Social Factors

30 minute read

Social Megatrends

These are themes and trends taking place in the world today that could influence businesses. The CFA Institute has identified nine social megatrends.

1. Globalisation

Globalisation is the integration of local and national economies into a global (less regulated) market economy. This has been caused by a rapid increase in the cross-border movement of goods, services, technology and capital.

There are positive and negative impacts of globalisation – on the one hand it produces efficiency and allows for cheaper and more widely available goods; on the other hand it contributes to social structural inequality and as such is detrimental to social well-being.

2. Automation and Artificial Intelligence (AI)

Automation is the technology by which a process or procedure is performed with minimal human assistance.

There are some well documented advantages to automation:

  • Faster production and lower labour costs
  • Replaces hard, physical and monotonous work

However, there are potential social costs associated with the rise of automation and artificial intelligence, most notably the displacement of workers, as technology renders their skills or experience unnecessary.   

Artificial intelligence is likely to have an impact on sectors such as:

  • Healthcare
  • Automotive
  • Financial services and auditing
  • Security
  • Creative

3. Wealth inequality

According to the Organisation for Economic Cooperation and Development (OECD) Centre for Opportunity and Equality, the average income of the richest 10% of the global population is about nine times that of the poorest 10%.1

There is also growing evidence that inequality in education and social mobility has a negative impact on economies and societies. Less skilled and less healthy sections of society have lower purchasing power, which limits economic growth.

4. Digital disruption

Digital disruption is the change that occurs when new digital technologies and business models affect the value proposition and business structure of existing goods and services.

The advent of many new digital technologies also enables the collection, processing and storage of huge amounts of data – often referred to as big data.

Whilst there are opportunities and advantages to be found in the use of big data, such as increased personalisation, there are also potential risks arising from how individuals’ personal data is used.

Recommended Read: How is technological change affecting the nature of the corporation

5. Changes to work, leisure and education

Our patterns of work, leisure time and education have changed drastically – trends that have only been accelerated by the COVID-19 pandemic.

Increases in automation and part time employment have contributed a significant reduction in the average hours worked in the developed world – in the UK the average annual hours worked per person in employment decreased from 1,779 hours in 1970 to 1,506 in 2021. 2

Advances in technology make it easier than ever for people in office jobs to work remotely. As many of us have experienced over the course of the COVID-19 pandemic this has both enabled more flexible working patterns, but also contributed to a blurring of the lines between work and leisure time.

Read: Elisa Magistrali (WM Consulting) – Social Equality

Key points:

  • Covid-19 has highlighted the dramatic and irreversible costs of an unequal society where socio-economic divisions within populations are growing.
  • Various lockdowns have been devastating for informal workers without an established working agreement, health benefits or permanent employment and who would generally be paid in cash. This is especially true in low-income countries and among the black, Asian and minority ethnic communities worldwide.
  • The necessity to work remotely has disproportionally affected low-income groups, whose jobs can very rarely be done from home. As a consequence, this group is much more likely to have lost their job during the pandemic.

Listen: Forbes, Kathy Caprino – How the pandemic is negatively impacting women more than men, and what has to change

Key points:

