• Overall, we are not acting fast enough to cut fossil fuels and make the climate transition a reality, but there is reason to be optimistic, too.
  • Policies are changing faster than anyone expected, and solar power’s proliferation appears unstoppable.
  • Fossil fuels look more and more like a stranded asset, while investments in renewables are increasingly good bets.

Every day, we get a clearer picture of the threat from a warming planet and the costs we incur amid the transition to clean energy and a low-carbon future.

It’s easy to be discouraged in the face of the largest-scale challenge humanity has ever collectively faced: tackling climate change and preventing warming above 1.5°C.

In recent months, we’ve heard fresh doubts about electric vehicle demand, seen fossil fuel production increases and private-sector oil investments that fly in the face of climate pledges. The market for shares of clean energy companies has been depressed, and there are signs of a backlash against emission-reduction policies.

Accenture’s analysis of the top 2,000 global companies shows that only 37% are committed to achieving net zero by 2050 — and just 18% are on track reach that goal. Businesses are struggling to afford decarbonization and CEOs are pessimistic about hitting the UN’s Sustainable Development Goals.

But hitting net zero by 2050 was never going to be easy — and it is apparent that there is a historic change happening. By some measures, it is now unstoppable.

The climate transition tipping point

The International Energy Agency (IEA) says that fossil fuel demand will peak by 2030. Renewables will overtake coal as the leading source of electricity by 2025. Solar and wind power, both now cheaper than ever, generate more than 10% of electricity and account for 75% of new power-generating capacity. We may have already passed a tipping point at which it is inevitable that solar energy will come to dominate electricity markets.

In road transport, electric vehicles have grown to 15% of new vehicle sales, and the range of the average EV has tripled over the past 10 years.

What’s more, a number of potential gamechangers are on the cusp of broad commercialization: renewable-energy technologies, electric mobility alternatives, heat pumps for zero-carbon home heating, carbon capture and storage, green hydrogen fuels and industrial electrification. In Europe alone, those technologies could address up to 45% of the greenhouse gas abatement required for net zero, McKinsey says.

The pace of the energy transition will largely be decided by China, the United States and the European Union — the world’s biggest greenhouse gas emitters. China’s emissions are set to peak by 2030. In the US, a rapid transition is underway.

There are hopeful indicators in other economies, as well. Brazil and Indonesia have taken steps to halt deforestation and some other countries have declared that they will leave their oil and gas reserves in the ground.

Overcoming obstacles through innovation

Of course, the energy transition demands constant and rapid innovation. Of late, we’re seeing the power of human creativity brought to bear on some of the climate transition’s toughest challenges: materials shortages, production bottlenecks, risk mitigation and financing.

The shift to electric vehicles has highlighted the difficulty in securing adequate supplies of lithium and rare earth minerals used in batteries. But it also has triggered a search for substitutes such as wood chips — a source of synthetic graphite for electric vehicles— and heightened the realization that the energy transition is a materials transition.

Similarly, hydrogen-powered heavy haul trucks are emerging as an alternative to battery-cell rigs. New alternatives in textiles and construction are being scaled. Innovations in recycling are making steel, plastics and cement cleaner, more versatile and more durable.

Adoption of green energy for road transport and ocean shipping is farther along than in commercial aviation, but in November, Virgin Atlantic completed the first transatlantic commercial flight fully powered by sustainable aviation fuel. Elsewhere, fertilizer producers are making strides in solving the production and storage problems associated with producing low-carbon ammonia for fuel.

Global investors have doubled their investment in transition technologies from $660 billion in 2015 to more than $1 trillion today. Climate-related venture capital investment increased 89% from 2021 to 2022. Advance market commitments — binding contracts by governments, development banks and others to guarantee a viable market for a product — are spurring innovation and bridging the gap needed to complete successful development of green products and services.

The technology needed to make the climate transition happen is developing quickly.
The technology needed to make the climate transition happen is developing quickly. Image: McKinsey & Company

The policy environment: changing fast

We shouldn’t require any reminders about the urgency of the climate challenge: 2023 was the hottest year on record and 2024 is forecast to be even warmer with the arrival of El Niño.

Historically, it’s usually been safe to bet on government and policy inertia. But climate policies and legislation are getting bolder, and there appears to be more fast-tracking than backtracking. A review of 215 policies across two dozen major economies since 2015 found 17 examples of backtracking and 41 of accelerated action with most others unchanged. The review predicted a public clamor for speedier climate action as extreme weather exacts a heavier toll and green tech shows increasing promise.

At the same time, there is growing determination to develop better green standards and to buffer developing economies and vulnerable populations from the effects of a costly and disruptive transition by offering technical and financial assistance.

At COP28, the agreement to cut down on greenhouse gas emissions from methane was a major victory. Less certain is the immediate impact of language about a “transition away” from fossil fuels. COP’s statement on oil, gas and coal was not strong enough for many environmental advocates, but it did mark a breakthrough.

As Jennifer Morgan, Germany’s climate envoy, said: “Every investor should now understand that future investments that are profitable and long-term are renewable energy — and investing in fossil fuels is a stranded asset.”

The global supply chain continues to sputter and break down more than two years into the pandemic. Each day comes news of choked ports, out-of-place shipping containers, record freight rates, and other problems that cause disruption and defy easy answers.

Unless you’re the one waging the day-to-day battle to move cargo for your organization, you should find a moment to take a deep breath. Step back and look at the larger picture because when ports eventually clear and rates come down, the way we manage and think about the supply chain will be very different.

How? Let’s look at the changes in the supply chain brought about by the COVID-19 pandemic.

1. Supply chain is on the front-burner for good

The supply chain finally has the C-suite’s attention, and chief supply chain officers are its new stars. In October, for the first time, corporate CEOs in a McKinsey survey identified supply chain turmoil as the greatest threat to growth for both their companies and their countries’ economies. Bigger than the COVID-19 pandemic, labor shortages, geopolitical instability, war, and domestic conflict.

At about the same time, Bank of America noted that mentions of “supply chain” in Q3 earnings calls by Fortune 500 companies had risen an astonishing 412% from Q3 2020 and 123% from Q2 2021 earnings calls, when the boardroom focused on the issue was already red hot. Fifty-nine percent of companies say they have adopted new supply-chain risk management practices over the past 12 months, including diversifying to reduce overreliance on China.

“We’re seeing a supply chain that is being tested on a daily basis,” Kraft Heinz CEO Miguel Patricio said recently.

2. Flexibility + resiliency + business continuity > cost

Before the pandemic-driven supply chain disruption, cost reduction and productivity enhancement were driving supply chain process improvements, digitization, and investment. Those drivers remain essential, but the unprecedented chaos triggered by COVID threatened the competitive position — even the survival — of many businesses that found they could no longer meet customer expectations.

