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Geopolitical risks should be part of the ESG acronym, argues Dr Alan Dupont at AIRA 2023
The 2023 Australasian Investor Relations Association’s (AIRA) annual conference, which took place in Sydney this year, focused on all things ESG.
The two-day event carried the strapline ‘IR fundamentals – moving from polycrisis to polyinnovation’, with sessions and presentations specifically taking into account the increasing pressures and responsibilities IROs face on ESG today, including data-collection challenges, ESG reporting and ESG engagement strategies.
One session, led by Dr Alan Dupont, chief executive of Cognoscenti, offered attendees an economic outlook considering the contributing factors that will play a crucial role in reshaping the global economy. Dupont argued that as ideological divisions divide the world and geopolitical risk escalates, the world is facing a ‘polycrisis’. But what does that mean?
Defining the word
‘When we think about crisis, we tend to think about it in singular terms: a single crisis such as 9/11, the global financial crisis, the [Covid-19] pandemic,’ Dupont explained. ‘These are big systems-shaking events and, of course, we worry about them. But what we are talking about today is something quite different.’
He referred to the World Economic Forum’s Global Risks Report 2023, which defines a polycrisis as ‘a cluster of related global risks compounding effects, such that the overall impact exceeds the sum of each part’.
‘We are talking about multiple connected crises, where the consequences are greater than each of the crises themselves,’ Dupont added.
The key macroeconomic risks facing businesses and impacting and influencing investment decisions are:
- The war in Ukraine
- US-China tensions
- Deglobalization
- The tech war.
All these factors are contributing to a ‘paradigm shift’ that for business means extended periods of volatility.
‘[This means volatility] not just for six or 12 months, but for 10 or 20 years before the new system comes out and stabilizes,’ Dupont stated. ‘We are not going to go back to the way it was before. This is the new world, and all these changes are accelerating, not slowing.’
Should it be ESGG?
Addressing the ESG acronym, Dupont argued that it should be ESGG, with the last letter of the acronym standing for ‘geopolitical risk’. ‘Geopolitics and geopolitical risks now have to be part of the equation,’ he said.
Expanding on the relevance of geopolitics to the acronym, Dupont invited attendees to consider that the US and other western countries ‘have weaponized ESG against China’.
On sustainability matters, Dupont noted that while Australia cannot produce things as cheaply as China, it can do so in a more ‘environmentally sensitive way’ and in accordance with ‘higher labor standards’.
‘We are world-class in these areas of ESG,’ he said. ‘Countries in Europe won’t buy certain things from China anymore, even though they’re cheaper, because they don’t meet the ESG standards of the democracies. And the US government is now deliberately starting to play that card, because that’s the comparative advantage for the West.’
Medium and long-term outlook
When it comes to risks and challenges facing Australian companies and IROs, Dupont highlighted uncertainty and strategic volatility as the top two issues over the next three years. As US-China tensions escalate, he also said the chances of a war over Taiwan could have an impact on Australia.
Inflation he defined as ‘truly out of the box’ in Australia and pointed out that inflation is exacerbated by all these macro events, making it very difficult for the country to manage it.
Lastly, Dupont addressed the energy transition. ‘It’s not just a question of how we phase out gas over three or five years,’ he explained. ‘If we do that, what will be the impact on some of the buyers of our gas, like Japan? You can see how geopolitics is getting intertwined with economic, business and government decision-making around these issues.’
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