Forecasts are rarely perfect, but last year INSEAD’s predictions for global trends in business and society proved to be fairly accurate. As expected, extreme weather events revealed the immediate impacts of climate change. The growth rate of the global economy remained well below average. And the lingering effects of Covid-19 hit the poorest hardest.

Yet the forecast did not predict the most disruptive event of the year: Russia’s invasion of Ukraine, which sparked a series of new crises and exacerbated existing ones. The intersecting and compounding challenges of a warming planet, weakened economy, geopolitical conflicts and social instability ushered in problems of skyrocketing inflation, food insecurity, an energy crisis, a cost-of-living crisis and a potential global recession.

Volatility and uncertainty remain high this year, clouding the view as to what lies ahead. INSEAD recently conducted a survey to capture their academic community’s perspective on the top threats facing businesses this year and the greatest opportunities to act as a force for good. Between 16–31 December 2022, a total of 46 INSEAD faculty members from nine academic areas and three campuses participated in the survey. The participating faculty members identified the following five issues as critical, with recent reports from the World Economic Forum, Edelman, World Inequality Lab and other key institutions underscoring their importance.

Climate change

A quarter of survey participants cited climate change as the number one societal issue for businesses to address in 2023. A further nine percent ranked climate change as the fourth biggest societal threat to business this year.

These results are in line with the World Economic Forum’s Global Risks Report 2023, which highlights the urgency of the climate emergency and compares its impact in the short and long term. Among the top 10 risks identified by the experts surveyed, “failure to mitigate climate change” is the fourth greatest risk in the next two years, and the number one risk in the next 10 years.

Income and wealth inequality

According to the INSEAD survey, the second-most important societal issue for businesses to address this year is income and wealth inequality.

The World Inequality Report 2022 indicates that global progress on inequality is mixed. According to the report, inequalities within countries have grown significantly over the last two decades – the gap between the average incomes of the top 10 percent and bottom 50 percent of individuals has nearly doubled. However, inequalities between countries have declined. The gap between the average income of the richest 10 percent of countries has dropped from being approximately 50x higher to less than 40x higher than the poorest 50 percent of countries.

Meanwhile, both income inequality and wealth inequality among individuals remains staggeringly high. Currently, the richest 10 percent of the global population earn 52 percent of global income and possess 76 percent of all wealth, while the poorest 50 percent of the global population earn 8.5 percent of global income and possess only 2 percent of wealth.

Social instability

About one-fifth (18 percent) of INSEAD faculty cited social instability as the biggest threat for business this year.

Indeed, 2022 saw a significant uptick in civilian protests worldwide, affecting developed and emerging economies alike. Many protests were triggered by economic woes caused by inflation, while others were political in nature, such as the riots in Peru following Pedro Castillo’s ousting and the more recent storming of Brazil’s government buildings in a scene eerily similar to the 6 January 2021 attack on the United States Capitol. In America, there is continued talk and questions about the prospect of a civil war.

Many of the factors contributing to social instability are expected to persist in 2023. 

Inflation and recession risks

In the INSEAD survey, 17 percent of faculty indicated that inflation and recession risks are the greatest threat to business this year.

Up until very recently, other institutions hinted at a similar outlook. On 1 January 2023, the IMF’s Managing Director announced that the fund expected a third of the world economy to fall into a recession in 2023 as a result of the Russia-Ukraine war, inflationary pressures and rising costs of borrowing. The cost-of-living crisis was cited as the top risk to the global economy for the next two years in the Global Risks Report 2023. And 74 percent of participants in Edelman’s survey shared fears about inflation.

In the last several weeks, however, the economic forecast has started to improve. Economists point to several contributing factors including supply-chain improvements, a robust labour market, lower energy prices and the reopening of China’s economy. While some caution that a recession remains a possibility, the broad consensus is that any downturn will be mild and brief. At the World Economic Forum, an IMF spokesperson announced the fund would upgrade its economic forecastto reflect this sunnier outlook.

That said, inflation remains high and interest rates continue to climb. In the absence of further government intervention, these variables have the potential to create headwinds to growth.

Geopolitical crises

A quarter of INSEAD faculty flagged geopolitical crises as the top threat facing business in 2023. Another 11 percent cited it as the most important area for firms to address to serve as a force for good.

Currently, geopolitical tensions are prevalent in virtually every corner of the globe.

Though the consequences of these threats largely fall on the shoulders of governments, businesses have a responsibility to step in and help mitigate them. Public-private partnerships are four times more likely to yield optimal results for society than if government or business work alone, according to the 2023 Edelman Trust Barometer.

The Global Risks Report 2023 reinforces this point, emphasising that the time to act is now. “Concerted, collective action is needed,” the report says, “before risks reach a tipping point.”

This post is a shortened version of the one published in full on INSEAD Knowledge here.