View from the top: selected insights on major risks and trends in 2022-23

April 2022

On 29th March, Critical Resource met with its Senior Advisory Panel, consisting of eminent industry figures and thought leaders (click here), to discuss geopolitical, socio-economic and sustainability trends to watch in the coming 12 months. Key themes include the global consequences of the war in Ukraine, the current energy crisis, and shifting human rights expectations on companies.

This is an anonymised summary of key points from the discussion and an abridged version of a longer note sent to Critical Resource’s clients.

The war in Ukraine and its implications

Russia’s invasion of Ukraine, and the West’s response to it, will have profoundly important, and in many respects destabilising and unpredictable, consequences for the world and therefore for companies

The West has been stronger than many expected in remaining united and helping Ukraine resist Vladimir Putin’s invasion. However, it has been weaker in terms of planning for its implications and aftermath. For example, the West’s accelerated economic detachment from Russia will have huge global implications. In particular, cutting off or displacing Russian oil and gas supplies, and the resulting high prices, is likely to have a devastating impact in already fragile countries such as Lebanon and Yemen. This lack of foresight has been exacerbated by a lack of global governance.
Similarly, the West has not thought through the implications resulting from the steep rise in food prices. Russia is the world’s largest exporter of wheat (18% of global supply), much of which is usually destined for countries in the Middle East and North Africa. Previously stable middle-income countries like Egypt – the world’s biggest wheat importer, which had been experiencing strong economic growth and stable government – are now vulnerable due to surging wheat prices. Indeed, a rise in food prices was one of the preconditions for the Arab Spring in 2011.
Understanding the global outlook: an increasingly complex puzzle.

A lasting lesson from previous crises is that once countries are destabilised it is very hard to predict what will happen next, and how long they will remain destabilised for. A more recent example is that of Ethiopia, Africa’s second most populous country, which until the outbreak of the war in Tigray in 2020 had been posting record economic growth and was deemed to be a regional leader politically and economically. Today the country’s economic modernisation plans have been completely derailed amid rising inflation, famine and stunted investor confidence.
A separate question is whether the West will look back at Putin’s invasion of Ukraine with the same sense of shame and regret as with its failure to intervene in Rwanda in 1994 or in Syria in 2013. There is a real danger that the West is normalising ‘standing by’ in the absence of invoking formal processes such as Article 5 of the NATO charter. What has become clear to a lot of smaller, less powerful countries is that they really are on their own. Taiwan, for example, is unlikely to feel reassured by the US’s failure to respond militarily to Russia’s invasion.
As things stand, six weeks into Russian’s invasion of Ukraine, global governance has been completely shaken, the developed world is facing a severe cost of living crisis and the impact on much of the developing world, through high oil and food prices, will be profound and likely carry significant security implications. In this context it is very hard to make any accurate predictions about how global events are likely to unfold in the coming months. What we can be sure of, however, is that ‘radical uncertainty’ is here to stay, and companies should plan accordingly by seeking to build resilience and agility.

Energy and climate change

Despite the energy crisis exacerbated by the war in Ukraine, there are no signs that the US, EU or China are about to abandon their net zero ambitions. Nonetheless, the landscape has substantially shifted, creating additional short-term hurdles for companies to navigate.

The war in Ukraine and the pinch on energy supplies has put a lot of pressure on net zero ambitions. It is looking increasingly hard for companies to achieve 2030 net zero targets, but companies should not be given a free pass, and the climate imperative remains.
Despite this, a number of oil and gas companies who had previously been at pains to comply with net zero by 2050 are now coming under pressure to produce more and increase cash returns to investors. The commitment they made to transform themselves is being openly challenged by some investors who want to maximise short-term returns. Nonetheless companies should maintain momentum on their net zero journeys.
The current energy crisis should be a positive moment for renewable energy, but it seems that some governments are not responding proactively, and enabling legislation is not being put in place. In the UK, there is a perception that Whitehall is becoming increasingly dysfunctional and off the mark on this issue. For example, the UK government’s response to double down on nuclear energy in reaction to the current crisis – despite nuclear projects having a 20-year lead time – has been widely questioned.
The practicalities of renewable projects, particularly in regions like sub-Saharan Africa, are increasingly challenging in light of the energy crisis. The growing cost of freight and cargo has caused overall project costs to soar.

Corporate responsibility

The rise of ethics in the corporate world is accelerating, and there will be a reckoning on the choices companies make in terms of their partners.

Ukraine has the potential to be a sea change for the corporate sector and notions of corporate responsibility. People have been both appalled by the brutality of the war and inspired by the leadership and morality of Ukrainian President Volodymyr Zelensky. The contrast between Zelensky’s principled and resolute stance vs. the ‘London Laundromat’ is so striking that it could change the world’s moral compass. Indeed, leadership like Zelensky’s has not been seen in many years and leaves Western leaders looking decidedly lacklustre in comparison to a man who is prepared to die for something.
Partly as a result of this, as well as broader ESG pressures, the issue of morality has moved rapidly up the corporate agenda. Indeed, the corporate response to Russia’s invasion of Ukraine has set a new benchmark for the lengths companies could be expected to go to in response to issues of morality (albeit in the case of the Ukraine conflict, the pressures are particularly strong on companies headquartered in countries participating in the toughest sanctions).
It seems likely that all companies are now going to be held to a higher standard across the breadth of their investments and operations. This precedent will pose challenging questions about human rights and divestment for companies with exposure in China and other authoritarian jurisdictions.