The existential crisis brought on by the pandemic has forced companies to shift the focus of innovation and restructuring efforts to ensure business continuity by building resiliency and flexibility. McKinsey highlighted the vulnerability of manufacturers by showing how few had any visibility into their supplier networks beyond Tier 1 suppliers.

Flexibility Resilience

Clorox is one of many companies taking action. It is investing $500 million to upgrade its digital capabilities, citing the need for real-time visibility and better demand planning.

“Supply chain and operations teams must develop new capabilities―and quickly. Playing to a more balanced scorecard will require many changes: reducing the carbon footprint, building greater resilience in the supply chain, creating more transparency, and ensuring accountability,” says Bain & Co. in a new report.

3. Buyer-supplier relations have been altered

In certain industries, the failure of critical links in the supply chain has led to new alliances and co-development ventures between OEMs and suppliers. Alarmed by the shortage of semiconductors, for instance, Ford and General Motors have formed strategic agreements with chipmakers.

More broadly, there is a recognition that resiliency is impossible unless buyers, suppliers, and other parties along a value chain are willing to share data and collaborate. A new Reuters report, Where’s My Stuff? suggests that businesses could share sensitive, closely held data with partners by creating “cleanrooms” where joint teams can perform analysis without fear that competitive information will leak. Blockchain technology, which enables secure, access-controlled data exchange, also could be valuable in data sharing. It allows data storage and distribution through a decentralized network where there are no owners. 

“With the benefits of increasing collaboration through data sharing and visibility into deeper tiers becoming more obvious, addressing mistrust becomes a key objective and will require concerted and directed efforts. … (O)rganizations will need to move closer to their suppliers and build relationships and trust, but they can also use smart approaches to data sharing to make progress,” the Reuters report says.

4. Business lines are blurred and ‘workarounds’ are SOPs

Bold companies are not waiting for supply lines to untangle themselves. Retailers short on storage space are buying warehouses. Shippers that can’t find containers are making their own. Companies unable to book with ocean carriers are chartering vessels themselves. Those unhappy with their online sales are buying e-commerce fulfillment operators.

Amazon and ocean giants Maersk and CMA CGM are placing orders for aircraft and moving into air freight. Maersk and CMA CGM, in fact, appear to be on a collision course with Amazon and Alibaba in logistics, forwarding, and delivery.

Nimble shippers and manufacturers know they have to keep adjusting. They are using alternative portsreformulating productsshifting to air freightboosting in-house trucking, taking advantage of off-peak port hours, and diverting resources from low-margin products to bigger moneymakers.

In its healthcare unit, GE is redesigning products, using dual sources, and expanding factory capacity as it struggles to cope with semiconductor shortages and other supply chain changes and challenges that have caused turmoil in the medical technology industry.

GE and Stanley Tools are among the many companies that have sought to secure goods by shifting production, using forward contracting, turning to contract manufacturers, fast-tracking plant expansion, building new  contract manufacturing hubs, using dual-source manufacturing, and nearshoring, or making hard-to-get parts with 3D printing.

5. The inventory playbook has been ripped up

Companies know that disappointed customers might not come back. That’s why some consumer product brands are desperate to conceal stockouts and disguise low inventory, even reconfiguring in-store displays and using decoys to hide shortages.

More fundamentally, others are questioning the supply chain models they have worked so hard to make hyper-efficient. Automakers that spent decades fine-tuning and perfecting just-in-time systems have started to break with JIT practices because they don’t work when there are shortages of critical components. Toyota, Volkswagen, Tesla, and others are stockpiling batteries, chips, and other key parts and racing to lock up future deliveries.

“The just-in-time model is designed for supply-chain efficiencies and economies of scale,” said Ashwani Gupta, Nissan Motor Co.’s chief operating officer. “The repercussions of an unprecedented crisis like COVID highlight the fragility of our supply-chain model.”

To ensure they have enough to sell, retailers NordstromPVH, and Gap have tried “pack-and-hold” strategies — over-ordering to prevent stockouts with the gamble that they can stash away unsold inventory and sell it as new next year rather than having to discount deeply.

In other industries built on lean inventories, there is a debate about whether we are seeing a permanent change in strategy – toward larger inventory and more safety stock – or a temporary one necessary because of higher demand.

The Reuters report suggests that more companies are prepared to implement aggressive Continuous Replenishment Programs and automate more of their ordering to avoid getting caught flatfooted without sufficient stocks.

What’s clear is that nearly two years after the world first learned of COVID, the supply chain is still experiencing an unfortunate series of firsts. A historic level of carrier unreliability. Record-high freight rates. Record-low warehouse vacancies. And more.

It will pass. When it does, look for more intelligent options that offer supply chain resilience for both the short and long term.

The past two years have delivered a steady stream of bad news about our fragile planet, income inequality, vaccine inequity and a host of other problems that seem intractable.

The daily doom and gloom about climate change, job losses and lack of access to COVID vaccines feeds our sense of anxiety, vulnerability and helplessness. I think it also clouds our ability to see that we are living in an era of breathtaking human innovation and heroic problem solving.

A few potential game changers that have caught my eye:

1. “Green” steel and CO2-enriched concrete

Several companies, including H2 Green Steel and Hybrit of Sweden, have begun using hydrogen and non-fossil fuels to produce “green” steel. That’s important because steel is one of the world’s most widely used materials, essential in construction, fabrication and consumer goods, and is normally made through a carbon-heavy coking process that uses coal. In conventional steelmaking, nearly two tons of CO2 are emitted for every ton of steel produced. That’s about 7% of global greenhouse emissions.

People tend to think of hydrogen as an answer for transportation emissions, says Sunfire CEO Nils Aldag. Instead, it might be a better power source for “hard-to-abate” sectors like the chemical and steel industries, he says.

Production of concrete and cement is just as concerning. Depending on how it’s measured, concrete production is responsible for 4% to 8% of man-made carbon emissions – more than any country except for China and the U.S. on an annual basis. To make concrete you need stone and sand, then cement to bind it by adding water. To make cement, you need to kiln-fire a mix of materials in a dirty process that releases a lot of CO2.

But it turns out that CO2, captured from industrial processes, can be injected into concrete during the curing process to strengthen it. Canada’s Carbicrete and the U.S. company Solidia are doing just that. Zero-carbon concrete is coming — the question is when, experts say.

2. COVID vaccine factory-in-a-box

Agility Covid-19 Vaccine

BioNTech partnered with Pfizer to develop and scale the West’s first COVID-19 vaccine. Now BioNTech says it can solve the worrisome problem of scarce vaccine supplies in Africa with mobile, modular production units that could each manufacture up to 50 million doses a year.

Individual  vaccine production units are comprised of 12 shipping containers, which can be moved by air, sea, road or rail and can also be used to make vaccines to ward off malaria, tuberculosis and other diseases. Even more impressive: BioNTech pledges to cover the cost of development, manufacturing and shipment.

