McKinsey – Sustainable and inclusive growth: Briefing note #60, August 31, 2023

Economic growth can address both poverty and climate change, even when there are trade-offs involved. Our weekly digest of insights explores that topic and more.

August 30, 2023

Accelerated global growth can further the two defining societal aspirations of our era: raising minimum living standards and limiting global warming. Our new research looks at how to accomplish both goals while minimising the tensions between the two. Rapid increases in living standards could raise demand for energy- and emissions-intensive products and services. At the same time, not acting to curb temperature rise could harm economies, and the poorest populations are most heavily exposed to physical risks.

New research from the McKinsey Global Institute (MGI) quantifies what it would take to close the gaps in empowerment—the level at which people can afford to meet essential needs—and increase net-zero investment to 8 % of global GDP annually over the next decade. As senior partners Kweilin Ellingrud, Tracy Francis, Sven Smit, Jonathan Woetzel, and co-authors note, businesses and the market economy can generate half the combined resources through growth and innovation.

The performance by G20 economies shows the central role that growth, technology, and finance can play in closing the empowerment gap and boosting net-zero investment. In a companion piece to the MGI report, senior partners Rajat Dhawan, Amit Khera, and team examine what it would take for G20 economies to progress toward these goals. The authors focus on the promise of new healthcare opportunities, clean technologies and manufacturing, and modern construction methods to make housing and mass transit greener and more resilient.

The past two decades were kind to wealth accumulation but challenging for growth and equality. While the majority of executives today have lived most of their professional lives in this environment, the future could be quite different. The range of plausible medium-term scenarios today is unusually broad. McKinsey authors Michael Birshan, Jan Mischke, and Olivia White consider four plausible scenarios for how global economics might unfold in the next decade, ranging from a return to weak investment and a savings glut to productivity acceleration. They also suggest steps business leaders can consider to plan a sound strategy for whichever scenario prevails.

Here are other recent notable findings from McKinsey research:

  • The automotive industry has been a key contributor to Europe’s economic growth, innovation, and prosperity, accounting for almost 7 % of the region’s GDP. However, the sector faces huge transformations, such as shifts from internal-combustion engines to electrified powertrains and from hardware to differentiation through software. Senior partners Andreas Cornet, Ruth HeussAndreas Tschiesner, and their coauthor offer seven areas where automakers can focus to remain competitive, including creating resilient and sustainable supply chains and scaling European battery players.
  • McKinsey research has found that generative AI (gen AI) features stand to add up to $4.4 trillion to the global economy annually. Here’s an early view of gen AI’s promise in 15 charts.
  • The newest McKinsey Explainer offers a primer on the Conference of the Parties (COP)—the United Nations’ annual conference on climate change. Its 28th meeting (COP28) is scheduled to begin November 30, 2023, in Dubai, United Arab Emirates. This year’s event will feature the first “global stocktake,” which will provide a comprehensive assessment of progress since the Paris Agreement in 2015. The objective is to align efforts on climate action, including measures to bridge the gaps in progress.

McKinsey strives to create inclusive growth through collaborations with clients and local communities. To learn more about our firm’s ESG-related actions and commitments, read comments from global managing partner Bob Sternfels, and download the entire document, visit McKinsey’s 2022 ESG report.

This briefing note, based on McKinsey’s latest published insights, was prepared by Barbara Tierney, a senior editor in McKinsey’s New York office.