowerment while neglecting sustainability in pursuing growth risks, exacerbating environmental issues.

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The report introduces the concept of the 'empowerment line' concept- a benchmark that ensures people have access to decent food, shelter, education, healthcare, and some discretionary funds for crises. The report claims that around 4.8 billion people worldwide need to cross the empowerment line. This altered perspective of prosperity deviates from traditional benchmarks like GDP and paves the way for comprehensive and inclusive growth. Smit said: "The empowerment line is very different at that level. People have decent food, decent shelter, decent education, decent health care and also a little bit of discretionary spending. So in a moment of stress, they don't go back to subsistence, and people who live at that level are empowered."

Concernedly, 8% of global GDP is required annually to bridge the gap towards sustainable development goals and net-zero objectives. However, the silver lining is that 65% of the empowerment gap and 45% of the Net-zero financing challenge can be addressed by growth and business-led innovation. Albeit, the remaining gap still presents a massive challenge.

Outlining the issue, Smit said: "We don't have enough conversation around growth and business-led innovation. Are we literally doing the permitting? The regulation that frees up the system that can do the business-led innovation to solve much of this problem in Europe permitting is the single biggest bottleneck for wind labour laws. I'm sure that's true in India in many ways. There's a lot of stuff like that that can unleash that engine and maybe even make it a bit bigger."

India, for instance, needs about 13% of GDP to address the empowerment gap. However, business growth and model innovation can address about 90% of this requirement. Besides, India's rapidly growing digital ecosystem also contributes to reducing the gap, making processes more cost-efficient and effective. "We need about 13% of GDP to address the empowerment gap. 90% of that can be addressed through growth and business innovation, which makes me optimistic," said Gautam Kumra, Chairman- Asia McKinsey & Company.

However, postulating that corporations could earmark a percentage of their profits towards sustainability isn't the panacea as it may inadvertently affect pensions, which make a significant share of corporate profits. Therefore, the focus should primarily be on growing and innovating business practices. Furthermore, global alignment and coordination are essential.

To summarise, the path to global empowerment and sustainable growth lies in navigating the potential conflicts between these two ambitious goals. A cohesive approach to pursuing sustainable, inclusive growth is the way forward. This comprehensive strategy ensures that any cost incurred due to the transition is not detrimental to the empowerment objective. Equitable distribution of resources and wealth, coupled with sustainable practice, lays the foundation for a balanced world.