3. Eliminating food waste and feeding the hungry

By some estimates, up to 40% of food in the United States is thrown out. And in Africa, half or more of perishable food commodities go bad before they reach the market or table. What’s more, food waste contributes about 8% of global greenhouse gas emissions.

Goodr, a startup company, has developed software that tracks surplus food, helps customers such as restaurants, airports, schools, hospitals and grocers cut down on the amount they waste and donate what might otherwise go in the garbage. Goodr automatically generates tax donation receipts so customers can write off what they give away.

4. A bio-materials revolution

Consumers want more sustainable products, and regulators are mandating lower emissions. So product makers are turning to DNA sequencing, gene editing and AI to make bio-materials and processes that can substitute for plastics, foams, synthetic fabrics, elastomers and other materials made from petrochemicals and processing chemicals.

With automation and high-powered computing, they are able to effectively “engineer” biology and produce physical materials that perform better and are more sustainable. The result is a coming bio-materials revolution that will change what goes into our clothes, cars, electronics and consumer goods, as well as the packaging they come in. We’ve already seen the first wave in lab-grown meat, plant-based clothing, plastic substitutes, and fabrics made through fermentation.

5. Eliminating supply chain blind spots & helping small business

Sourcemap promises shippers something they haven’t yet found: 100% traceable, transparent supply chains. Its software helps companies create end-to-end mapping for due diligence, customs compliance, environmental and social sustainability, business continuity, operations planning and other uses.

“Identify the suppliers you didn’t know you had,” Sourcemap tells customers.

SME Climate Hub gives small businesses carbon calculation tools to help them measure, lower and report emissions. The tools allow smaller businesses to take climate action and meet the growing demands from customers and consumers for data, reporting and progress on CO2 emissions.

SME360, backed by the International Chamber of Commerce, is another initiative that gives smaller businesses the tools they need to measure and track their impact on the environment.

6. Cleaner ocean shipping

Agility Cleaner Ocean Shipping

The Yara Birkeland, the world’s first autonomous, emissions-free containership, made its maiden voyage in late 2021. The battery-powered ship will be used to transport fertilizer in Norway, handling loads now made with 40,000 diesel-truck trips each year.

The ocean industry is also looking at methanol and ammonia, two cleaner-burning fuels that are expensive to make and hard to obtain in sufficient quantities. Maersk, the world’s largest ocean carrier, says it is working with partners in Denmark to scale production of methanol, a carbon-neutral fuel, starting in 2023. Maersk has ordered 12 methanol-powered liners, at a cost of $175 million a ship, that can each carry 16,000 TEUs.

On the software side, Searoutes is one of many companies helping shippers build custom routing algorithms and data sets to lower shipping emissions.

7. On the road

Lithium batteries are the key to electrification of cars and trucks, but they pose their own problems. One concern is that there is a limited known supply of lithium, concentrated mainly in Australia, Chile and China. Warren Buffett’s Berkshire Hathaway is among those looking for lithium in new places. It has discovered vast deposits in a California lakebed.

A related problem is the lack of charging infrastructure for electrified vehicles. Daimler, Black Rock and NextEra have joined to build a nationwide charging network in the United States for medium- and heavy-duty battery electric vehicles and hydrogen fuel cell vehicles.

Companies like Hyliion, a U.S. company developing low-emission and zero-emission power train systems for heavy trucks, have drawn a lot of attention from investors and the general public. Less noticed have been innovations in niche transportation areas. Frigoblock and Thermo King, for example, have pioneered emissions-lowering electric systems for refrigerated trucks that are used to ship perishable foods, medicines and other cold chain products. Now, they are working to make those vehicles noiseless so that they can be used for off-hours deliveries in congested urban areas. Volta Trucks is another company pioneering sustainable urban trucking.

8. Shortening supply chains

Agility 3d-printing

3D printing or additive manufacturing has been a tantalizing – but extremely limited — technology since it was first developed in the 1980s. Beyond certain specialized uses, it’s been hard to scale or to use for high-end products with lots of components.

Seurat Technologies has figured out a way to speed up and scale 3D manufacturing and use it to make sophisticated products and parts containing metal. Seurat’s breakthrough involves a technique that splits a laser into many beams that are programmed to do their own printing.

One of the benefits of 3D printing is that it shortens supply chains by moving production closer to end users and eliminating the need to transport goods long distances.

9. The grid

The clean power conundrum is really three problems: generation, transmission and distribution. Renewables such as wind and solar, along with cleaner-burning fossil fuels, offer an answer as to how we will generate power with little or no emissions. But there can be no net-zero power grid without long-duration energy storage (LDES) that addresses the problems inherent in trying to store energy while making transmission and distribution cleaner and reliable.

The problem of long-term storage for the grid has spawned an industry devoted to using new and existing technologies – mechanical, thermal, electrochemical and chemical – to store energy from different sources and release it efficiently to correspond with demand.

10. Chance to make a difference

Agility make difference

Individual investors suddenly have lots of options to channel their retirement savings and other funds into responsible investments that are tailored to their interests.

Socially responsible investing is not new, but the variety of options is large and growing. One example: the thematic investments offered by Fidelity. They include funds comprised of companies that are developing disruptive technologies; built to capitalize on megatrends; or structured with sustainable practices, diversity and strong governance. Some of the thematic fund sectors: digital health, electric vehicles, cloud computing, and clean energy.

My point is that the momentum behind serious global problem solving is undeniable. And it is making a difference.

McKinsey says capital is “increasingly plentiful” for next-generation technologies and estimates that they could attract $1.5 trillion to $2 trillion in fresh investment annually by 2025. One indication is the creation of the First Movers Coalition, a group of global companies that includes Agility, which is pledging to help build early market demand for low-carbon goods and services.

It will take all of this and more to make our world cleaner, fairer, safer and more just. Let’s not get so caught up in the gloomy headlines that we lose heart, or fail to recognize that we’re making progress.

WTO chief Ngozi Okonjo-Iweala says we’ve entered an era of “re-globalization.” By that, she means companies are de-concentrating production to guard against the supply chain turmoil caused by the COVID pandemic and the war in Ukraine.

Businesses are choosing redundancy and resiliency over low cost because they think supply chain disruption will be with us for a while and because they want to protect against future shocks. The result, Okonjo-Iweala says, is the remaking of companies’ global footprints and supply networks.

Re-globalization raises lots of big questions. Among them:

Who benefits?

Okonjo-Iweala says the trend could benefit developing countries. “It could bring them into the mainstream of globalization,” she says. “We see at the WTO a clear opportunity for decentralization to go to countries that normally don’t benefit from the global supply chain and could be brought in.”

