The transition economy. What is it?

The word ‘Transilience’ traditionally representing a leap of change, a transition, is exactly the way we need to turn our attention to sustainability in a post-pandemic world. But, for our team at Alchemy Crew, we also like its resonance with the concept of resilience. The ability to undergo transformation paired with resilience is the alchemic blend that will prove to be the bedrock of future success within insurance and finance and across societies.

Our recent white paper, The Transition Economy – Sustainable Transilience (An Execution Guide in Times of Transition), serves to trigger a discussion covering the challenges and opportunities, as well as emerging risks, as we embark on delivering on the sustainable development goals to achieve rapid changes.

This article is the first article in a series of 3 articles that dive into the central tenets of this much-needed discussion, finishing with thought prompts for how you can realize this in practice. Today, we’re looking at the challenges and opportunities posed by our imminent future.

A new definition for the transition economy

Traditionally, we’ve understood the transition economy as our gradual shift from central controls to open market economies. The reality is that this definition isn’t broad enough or insightful enough for large companies today. The shift from the old-school business approach (with its over-reliance and single-minded reliance on fossil fuels) creates today's radical and innovative solutions that seek to solve the issues created by old organizational structures and approaches.

The core word now is sustainability. The harsh truth is that we haven’t done many things sustainably before. So now we have to establish ways to remain competitive while being sustainable and driving cost savings and sources of competitive advantage.

The good news is that all trends, in pretty much all areas of humanity, are pushing towards greater sustainability. Indeed, a recent survey found that more than two-thirds of consumers are willing to pay more for sustainable products. Consumers are cherry-picking sustainable businesses, and that’s only set to become truer as Gen Z shoppers enter their most prolific spending years.

There is a demand for sustainability, and that leads to massive structural transformations. But, as I’ve said before, everyone and every business have a role to play in sustainability. And that’s not recent news either – it was being reported in the Harvard Business Review in 2010, we’ve just taken a long time to step up to the plate.

However, along came Covid-19, and, unfortunately, sustainability was hit hard. Indeed, the pandemic set global sustainability back 25 years in just 25 weeks – a frightening statistic for all, not least those who have been championing sustainability for some time.

So, sustainability is the crux of every discussion in every business arena, but it’s currently recovering from an unexpected shock.?

Is a pandemic the birthplace of resilience and the thorn in the side of sustainability?

The impact of the pandemic has been a thorn in the side of sustainability. However, we need to remember that we’re all still reeling from the catastrophic impact it too – in health (both mental and physical) in our society, food security, environment and greenhouse gas emissions, and every facet of how we operate. It’s hit sustainability hard, but, like a boxer a little dazed from the impact, the effects shouldn’t be considered permanent right now.

Alongside the negative impact on sustainability, the pandemic has also given birth to greater resilience within businesses. This resilience isn’t temporary. In fact, the pandemic has catapulted resilience to the forefront of business success. Those businesses that have not just survived but have thrived have done so precisely because they won the resilience game, often by applying open innovation techniques, digitizing, and admitting the value of home working. They are continually and reflectively building resilience into their changing business model.

The pressure of the pandemic pushed resilience forward in a way that wouldn’t have happened otherwise. It put our foot on the gas of digital innovation, accelerating our progress in incredible ways.

And, the transition economy is presenting notable challenges. What are these, and what does this mean for sustainability, transformation, and resilience in the coming years?

The challenges to sustainable transilience

As I state in my introduction to The Transition Economy – Sustainable Transilience (An Execution Guide in Times of Transition),

“The next two decades will see significant change, thanks to evolving demographic trends, resource scarcity, climate change and rapidly adapting technology.”

We really need to understand these changes to identify the great opportunities they present alongside the risks we need to mitigate.

Within the arena of insurance and finance, we have identified 4 core areas of challenge for sustainable transilience. These 4 essential areas of development, and within them are myriad risks.

However, this discussion isn’t complete without realizing that with great challenges come great opportunities, and we’ll discuss this more once we’ve outlined the areas of challenge.

Growing urbanization and population migration

Empirical evidence shows that our population is growing, it’s shifting, and its demographics are changing.

Please take a look at World Population Growth on Our World in Data. The global population will be 8.5 billion by 2030, with the majority living in developing countries. These fantastic graphs show you what is happening to the world and the population in ways that words alone cannot. These charts also highlight how much things have changed already and how much they will continue to do so.

However, we need to go further to understand evolving population shifts, and, most importantly, our attention must turn to migration patterns and global population demographics:

• Migration: We are becoming increasingly urbanized as people progressively move towards cities. By 2050, it is estimated that 68% of us will live in cities (up from 55% today). There are many factors behind urbanization. However, looking at it from a macro-level, we need to be highly aware that environmental degradation is a growing and dominating cause.
• Aging: Our populations are aging and becoming increasingly top-heavy. By 2070, people over the age of 60 will make up 42% of the global population. To put it bluntly and painfully, there will be a shortage of working-age adults to support the elderly if we don’t make changes.

Climate change and environmental degradation worldwide

As you can see, these challenges don’t exist in isolation. Environmental degradation causes urbanization, but it is also a challenge very much in its own right.

There are so many different aspects of this. We've got enormous environmental challenges from micro-plastics to air quality and pollution to greenhouse gases and biodiversity loss. Businesses are now operating in a sphere where they cannot ignore environmental degradation – either what they’ve already contributed to or how to prevent it in the future.

