Only inclusive economic growth can drive sustainability.

Ensuring a sustainable future will require massive investment. For example, the International Energy Agency estimates that net-zero emissions might require investments of almost $5 trillion each year by 2030, and $4.5 trillion per year by 2050.2 The annual bill equates to about half of global corporate profits in 2019, or about one and a half times the annual increase in public debt over the preceding 15 years. Additional investments needed for decarbonization in agriculture, transportation, and other sectors could nearly double the bill. While many of these investments would produce a return, their financing or pricing is not yet set up.

And that’s just the start: as we explain in this article, even if the global economy were to get these three goals notionally right, there are contingencies among them that, if left unresolved, could wreck any progress made.

Here, we seek to frame the debate about achieving sustainable, inclusive growth in a clear-eyed way, laying out the aspiration but also the toughest problems that need to be solved to achieve this growth, with some illustrations as to their size. Good strategy should always start with asking the right questions. For today’s leaders, the questions are vast and profound—and soluble.

Good strategy should always start with asking the right questions. For today’s leaders, the questions are vast, profound—and soluble.

The virtuous cycle starts with growth

What do we mean by sustainable, inclusive growth? There are many ideas associated with these words. We aim for broad rather than narrow interpretations:

In growth, we include the ambition of increased prosperity and well-being, including economic-profit growth for companies, GDP growth for nations—as well as measures such as life satisfaction for citizens—derived in part from dignity of work (while recognizing that measurable definitions of well-being are still evolving).

In inclusion, we consider equality of opportunity and broad-based progress of outcomes for all—especially sufficiency of living standards—and the narrowing of inequalities among genders, ages, ethnicities, family backgrounds, and places of residence.

In sustainability, we aim for environmental resilience, which starts with reducing climate risk but also includes much broader preservation of natural capital as well as intergenerational fairness, all considered in terms of economic and societal costs and benefits.

These three goals are daunting. Fortunately, they can strengthen and reinforce one another:

Growth supports inclusion, part 1: Creating meaningful jobs and lifting incomes. High-growth emerging economies have delivered powerful proof that growth supports inclusion, by reducing the global share of those living in extreme poverty by two-thirds—to less than 10 percent of the world’s population—and by welcoming hundreds of millions to the middle class. This applies in advanced economies too: from the early 1990s to 2005, before the global financial crisis, GDP per capita rose by 2 to 4 percent per year and real median household market incomes also rose.

Growth supports inclusion, part 2: Correcting labor-market inadequacies. In growing economies, government transfers and tax policies can help support incomes for large swaths of the population. Research from the McKinsey Global Institute found that real market incomes were flat or fell for just 20 to 25 percent of households, after taxes and transfers; before these transfers, some 60 to 70 percent of households saw incomes decline. During the pandemic, while US median household income dropped 2.9 percent in 2020, the share of people living in poverty declined, after accounting for government aid.3

Growth enables sustainability by encouraging investment. Economic growth strengthens consumer confidence, spending, and demand, all vital elements of a healthy investment climate—which the energy transition is going to need. And as our research on outperforming emerging economies has shown, the capital deepening that results from greater investment spurs productivity and, with it, wages and growth.

Greater inclusion and sustainability promote growth through new demand and investment opportunities. Sustainability drives new business opportunities in domains such as clean technologies. India, for example, could more than quadruple its renewable-energy capacity by 2030; we estimate that this could generate some $90 billion in GDP and support about two million jobs in 2030. And inclusion has similarly powerful effects on growth. We estimate that more inclusive access to healthcare could add 0.4 percent to the world’s GDP growth by 2040. More broadly, inclusion spurs demand, as a burgeoning middle class is a key driver of consumption. Africa has about 200 million young people of working age and will have close to a billion by 2050. Youth training and development, especially of digital skills, can vault this group into the middle class—and help close skill gaps in the rest of the world.

Sustainability reinforces both inclusion and growth through the ‘energy prize.’ The energy transition will yield a prize of two cross-cutting benefits: lower costs that make energy more accessible, and more productive lives. Over the past ten years, the cost of electricity from renewables fell about 50 to 85 percent.4 Renewables are now gaining ground in developing economies. In sub-Saharan Africa, a region with the lowest energy-access rate in the world, decentralized renewable solutions such as rooftop solar are taking root.5 Lower emissions and reduced air pollution can improve health and allow more people to participate productively in the economy. History has some instructive lessons: after passage of the Clean Air Act in the United States, in 1970, reduced pollution increased the labor-force participation rate for affected individuals and had a positive long-run impact on wages.6