To date, companies uprooting from China, Vietnam and other Asian manufacturing hubs seem to be opting for established regional production hubs and domestic reshoring rather than setting up shop in markets they see as riskier or untested. India, Turkey, Israel and Mexico, for example, have positioned themselves as alternative production centers for home goods and furniture, luring Overstock, La-Z-Boy and others looking to build new supply lines after battling endless delays out of Asian ports.

Manufacturing decentralization and “future-proofing” are causing pains of their own. Often, the issue is less about final assembly and proximity to markets than ready access to raw materials and proximity to suppliers. High-tech companies have invested in new production facilities in India only to encounter turbulence there: Foxconn and Wistron have faced labor unrest; Apple has run up against logistics problems and unfriendly export policies.

There’s a clear gap between what CEOs want to do and what they will do. A survey by the consulting firm Kearney found 70% of American manufacturing CEOs were considering or expect to move production to Mexico – but only 17% had done so.

Who gets hurt?

Re globalization china

In 2019, China accounted for nearly 29% of global manufacturing output. Efforts by businesses to spread and decentralize their production are almost certain to come at China’s expense and potentially hurt other Southeast Asian manufacturing hubs such as Vietnam, Thailand, Indonesia and Malaysia.

Russia’s invasion of Ukraine makes losers of both countries. Global buyers of Russian grains, fertilizer and minerals have been sent scrambling for new suppliers. Many may make their new arrangements permanent in light of the huge array of international sanctions now aimed at Russia. Similarly, customers that bought Ukrainian agricultural goods and auto parts also have seen supplies dry up and might be wary of relying on Ukraine in the future.

Inflationary pressures arising from pandemic chaos and the Ukraine conflict have rippled to unexpected places. One example: Indonesia, supplier of 60% of the world’s palm oil, cut off all exports in late April. It said Indonesians could no longer afford cooking oil because of a surge in global demand for edible oils caused by the loss of Ukrainian sunflower oil shipments.

Is the world shrinking?

It seems that way to many.

In his annual shareholder letter, BlackRock chief Larry Fink recently warned“(T)he Russian invasion of Ukraine has put an end to the globalization we have experienced over the last three decades. We had already seen connectivity between nations, companies and even people strained by two years of the pandemic. It has left many communities and people feeling isolated and looking inward.”

Adam Posen, head of the Peterson Institute for International Economics, predicts that the world economy will split into blocs, “each attempting to insulate itself from and then diminish the influence of the other.” He predicts that “with less economic interconnectedness, the world will see lower trend growth and less innovation.”

Friction between China and its U.S. and European trading partners suggests that rival blocs are already emerging. U.S. Treasury Secretary Janet Yellen recently spoke of the need for “friend-shoring” — production relocations to countries “we know we can count on.” She warned against allowing countries to gain leverage in key raw materials, technologies and other products that would allow them to disrupt the U.S. economy.

Appliance maker Whirlpool is one company that says it is preparing itself for a “less global” world. Whirlpool is reviewing its businesses in Europe, the Middle East and Africa, and reassessing its mix of products and brands. CEO Marc Bitzer says the company sees less advantage in global scale and more in building its strength in individual countries and regions.

Does re-globalization hurt the global economy?

Re globalization global economy

Not necessarily. Supply chains are always in flux, always evolving. And that’s healthy. Putting aside the pandemic and Ukraine conflict, there are profound structural changes taking place today and many of them could help bring about a cleaner, fairer, more prosperous world.

BlackRock sees “permanent transformations unlocking exponential growth opportunities.” One is the increasing spending power of millennials – particularly those in emerging markets. “Millennials have entered their peak spending years. Emerging market consumers and millennials are driving more than 50% of global spending,” says BlackRock’s Alex Eldemir.

McKinsey describes it as the changing geography of demand. The rising middle class in developing countries is accounting for more and more consumption. McKinsey says emerging markets will consume almost two-thirds of the world’s manufactured goods by 2025; developing countries will account for more than half of global consumption by 2030, signaling their growing role in the flow of goods, services, finance, people and data.

Keep in mind that the demand shift, triggered three decades ago by China and its Southeast Asian neighbors, has barely begun in India, Africa and the Middle East, all of which will be dominated by youthful populations hungry for jobs that offer higher living standards, connectedness, and upward mobility.

At the same time, BlackRock sees regulation, technology and consumer demand driving a powerful “industrial renaissance” that is just beginning. In the supply chain, that involves new digital platforms, AI, blockchain, IoT, manufacturing automation, and 3D printing, all of which are radically lowering the cost of logistics and production.

Even more broadly, though, climate awareness and geopolitical friction are driving energy and materials revolutions that will change every facet of our lives, from how we travel and eat, to where we live and what we wear.

Re-globalization will be what we make of it.

Nothing illustrates today’s supply chain craziness like the world’s sudden glut of shipping containers.

A few months ago, shippers were paying record ocean freight rates that were five to 10 times higher than pre-pandemic levels as the result of a capacity crunch and a global shortage of containers. Now Drewry estimates there is an excess of six million 20-foot metal shipping containers – known as TEUs – flooding the market.

The same wild imbalances pop up all across the supply chain. Shortages of semiconductorspackaging materials and auto parts. Oversupplies of apparel, home appliances, power tools and outdoor furniture. Dangerously tight supplies of commodities such as oil and grain.

All of that uncertainty adds cost, increases risk and complicates planning. In the U.S. alone, supply chain upheaval sent business logistics costs soaring 22% last year, according to the Council of Supply Chain Management Professionals.

So should businesses be playing offense or defense? The answer is both. Here’s how companies are dealing with the volatility.

1. Resetting inventory

Big retailers with bulging warehouses and inventory gluts are turning to liquidators that buy excess and returned merchandise and sell it at discounted prices. Other retailers are trimming the number of SKUs they put on their shelves, pausing procurement, or asking suppliers to delay or reduce shipments of goods on order.

Many inventory-heavy retailers and e-commerce companies are strapped for cash. They are pushing suppliers to extend payment windows or offer financing to help them better manage their working capital.

But even as some businesses fight to slim down, others are racing to bulk up.

Some high-end and specialty brands such as Lululemon continue to put a premium on speed and availability, spending heavily on air freight to make sure that they don’t experience stockouts. Likewise, even amid signs of a cooling housing market, home builders and apartment developers are accelerating procurement of certain items such as bathroom fixtures and hot tubs that have been nearly impossible to get during the pandemic.

Meanwhile, the auto industry faces a huge backlog of orders and is unable to meet consumer demand because of the lack of computer chips and other critical parts. General Motors said it couldn’t deliver 100,000 vehicles in the second quarter for lack of components.

Rising interest rates have created a tricky balance. Businesses normally slash inventory when interest rates go up, as they have been this year. That’s because higher interest rates usually translate to higher inventory carrying costs.