  • According to The Bureau of Labor Statistics, women accounted for 55% of the 20.5 million workers who became unemployed in April, compared to a 13% unemployment rate for men
  • Among the reasons for this are the fact that women comprise a majority of primary caregivers and workers in the service industry, two areas that have been most impacted by Covid-19 – a recent survey of 104 countries found that women provided an average 67% of the health workforce, including 80% of nursing staff
  • Additionally, most PPE (Personal Protective Equipment) is not designed to fit women correctly
  • Women also carry the bulk of unpaid care work – according to the International Labour Organization women perform 76.3% of the total hours of unpaid care work, more that 3 times more than men
  • The pandemic also saw an increase in occurrences of domestic violence, sexual exploitation, forced marriage and unwanted pregnancy – with a corresponding decline in the availability of emergency contraception services (it is projected that there will be over 7 million unplanned pregnancies in low – and middle – income countries worldwide)
  • As hospitals are full of covid patients, and women are either unable or afraid to go into them, more women are giving birth at home without access to medical care
  • Growing unemployment and mounting financial stress in families is being cited as contributing to increased levels of domestic violence during times of stress
  • Additionally, levels of drug and alcohol abuse also increase during times of stress, which can lead to incidents of domestic violence
  • The very nature of a lock down – with victims isolated from supportive friends and families – also leads to a decrease in the number of cases that are identified, intervened and reported
  • At the peak of the pandemic, UNESC estimated that over 89% of school-age children were out of school – including nearly 743 million girls, 111 million of whom are living in extreme poverty. Gender based education disparity tends to be more exaggerated in areas of extreme poverty and there is a real risk that many of those girls never go back to school and therefore loose one of the key routes out of poverty available to them
  • All of the above contributes to the mental health of women and girls, which appears to have been disproportionally affected by the pandemic compared to men

The average level of education has also increased, although this is not even in its application with women and girls still lagging behind men and boys. Certain sectors still suffer from a deficit in qualified employees, especially those with specialist skills, in some instances this has prompted a ‘war on talent’.

Recommended Read: UNESCO – Covid-19 school closures around the world will hit girls hardest

6. Changes to individual rights and responsibilities and family structures

Over the last few decades, the role and importance of family has changed for many people, especially in developed countries. Individuals are less reliant on the family unit for economic and physical support, and as such have more autonomy in their decision making.

The workforce has all become more diverse, with significantly more women achieving financial independence through employment. However, there is still a significant gender pay gap in most industries, and women are still more likely to become, and remain, unemployed than their male counterparts. Despite a growing body of evidence that a more diverse workforce leads to better financial results.

7. Changing demographics, including health and longevity

Life expectancy across the globe has been increasing steadily due to advances in healthcare and changes in lifestyle. Birth rates in many countries are also falling, driven by a combination of social factors – for example women in the workforce marrying and having children later in life. This has caused many developed countries’ populations to age – the overall median age is forecast to rise to 44 by 2015, from 18 in 1950.

Aging populations have a great impact on society:

  • The ratio between the active and inactive parts of the workforce drops – with a knock-on effect on tax revenues and stress on national pension, healthcare and other social support systems.
  • Older people tend to have higher accumulated savings per head than younger people but spend less on consumer goods.
  • Demand for and spending on services such as healthcare rises sharply with older populations.

Recommended Read: Elisa Magistrali (WM Consulting) – Grey is the new black

 Recommended Listen: For a positive spin on longevity – the Reasons to be Cheerful podcast. Episode 175. LIVE LONG AND PROSPER: learning from the world’s longevity hotspots  from c. 11.50 to 29.20.

8. Urbanisation

In the 1950s 30% of the world’s population lived in cities, a number that is expected to increase to 68% by 2050.

Geographic shifts and migration has the potential to impact societies in a number of ways, including:

Economic: rising demand for housing and goods leads to gentrification, increasing living costs and often pricing local populations out of the market. This, then, contributes to an increasing wealth-gap.

Environmental: there is growing concern about the levels of emissions generated by sprawling urban areas, and the creation of ‘urban heat islands’ where urban areas produce and retain heat.

Social: mortality from non-communicable diseases associated with lifestyle (e.g., cancer and heart disease) rises in urban areas. Also, people living in poor urban areas (such as slums and shanty towns) suffer “disproportionately from disease, injury, premature death, and the combination of ill-health and poverty entrenches disadvantage over time”.

9. Religion

As a social factor, the changing religious landscape around the world has consequences for consumer preferences, and the availability of services to minority groups, as well as playing a role in investors’ faith-based preferences. For example, Christian investors who align their investment principles to the Bible and Islamic investors who invest in line with Shariah principles.