Our planet is 1°C warmer than it was before the industrial revolution. But it’s worse than that; it will rise another 1.5°C in the next 10-30 years unless radical world-scale changes are made. We’re woefully behind where we need to be with this. Even if we stopped the causes of global warming today, it would take decades for the planet to correct itself. It’s not too late, but unless businesses and governments take this seriously, combined with our growing and aging population, it’s nearly impossible to overstate the looming problems on the horizon.

Everything that businesses do should factor in climate change and how to support renewable energy initiatives.

The increasing scarcity of – and global competition for – resources

Of course, when you combine the above two major challenges, we see an intense scarcity of resources. Competition for those resources increases. Our traditional models of ‘produce, consume, dispose of’ become unsustainable. Instead, businesses must confront the scarcity of resources by stepping outside of their tendency to compete for resources. Instead, they must consider and plan to use alternative renewable and recyclable resources and those that can be replenished with sustainable ease. This requires indeed a completely different approach to operating and making decisions.

Accelerating technological change and convergence

The final challenge is also an opportunity, but we cannot discuss a sustainable future without addressing the reality that technology is both a blessing and a curse.

Technology is giving us the tools and the systems to solve the problems that we’ve got, but it’s also bringing new problems of its own. First, data centers create massive heat and, therefore, greenhouse gas emissions. This means that new strategies for cooling these data centers must be deployed. And then within the realm of ethical, privacy, and security issues, as increase use of information technology means data. This also needs our attention, ideally from the inception stage and each new wave of digitization.

With challenges come opportunities

It is a challenging outlook for us all. However, with major challenges and transition risks come plenty of opportunities. There are so many opportunities bubbling up in the new landscape that it’s difficult to list them all, but there are key ones worth exploring.

We know that those within and outside industries are looking for solutions that may become mainstream. And, as Nicole Anderson, CEO & Managing Partner Redlands Ventures says:

“History has repeatedly demonstrated that change comes from the fringe, not the center, and mostly it is bottom-up. As a result, we can expect disruptors of little-known origin to come along to capitalize on the opportunities they present."

So what are examples of opportunities that we are seeing?

Targeted opportunities in FinTech and InsurTech

Digital innovators and disruptors are facing down new and notable risks. This brings the opportunity for established and transitional players to start engaging on a significant transformation journey by collaborating with those already ahead of the pack. Many young market players have already put in place green technologies to support transportation, energy, and construction players, for instance, to assess better, monitor, and report on their sustainability activity and risks.

Opportunities for urban change and regeneration

Smart cities, such as Virtual Singapore, take urbanization to the next level by using information technology to manage and serve its growing population. While still in their infancy, these opportunities to manage energy usage brings opportunity for the city to be more responsive for its elderly by digitizing, for instance, managed care.

Opportunities for geo-engineering

There’s a huge space for technological innovation to create new systems to remove CO2 from the atmosphere. While the science for geoengineering or environmental modeling is less advanced than climate change modeling, these emerging new techniques will drive change across many industries.

Opportunities for sustainable development models

With the demand for sustainable businesses from consumers and corporations, many businesses have the opportunities to redesign more flexible and service-led business models. We see that subscription combined, circular economy principles, and ecosystem enablers could yield interesting results.

Opportunities within the environment and climate change

Mark Carney, former Governor of the Bank of England, stated that combating climate change is

“the single biggest investment opportunity in history.”

Likewise, an Oliver Wyman report said the transition to a low carbon economy represents

“the single biggest growth opportunity” for global financial services.

While finance is gradually catching up to take advantage of emerging sustainable development opportunities, they evaluate options to support retail and commercial clients demanding improved investment, financing, and insurance practices.

They are already real winners who leapfrog forward to take advantage of this fertile ground. An excellent example is Orsted. Just a single decade ago, Orsted was painfully fossil-fuel intensive. It has slashed its carbon emissions by 86% and is likely to meet its goal of being carbon neutral by 2025. But, of course, they’ve not done it overnight – they’ve had to plan their transition through sustainable development paths and resilience to face shareholder demands for short-term results and financial value creation.

Top tips for driving sustainability-linked competitive advantage

• Focus on new worlds business models, such as subscription models or circular economy models, as they are more dexterous and innovative than traditional models
• Review your current context thoroughly, identify new implementation and collaboration practices
• Align your activities with UN's sustainable development goals; these provide a great platform for ideation and innovation
• Focus on continuously building resilience into your business model as transitioning to new world economics is not an easy feast and won't be an overnight success
• Use data analysis, technological innovations, and open innovation techniques to take advantage of growth opportunities at all organizational level whilst also using research and learnings to mitigate emerging risks
• Involve all your stakeholders as you start shaping a unique and differentiating journey, and finally
• Invest in disruptive technologies that are core enablers in accelerating your transition to addressing climate change and environmental issues.

You can download our full report The Transition Economy: Sustainable Transilience here

If you want to now more about me:

I am the CEO and Managing Partner of?Alchemy Crew?a Venture Lab focused on R&D validation and venture commercialization using open innovation, experimentation techniques, and ecosystem thinking to accelerate the deployment of digitized services. As a pioneer in building innovation ecosystems, I work closely with InsurTechs and Insurers among others. I am a co-editor of bestseller?The INSURTECH Book, a multi-award winner, and a top 50 InsurTech Influencer.?

In December 2020, I was appointed as an Honorary Senior Visiting Fellow for Bayes Business School (formerly Cass) for my InsurTech business model disruption work. I work with Professor Lanzolla and the faculty of management to combine practical knowledge, evidence, and research to determine sustainable growth paths within finance.

You can follow my views on?LinkedIn,?Twitter,?YouTube or SlideShare