“If you know anyone who works in demand forecasting or inventory management for a retailer, they could maybe use a hug,” says industry watcher Ben Unglesbee of Retail Dive.

2. Renegotiating contracts

Ocean and trucking rates show signs of softening from record highs. As a result, shippers are trying to reopen carrier contracts to renegotiate their rates, or choosing to buy space on the spot market when spot prices dip below their contract rates.

Even so, Xeneta, an ocean and air freight benchmarking platform, says rates in negotiated shipping agreements in July 2022 were typically 112% above those for July 2021 – and 280% higher than rates in July 2019.

“The carriers have enjoyed staggering rate rises, driven by factors such as strong demand, a lack of equipment, congestion and COVID uncertainty, for 17 of the last 19 months,” said Xeneta CEO Patrick Berglund. “July has seen yet more upticks … but the signs are clear there is a ‘shift’ in sentiment as some fundamentals evolve.”

3. Shuffling suppliers, manufacturing locations and production cycles

Semiconductor companies are adding suppliers, diversifying production locations, and trying to bulk up with buffer stock amid a global chip shortage. In contrast, Clorox is dumping suppliers that it brought on during the pandemic when it needed to guarantee supplies.

Lego and Gap are among the companies expanding their manufacturing and sourcing footprints to serve key markets, reduce dependence on China, or cut logistics costs. There is a mini-boom in construction of new manufacturing capacity in the U.S., driven by frustration with port bottlenecks, parts shortages and sky-high transportation costs, Bloomberg says.

Target, Gap and others have accelerated new product design and orders of certain goods to get them into overseas production early. By stretching out production cycles, they hope to ensure adequate supplies of items they think will be popular sellers, even at the risk they could misfire on consumer tastes.

4. Charging for returns

Consumers have come to expect free returns for online purchases, but that might be changing. Footwear News recently identified 23 retailers that had introduced returns fees this year.

Apparel brand Zara recently instituted charges on returns of e-commerce purchases in some European countries, although buyers can return online purchases for free at Zara stores. UK retailers Boohoo and Asos recently said rising returns are hurting net sales, and Boohoo announced that it might impose fees for returns.

5. Giving workers new flexibility

Global food distributor Sysco has shifted to a four-day work week to improve employee retention and position itself as “an even more preferred employer.” Sysco’s new policy applies to truck drivers and warehouse associates. What’s more, it comes as the company converted its delivery model from five days a week to six days a week to improve asset utilization, virtually guaranteeing an increase in the amount of employee overtime that Sysco will pay.

6. Accelerating tech, automation, investment

The pace and scale of investment in technology and automation are breathtaking. Nike recently announced its largest-ever spend on digital transformation. Hoping to improve productivity and efficiency, Nike will roll out a new ERP system across its global network starting this year.

Meanwhile, Procter & Gamble is betting big on Microsoft cloud computing to boost efficiency in manufacturing, move products to customers faster, improve overall productivity and reduce costs. Heinz and Unilever also have made sizeable investments in new predictive analytics, digital twinning and data modeling capabilities.

At the same time, the software and artificial intelligence powering warehouse robotics is pushing them into the mainstream. A report by the trade group Material Handling Institute indicates that adoption of robotics in warehouses will jump 50% or more in the next five years.

PitchBook Data says private equity firms invested a record $50.6 billion in logistics in 2021 – three times the amount invested in 2020 and 34% more than in 2019, the previous record year. Ongoing supply chain challenges have them on the hunt for more disruptive opportunities this year, PitchBook says.

7. Emphasizing “revenue quality”

Giant delivery specialists UPS and FedEx have boosted revenue and profits while delivering fewer parcels and packages. Both have invested in visibility technology and service quality aimed at large business customers and passed on additional costs such as fuel surcharges. And both have signaled customers and the market that they are focused on revenue and profit per parcel, and content to let others handle less enticing pieces of the business.

8. Putting off expansion

The race to add warehousing capacity and distribution and fulfillment capability appears to be slowing. Amazon is the latest to announce its intention to slow further expansion in the near term in response to cooling demand.

FreightWaves, the supply chain market intelligence firm, sums it up this way: “Supply chains are never returning to normal.”

There are plenty of flashing lights warning us of the possibility of a sharp economic slowdown in 2023.

We know that COVID-19 has reversed years of progress in global development. It has widened gaps in education, health, income and access to opportunity. It brought on the steepest economic decline since World War II and, by World Bank estimates, pushed 97 million people into extreme poverty.

Today, the global economy is slowing amid a flood of risks: depleted national budgets, war in Ukraine, high inflation, traumatized labor markets, tightening credit, disruptive climate events, a COVID-challenged China, and unprecedented supply chain instability.

As we look ahead, we face three key questions:

  1. How can we limit, repair and reverse the damage done by the pandemic and its aftermath?
  2. How can we create a system that’s more open, transparent and fair for the poor, developing countries, women, and small businesses?
  3. How do we ensure shared prosperity as we speed our transition to a low-carbon future?

It seems obvious, right? We should work to make sure the next phase of global growth includes geographies, businesses and people who’ve traditionally been left out. “The idea of inclusive growth has emerged as a central theme animating discussions on recovery and growth in the post-COVID world,” the World Bank says.

Not everyone agrees. Growth-first advocates view inclusion as a dangerous diversion that could sidetrack economic revival. They want us to focus on growth because they see any recovery as a rising tide that lifts all boats.

That’s a hard sell to those demanding inclusion. They warn that we could see a massive economic divergence between rich and poor, haves and have-nots. And they note that even before the pandemic, we were witnessing the highest levels of income and wealth inequality on record.

“This inequality has disproportionately affected communities of color, women, those less physically abled, and certain geographies,” McKinsey says.

Growth or inclusion is a false choice. Insufficient economic inclusion is — in itself — “a threat to prosperity,” as McKinsey says.

The consulting firm cites research showing that economies grow faster, more vigorously and for longer periods of time when the fruits of that growth are shared and distributed more equally across the population. Up to 40% of the GDP growth in the U.S. economy from 1960 to 2010 can be attributed to the increased participation of women and people of color in the labor force, McKinsey says.

At the same time, you can’t have inclusion and sustainability without growth as the foundation. So where will it come from?

There are four areas where technology can clearly be a powerful force for both inclusion and growth.

1. For small businesses.

Small businesses provide 70% of jobs worldwide and contribute 50% of GDP in developing countries, according to the International Labor Organization.

In the supply chain industry, a host of inexpensive new digital tools are bringing efficiency to smaller shippers and carriers. Among them:

  • AI-driven load matching (FreteFlock Freight) – that allow shippers to pool goods on trucks and bypass freight hubs
  • Digital payments for carriers and other stakeholders (Relay PaymentsFreightPay)
  • Credit, working capital and payments platforms (PayCargo)
  • Customs and security digitization products (MDM)
  • Online logistics platforms that combine a lot of these features (Shipa)

All of these tools improve cash flow and streamline financial operations by digitizing payments, reconciliations and discrepancies between shippers and carriers, dramatically reducing Accounts Receivable/Accounts Payable errors and processing time.