Social Factors

1. Human Capital Development

The World Bank defines human capital as: “the knowledge, skills, and health that people invest in and accumulate throughout their lives, enabling them to realize their potential as productive members of society”.3

Human capital management is the practices that a company puts in place to maintain and develop their workforce. Good human capital management creates a culture where the workforce is positive and engaged, and therefore more productive, and does not take unnecessary risks.

Recommended Read: Rebecca Vogel (WM Consulting) – Human Capital Management

2. Health and safety

Health and safety focus on protecting the workforce from accidents and injury. Occupational health is a subset of health and safety that concentrates on limiting the exposure of a workforce to occupational disease or injury.

Health and safety have evolved to include a broader understanding of working conditions that promote employee well-being both within the workplace and outside it, with an increasing focus on mental health.

3. Human rights

Human rights are inherent to all people, regardless of their race, sex, sexuality, nationality, ethnicity, language or religion.

The Universal Declaration of Human Rights was proclaimed by the UN General Assembly in 1948 and is a common standard for all people and nations, the key tenets are:

  • The right to life and liberty
  • Freedom from slavery and torture
  • Freedom of opinion and expression
  • The right to work and education

4. Labour rights

The International Labour Standards are aimed at promoting opportunities for all to obtain decent and productive work. They include:

  • Freedom of association and protection of the right to organise
  • Right to organise and collective bargaining
  • Forced labour and abolition of forced labour
    • Globally, 25 million people are estimated to be in forced labour
    • Physical violence is not an essential characteristic of forced labour – debt bondage, threatening a workers immigration status or withholding identity papers are all ways in which employers can force labour.4
  • Minimum age
  • Worst forms of child labour
  • Equal remuneration
    • A living wage is the minimum income necessary for a worker to meet their basic need – this is often different to the official minimum wage defined by a country or sector
  • Discrimination (employment and occupation)

5. Stakeholder opposition and controversial sourcing

Companies should strive for good relations with stakeholders, including local communities, in the areas in which they operate.

A way to establish good relations with local communities is through the Free Prior Informed Consent model:

Free – no manipulation or coercion of indigenous people or local communities

Prior – consent is sought in advance of any activities being authorised or carried out

Informed – indigenous people or local communities are provided with appropriate information on a project, such as its nature, size, pace, reversibility, scope, reason, and duration – in language which is easily understood

Consent – a process that puts participation and consultation at its heart

Controversial sourcing can be an issue for companies whose suppliers operate in emerging economies. Products, materials and labour may be cheap but there are often concerns over the ethics of these practices. Well-known examples of controversial sourcing include blood diamonds in Central Africa or the laying of gas pipelines through First Nation homelands in North America.

6. Product liability and consumer protection

Customer protection refers to laws and regulations designed to protect the rights of consumers, based on the concept that consumers have a right to basic health and safety. Safeguards include:

  • Enforcing product safety
  • Consumer-related information
  • Preventing deceptive marketing

Product liability is the legal responsibility imposed on a business for the manufacturing or selling of defective goods, based on the principle that manufacturers have more knowledge about their products than consumers do. Product liability is likely to lead to reputational damage.

There are three main types of product liability:

  • Design flaws
  • Manufacturing defect
  • Failure to warn of possible danger5

7. Social opportunities

A lack of social opportunities is an important issue, especially in many developing countries.

Many of the United Nations Sustainable Development Goals focus on the elements needed to ensure the availability of social opportunities, including access to basic needs and services in health education, energy and financial inclusion.

Watch: Michael Green, former senior official in the UKs Department for International Development explains how the Social Progress Index is used to map social progress towards the targets set by the UN Sustainable Development Goals in a 2015 Ted Talk: How can we make the world a better place by 2030?

