Why megatrends matter to your business

Simon Lee, Senior Manager, Sustainable Business HK

Smart home automation app on smartphone with home interior in background

Imagine you are a major international airline. Like others in your industry, you face a tough operating environment – with pressures to reduce cost, improve efficiency and maintain profitability. All while continuing to meet high customer expectations.

You also face calls to significantly reduce the environmental impacts of your operations. The aviation sector contributes roughly 2% to global carbon emissions, with the UN expected later this year to introduce new measures to limit its emissions. This could have a major impact on your running costs and license to operate.

These are some of the challenges facing Cathay Pacific, which just completed a project with Forum for the Future imagining its own future in 2040. Forum and Cathay co-created four possible scenarios to explore different trajectories for the industry, and consider what a successful and sustainable long-term business strategy might look like.

In this case, climate change and increasing regulation are particularly relevant. All companies will be affected by different megatrends, in different ways – something more sustainability professionals and business leaders are beginning to understand.

What are megatrends?

Megatrends can be understood as long-term, global, macro-level trends that that will impact business and society in the future.

EY’s ‘Megatrends 2015’ identifies ‘Digital future’ as one of six key trends. It notes: “Digital disruption is changing the market context and competitive landscape of most industries”. This is already leading to diverse social, environmental and economic consequences.

Take Amazon, for example. On one hand, the dematerialisation of literature, music and video should be welcomed in a resource and climate-constrained world. On the other, its disruptive impact has dealt a fatal blow to many long-established retailers, leading to a significant concentration of market power. Controversies regarding income levels and royalties, employment practices and taxation have ensued.

Another megatrend identified by EY is ‘Resourceful planet’. As well as more intense competition for resources, extreme weather events and supply chain transparency, it is predicted that water scarcity will challenge food and energy security:

“Water usage has been growing more rapidly than population growth, and this shows no signs of abating… Given the heavy reliance of food and energy production upon water, tensions will rise over how to use this critical resource.” This could have profound implications for supply chain security and stability in food and energy-related sectors.

How are companies responding?

Ariel Muller, Forum for the Future’s Asia-Pacific Director, explains how her organisation helps companies explore potential impacts of megatrends:

“It begins by having a clear understanding of how the business creates value, and then looking at that purpose against the future operating landscape. How are external conditions changing?  What risks and opportunities are emerging? We work with senior management teams to explore their purpose and test their business strategy against that future context.”

Muller explains that megatrends can reveal opportunities to create value in entirely new ways: “It’s about companies asking themselves: ‘How can our core purpose translate into meeting an emerging need in the market? Are there new products and services that our business is well-positioned to respond to?’ Through this process we are seeing leaders realise that sustainability is relevant to their core business strategy.”

For example, in fast-growing, fast-urbanising Malaysia, Panasonic is partnering  with real estate developers to design and build smart, low-energy homes. It is translating its core competency in smart electronics and smart systems into a strategic advantage in property development – a new sector for the company.

In so doing, the company is simultaneously addressing urbanisation, climate change and the global shift in economic power – all key trends cited in PwC’s ‘Five global megatrends’.

For Cathay Pacific, a key touch-point is the carbon emitted from aviation fuel. In 2014, the company made a strategic equity investment in Fulcrum, a US-based pioneer in converting municipal solid waste into sustainable aviation fuel.

Cathay entered a long-term supply agreement with Fulcrum for an initial 375 million gallons of fuel over 10 years, supporting its aim of achieving carbon-neutral growth from 2020. By addressing a major risk today, it is building competitive advantage and a more secure future supply – whilst avoiding the cost of late adaptation to future regulations or carbon taxation.

Opportunities for SMEs

It is not only large corporations that can harness and exploit these emerging opportunities. For companies seeking partners to help enhance their sustainability, SMEs with a forward-looking approach can position themselves as solutions providers.

For example, recognising the growing market for green buildings and energy-efficient retrofits, Hong Kong-based Energenz provides advice to major hotels, casinos and banks across the region. Complementing its services is Blue Sky Energy Asia, which acts as a link between financial institutions and property owners, providing financing for large-scale energy-efficiency investment projects with longer payback periods.

In food and hospitality, Dynamic Progress and Zenda Green Energy collect used cooking oil directly from restaurants to be converted into a reduced-carbon biodiesel, which is then sold on to partners in the maritime and other sectors. Building on this core business, Dynamic Progress has diversified into providing low-energy stoves to kitchens and energy-saving equipment to laundrettes on a rental, shared-savings basis.

In a recent interview with EcoZine, Tesla founder and serial entrepreneur Elon Musk revealed that after selling PayPal, he had a realisation that would inform his future projects: instead of searching for the best ways to make money, he asked which problems were most likely to affect the future of humanity. The rest is history.

Today there is much talk about shared value and sustainability – addressing societal needs and supporting sustainable development, while also ensuring and strengthening the long-term future of a business.  Megatrends provide a clear and accessible structure for companies of any size to begin turning this bold vision into a practical reality.

You can view the full case study on Cathay Pacific on the Forum for the Future website.