Digital tools also make sustainability viable for smaller businesses and startups, allowing them to take climate action and build more resilient businesses.

  • Free or inexpensive measurement tools
  • Resources such as playbooks, and matchmaking platforms that link them with potential partners and vendors (SME Climate HubSME360X)
  • Supply chain mapping tools that help small businesses do due diligence, customs compliance, environmental and social sustainability tracking, in addition to operations and business continuity planning (Sourcemap)

2. For women.

How can we do more to draw on the talents of women in the workforce, particularly in emerging markets countries, where they are most underrepresented?

One way is by making it safer, faster and more affordable to get to work. That’s what Swvl is doing in Egypt, Pakistan and other emerging markets countries with tech-oriented transportation.

3. For the unconnected poor.

Thirty-seven percent of the world’s population – about 2.9 billion people – has never used the Internet, the International Telecommunications Union says. Most live in developing countries. Nearly all are poor.

Poverty, illiteracy, and lack of connectivity and electricity contribute to this alarming digital divide. In Afghanistan, Yemen, Niger, Mozambique and the poorest countries, nearly 75% of people have never connected. That means remote learning was out of the question during the pandemic – and a major threat to a whole a generation of school children. Connectivity is the only way to address the dangerous “learning loss” that we experienced during COVID.

4. For those whose jobs are at risk from automation & digitization.

So-called frontier technologies are here. Many take advantage of digitalization and connectivity: artificial intelligence (AI), the Internet of Things, big data, blockchain, 5G, 3D printing, robotics, drones, gene editing, nanotechnology and solar photovoltaic.

While they offer incredible promise and productivity gains, these technologies will eliminate jobs. And without massive, targeted, well-resourced upskilling and retraining programs, the adoption of next-generation technologies could profoundly deepen inequality by shutting large numbers of people out of meaningful employment.

The World Bank’s Gallina Vincelette identifies four pillars for inclusive growth. They are life-long learning, removal of barriers to firm entry, trade that fosters competition, and a faster green transition.

Technology can supercharge all four, while bringing down costs, improving productivity and creating good new jobs.

IBM CFO Jim Kavanagh calls technology “the only true deflationary” force in a global economy where companies are struggling to cope with inflation driven by higher human capital costs – salaries, recruiting, retention, churn, overall cost of talent acquisition – plus higher materials costs, fuels costs, transportation costs, borrowing costs, currency volatility costs and other factors.

Growth and inclusion aren’t in conflict. They’re the essential ingredients of a better world.

There can’t be a time in human memory when travel, shipping, trade and commerce have been jolted as badly by severe weather and extreme climate events as in recent months.

In China this past summer, scorching heat forced power cuts and factory shutdowns. Apple, Foxconn, Toyota, Volkswagen, Tesla and others suspended operations, cancelled orders or took other emergency measures.

Low water on the Rhine River crippled German barge shipments as Europe experienced its worst drought in 500 years.  In the United States, water levels fell so low along the Mississippi River and  tributaries that farmers and others were left without routes to market for agricultural and industrial goods as barges were grounded, blocked and delayed. Dry weather and snarled transport are expected to push U.S. wheat exports to their lowest levels in 50 years.

Punishing climate-related events contributed to India’s decision to ban rice exports and caused the destruction of  much of Spain’s olive crop. Historic floods left 7 million people homeless in Pakistan and displaced 1.4 million in Nigeria overnight.

“Climate change and the extreme weather it spawns are making it harder for tangled supply chains to sync up with a slowing global economy,” Bloomberg says.

At some point, post-COVID supply chains may come back into some sort of equilibrium, but don’t expect an end to ruinous climate events. This past summer was the second-warmest on record for the Northern Hemisphere. The world has not experienced a cooler-than-average year, compared with the 20th century average, since 1976.

Axios reports that a climate migration has begun. It says a number of manufacturers, hospitals, airlines and other businesses are looking to put critical infrastructure and operations on higher ground to avoid coastal flooding and storms.

“Companies large and small, some with longtime roots in their neighborhoods, are on the hunt for new real estate that is less prone to weather and climate extremes,” Axios says.

Skeptics, of course, are vocal as ever. Some warn that climate policy is the real threat. “Anyone who still thinks climate change is a greater threat than climate policy to financial stability deserves to be exiled to a peat-burning yurt in the wilderness,” one wrote recently.

Hardly. Instead, it would be foolish not to be giving serious scrutiny to your business and any vulnerability it might have to climate extremes. Some questions to ask as you do:

1. Do you need to “harden” buildings and infrastructure?

Do you need a new home for essential operations in order to safeguard against flooding, high winds, catastrophic storms, rising sea levels or drought-driven fires?

2. Are you too water-dependent?

Do you rely too much on hydropower or on inland river transportation? What’s your backup?

3. Are extreme high temperatures putting employees at risk?

How are you safeguarding them? What about your vehicles, equipment, raw materials and finished products?

4. How well do you truly understand your supply chain?

Have you mapped your T1, T2 and T3 suppliers? Do you know where they get their inputs? How vulnerable are your sourcing and transport? Do you have built-in redundancy?

5. Do you have a handle on carbon taxes?

Do you know where you might face the prospect of higher taxes simply by moving the same goods across the same borders? Or where carbon taxes could come into play when you are sourcing from and selling into new markets?

6. What if you have to move?

Can you afford to shift locations of key operations? Do you have a new location in mind? Can you find the right employees there? What kind of reputational damage would you face if you left or shrunk your footprint in a community where you have roots?

7. What’s your plan if suppliers or carriers negate agreements through force majeure?

Finally, are you committed to change? Are you all-in on the battle to reduce emissions and work toward a safer, cleaner, greener world?

  • SMEs have a major role to play in creating economic growth and meeting net zero targets.
  • Consequently, large corporations must support SMEs in skills-building and their environmental transition.
  • A number of successful partnerships between large businesses and SMEs are proving to boost the economy and the environment.

As the COVID-19 pandemic wanes, policymakers and corporate leaders have arrived at a long overdue conclusion: small business really matters. There’s a consensus that smaller enterprises are critical to the world’s two most pressing challenges. The first of these is how to spur broad-based, equitable and sustainable economic growth. The second is how to decarbonise to meet Net-Zero climate goals.

Supporting small and medium-sized businesses (SMEs) to rise to meet these challenges is not purely a governmental responsibility. Large corporates must also play a part when it comes to supporting SMEs in skills-building, especially around digitization and helping create the ecosystem for environmental transition, including unlocking financing.