Key points:

  • The UN SDGs replaced the millennium development goals – the aim being to halve the number of people living in poverty by 2015 compared to 1990 – this target was exceeded in part due to rapid economic growth
  • The Social Progress Index measures the targets the SDGs are trying to achieve, summed into a single number that can be used as a benchmark to track progress over time
    • Asks three fundamental questions about a society to provide an aggregate score on a scale of 0 -100:
      • Does everyone have the basics needs of survival: food, water, shelter, safety?
      • Does everyone have the building blocks of a better life: education, information, health and a sustainable environment?
      • Does everyone have the opportunity to improve their lives, through: rights freedom of choice, freedom from discrimination and access to the worlds most advanced knowledge?
    • The global score is 61 – the average person on the world is living on a level of social progress about the level of Cuba or Kazakhstan in 2015
    • Achieving a global score of 75 would constitute a giant leap forward – and would hit the global goals target
  • Making GDP onto the Social Progress Index shows that there is a correlation between wealth and social progress – however the correlation gets weaker and weaker as GDP increases
  • More than pure economic growth is needed to achieve the global goals – economic growth comes with costs as well as benefits to, for example, the environment and to health 
  • Examples of countries that are overperforming in terms of the Social Progress Index relative to their GDP show us that we already have the solutions to many of the problems that the Global Goals are trying to solve

8. Diversity and equal opportunities

Companies and governments are facing increasing pressure to be open and explicit on the ways in which they promote and ensure diversity and equal opportunities for their employees.

Aside from the ethical arguments that workforces should be a representation of the societies in which they operate, the commercial advantages of diversity are becoming increasingly apparent.

Read: Forbes, Bianca Miller Cole –8 Reasons why Diversity and Inclusion are essential to business success

Key points:

  • Greater innovation and creativity  – a range of backgrounds, skills, experiences and knowledge ensures great diversity of perspective and fosters greater creativity. Employees feel more confident to speak up and share their thoughts in an environment that they feel comfortable in/ that reflects their experience to some degree
  • Diversity provides a range of skills by bringing people from different experiences and backgrounds together
  • Increasingly potential employees are seeking out diverse environments, this can be a reason why a business can or can’t attract and retain talent
  • Employee wellbeing and happiness- employees are happier and therefore more productive in diverse work environments  
  • Greater understanding of customers – having a workforce that reflects your customers enables greater understanding of their wants and needs, as well as making a company look and feel more accessible to that consumer base
  • More talent to choose from – focus on skills and experience rather than demographics can open up new pools of talent
  • All of the above can contribute to increased company revenues

9. Animal welfare and antimicrobial resistance

Consumers and investors are increasingly concerned about animal welfare as it is increasingly recognized that not only is it ethical to minimise harm caused to animals, but there are also a multitude of negative impacts to human health that can arise from intensive farming practices. For example, antimicrobial resistance (bacteria, viruses and parasites becoming more resistant to antibiotics, antivirals and antimalarials) makes standards treatments for a range of illnesses less effective.

All of these social and environmental trends could, in extreme circumstances, cause mass migration and drastically alter the way we live and work, along with other socio-economic impacts.

1Oecd-ilibrary.org. 2021. Income Inequality. [online] Available at: <https://www.oecd-ilibrary.org/docserver/9789264246010-en.pdf?expires=1620750737&id=id&accname=guest&checksum=4E37628CA7664FD9219A03A1CC46CF3F>

2Stats.oecd.org. 2021. OECD Statistics. [online] Available at: <https://stats.oecd.org/>.

3The World Bank. 2021. The Human Capital Project: Frequently Asked Questions. [online] Available at: <https://www.worldbank.org/en/publication/human-capital/brief/the-human-capital-project-frequently-asked-questions> [Accessed 17 September 2021].

4Holtland, H. and Höften, A., 2018. Dutch Pension Funds and Forced Labour Speak up. [ebook] Utrecht. Available at: <https://www.vbdo.nl/wp-content/uploads/2018/12/SPEAK-UP7.pdf>

5S, C., 2021. What Is Consumer Protection? – Product Liability, Laws & Rights. [online] Study.com. Available at: <https://study.com/academy/lesson/what-is-consumer-protection-product-liability-laws-rights.html>