The importance of resilience for SMEs

SMEs, largely overlooked in the 2008-2009 global downturn, were not an afterthought when COVID-19 hit three years ago. In many countries, they were quickly targeted with direct government assistance, public loan guarantees, tax relief and other aid intended to keep them afloat and provide them with incentives to avoid shedding workers. Despite this help, a look at SMEs in 32 countries found that most lost 30% to 50% of their revenue between February 2020 and April 2021.

Small businesses represent 90% of all companies and generate nearly 70% of jobs and GDP globally. SMEs are the bedrock of developed and developing economies. They are at the heart of economic growth strategies for most emerging markets looking to climb the development curve.

Image: OECD Zhang (2020) Asia House Research

The digitization imperative

The long-term viability of many micro-enterprises, startups, entrepreneur-led organizations and other SMEs will be determined by their ability to go digital. Digital transformation is underway in businesses of all sizes, sectors and geographies. But small enterprises are generally less digitalised than medium-sized companies, which, in turn, are less digitalised than big corporations. One reason is that so many digital tools and solutions are priced and tailored to the needs of larger organizations.

In the case of small businesses, the challenge of going digital is especially difficult, but the need to do so is increasingly apparent. Research shows that the largest 10% of companies in digital channels reap 60% to 95% of digital revenues. If we want a future with shared prosperity and sustainable growth, we must ensure that SMEs are part of the digital transformation.

SME development has historically been led by governments through national champion programmes that offer formal management training, goal setting, peer-to-peer networking and guidance on tailored financial services. These yield strong results worldwide. Singapore and Malaysia, for example, say their small business outreach programmes are a critical factor in boosting their participants’ exports and growth.

But big businesses are also increasingly aware that they have a role to play, particularly in helping close the financing and digitization gap for SMEs. About 13,000 business owners have graduated from Goldman Sachs’ 10,000 Small Business programme, which began in the US in 2009 and expanded to France and the UK. This course covers entrepreneurship, advice on getting loans and opportunities to meet government officials. A similar initiative by Unilever provides access to digital tools, financial services and entrepreneurship support to 1.2 million SMEs in eight Asian countries. And, Google has launched Google Hustle Academy, training entrepreneurs and business owners in Africa in growth strategies, digital marketing and how to pitch for funding.

These efforts are paying off. Goldman Sachs says 70% of its handpicked graduates reported that their companies had higher revenues and more than half hired additional employees in the two years after they completed the programme.

Greening SMEs

If digitization represents a challenge, the scale of transformation required for a Net Zero world is even more daunting for SMEs.

The need to put SMEs at the heart of any discussion on climate is clear. Smaller businesses generate 60%-70% of industrial emissions. A study by the environmental non-profit CDP says that the “combined carbon footprint of SME suppliers is on average five times greater than their large corporate counterparts.”

Segmentation as follows: small business <50 employees /<$10M turnover, medium business 50-250employee/<$50M turnover, large businesses >250 employees and over $50m in turnover Image: Image: WEF and BCG report on net zero supply chains, GFMA & BCG report on the 150Trillion opportunity, Orbis database, literature review, BCG analysis

The barriers to change, however, are enormous. A study by Boston Consulting Group (BCG) and HSBC asserts that global supply chains need $100 trillion of investment by 2050 to achieve Net-Zero. It found that as much as half of that investment must come from small businesses, which have to rethink product design, invest in climate tech and improve data gathering. To date, however, small companies are recipients of less than 3% of total support for greening.

Large corporates are directly affected. As ESG regulations change around the world, big businesses are realizing that they have a small business problem. Banks and large corporates facing pressure to show progress on ESG goals and emissions targets have recognized that they will struggle to measure their climate impact, meet reporting requirements and hit their goals. This is because too many of their small business suppliers and customers lack the means to collect and report accurate data on their emissions, waste, energy use and environmental impact.

Resources, such as the SME Climate Hub, built in partnership with corporate climate leaders, are a good step forward, as are new sustainability technology solutions that target SMEs. Long term though, larger businesses must support their suppliers in making the switch.

Walmart is one of the companies that concluded smaller suppliers couldn’t keep up. It acted so that SMEs in its vendor network could comply with the sustainability requirements in its Project Gigaton drive, which aims to cut 1 gigaton of CO2 emissions from the company’s global supply chain by 2030. The retailer provides small businesses with help and resources to make ESG reporting easier. And, it is working with HSBC to make preferential financing available to small vendors to reduce emissions in six categories: energy, waste, nature, packaging, transportation and product use and design. Similarly, Gucci is helping its SME suppliers access loans on favourable terms if the supplier becomes more sustainable. While IKEA is financing sustainability investments in innovative companies that help it meet its sustainability goals.

At Agility, we believe that SME empowerment is a critical future growth driver and change agent. This is especially true of emerging markets that power many of our businesses. We’ve built this belief into our business model: from building warehousing and light-industrial facilities catering specifically to SME needs across the Middle East and Africa, to an online freight forwarding and e-commerce logistics business that helps SMEs trade across borders. We’ve also built this belief into our investment approach. Agility is proud to be a founding member of the First Mover Coalition, which is creating a market for sustainable innovation across the supply chains of heavy industry.

For policymakers and corporate leaders alike, it’s time to acknowledge the obvious: without small business, there is no sustainable growth and no green transition.

This blog was originally published by the World Economic Forum.

As I head to Saudi’s FII conference, known as “Davos in the Desert” this week, I am reflecting on the pace of change I’ve personally witnessed in KSA.

Saudi Arabia’s progress in its journey to becoming a Tier 1 global logistics hub has been impressive. It’s clear the Kingdom is already ahead of many key targets and on course to meet many more, diversifying its economy and enhancing its global profile.

Agility has been investing in Saudi Arabia for 20 years. The scale, resources, resolve, and pace of reform we have seen in Saudi Arabia in recent years has been particularly exciting. In our view, Saudi Arabia is one of the most attractive markets for logistics investments in the world today.

Agility is investing in KSA around the following areas:

  1. Building essential infrastructure. We’re building a world-class logistics and distribution park near Jeddah. We’ve committed SAR 611 million ($163 million) to the 570,000 SQM project, an ultra-modern facility to go with the state-of-the-art Agility Logistics Parks already serving Saudi companies and multi-nationals in Riyadh and Dammam.
  2. Improving Air Travel. Our Menzies Aviation business is the world’s largest aviation services company. It has partnered with Saudi Logistics Services (SAL) to improve passenger services, cargo handling and warehousing, and airline hub management for Saudi-based airlines.
  3. Speeding the low-carbon transition. The Agility Logistics Park in Riyadh features the GCC’s first EDGE Advanced-certified warehouse (Excellence in Design for Greater Efficiencies), meaning it is zero-carbon ready and at least 40% more energy efficient than others in the market. Tristar also is building the Kingdom’s first LEED-certified green building for dangerous goods (DG), in Modon Dammam Second Industrial City.
  4. Investing in Saudi innovation. Through our venture capital arm, Agility Ventures, we have invested in Saudi Arabia’s entrepreneurs and digital innovators, such as e-commerce enablement innovator Zid and digital road freight platform Humoola. We are also helping bring transformational global health technologies to the Kingdom, through partnerships with companies like AiZTech Labs, which has developed breakthrough medical testing using selfies of the eyes taken with mobile phones and Bexa, a company pioneering innovative breast cancer screening technologies.
  5. Powering e-commerce. Our Shipa group of companies include Shipa Delivery, one of the Kingdom’s most advanced last-mile delivery providers, and Shipa E-Commerce, a leader in cross-border fulfillment. Shipa provides both domestic parcel delivery and cross-border shipping to and from the GCC and Saudi Arabia.
  6. Enhancing energy-sector efficiency and safety. Agility affiliate Tristar Group works with Aramco, SABIC, and others in the energy sector to modernize equipment, vehicles and storage facilities used in the handling of chemicals, cryogenic gases and hazardous goods — essential industrial feedstocks.
  7. Strengthening Saudi companies. United Stars, Tristar’s Saudi JV, earned the highest score among multi-nationals in Aramco’s In Kingdom Total Value Add (iktva) program. The program’s goal is to build a world-class supply chain while cultivating local business and retaining at least 70% of all procurement spend within the Kingdom. United Stars focuses on recruiting, coaching and developing strong Saudi teams.

When it comes to Saudi Arabia’s growth potential, Agility is an investor, partner, and supporter.

  • Female-founded companies received only 2% of all venture capital (VC) investment in 2022.
  • Gender bias and a scarcity of female investors are thought to hamper VC investment in female-owned businesses.
  • By expanding female-led VC communities, highlighting successful VC funding for female businesses and confronting stereotypes, more VC funding should flow to female-founded companies.

By most measures, women are making steady gains in professional opportunity, pay and status and decision-making power at work. Their progress, while slow and uneven, is reflected in economic empowerment indexes put out by the OECDWorld Health OrganizationUN agencies and others.

One area where women are advancing little, however, is venture capital (VC). Companies founded solely by women received only 2% of all VC investment in 2022, and only about 15% of all VC ‘cheque-writers’ are women.

In the Middle East, where my company is based, venture capital investment is increasingly seen as a critical component of national economic competitiveness and a source of innovation. The region’s VC funds and corporate VCs are competing with sovereign wealth funds, among the world’s largest and most active VC investors. Yet, startups founded by women in the Middle East and North Africa (MENA) received only 1.2% of funding in 2021 and about 2% last year.

Image: Data Source: McKinsey

What’s behind the disparity?

The glaring imbalance has sparked lively debate about what’s causing it.

Venture capital is a male-dominated industry and bias, whether conscious or subconscious, is clearly a factor. A Harvard study showed that 70% of VC investors preferred pitches presented by male entrepreneurs over those presented by female entrepreneurs, even though the pitches were identical.

Another analysis has shown that VC investments in enterprises founded or co-founded by women average less than half the amount invested in companies founded by male entrepreneurs.

Image: Data Source: Women in VC

In Inc.’s Women Entrepreneurship Report, 62% of female entrepreneurs said they experienced some form of gender bias during the funding process. Feelings of bias are especially acute among women entrepreneurs in MENA. In a survey of 125 female founders in the region, 58% said MENA investors were less likely to invest in women-led startups than global investors.

The scarcity of female investors – those who sit on fund boards, lead deals, and make investment decisions – is also an issue. However, the authors of a Harvard Business Review article on the VC gender gap caution women founders against focusing solely on pitching to female investors.

“There are still very few female investors, and they tend to be concentrated in funds that focus on earlier-stage investments, where risk is higher and funds invested are smaller. Today, female VCs simply do not control sufficient assets to continue investing in female-led firms as they scale. This means that female founders will ultimately need to attract male investors to grow — and if you’re a woman, our research shows that’s a lot easier to do if you raise at least some capital from men from the start,” they wrote.

Another hard reality is the lack of a pipeline; here I speak from experience. Our corporate VC arm, Agility Ventures, received about 1,000 pitch decks last year. How many came from women-founded or women-led businesses? I can count them on one hand.

The lopsided numbers in MENA are especially perplexing because of the inroads women in the region have made in the educational fields that generate most of the innovation and ideas sought by venture investors. Women now account for 57% of STEM students at MENA universities, according to UNESCO.

What do you think are the biggest obstacles facing women founders?Image: Data Source: Wamda, TiE Dubai – survey of 125 female founders in MENA, published in collaboration with TiE Dubai and TiE Women

Why address the VC gender gap?

Apart from the need to address basic inequity, there are plenty of reasons to tackle the gender chasm in venture capital. The biggest is the chance to unlock economic gains.

Venture funding de-risks the innovation process through bets on promising ideas from smart people who need resources to get their ideas to market. It’s a wellspring of new technology, business growth and economic development, which makes the diversity of entrepreneurship and VC leadership economic imperatives. A widely cited BCG report says global GDP would rise 3% to 6%, boosting the global economy by up to $5 trillion annually if women entrepreneurs received the same investment as male entrepreneurs.

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What’s the answer?

Expand women-led VC communities

That means networking, mentorship, technical assistance and other support. It means building on the work of investment community participants, such as Women in VC, the world’s largest global community for women in VC to connect and collaborate; AllRaise, an organization dedicated to accelerating the success of women founders and funders; and the Female Founders Fund, an early-stage fund that offers pitching resources and technical help in addition to investing in women-led tech startups.

It also means more non-profit and public-sector programmes, such as empowerME, an initiative aimed at female entrepreneurs in the Middle East; Monsha’at, a Saudi government small business authority with an entrepreneurship programme targeted at women; She Innovates, the global UN Women programme that connects female innovators via app and platform; and Global Invest in Her, a platform for women entrepreneurs seeking funding.

Celebrate success

We need to elevate the visibility of female role models who have raised capital and successfully brought products and services to market. Stories of success act as inspiration and provide models for females in business to emulate. Mona Ataya, CEO of Mumzworld, is a good example.

Confront stereotypes

The Global Entrepreneurship Monitor (GEM) highlights one damaging stereotype: that businesses started by women typically aren’t the kind that are right for outside investment because they’re low-tech enterprises in sectors with little potential to scale, trade across borders and go public through stock offerings.

“More attention needs to be given to women who are starting and growing high growth, high innovation and large market businesses. Stereotypes that frame women entrepreneurs as a disadvantaged group feed a false narrative that women lack the same competency as men regarding business leadership,” the GEM team says.

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