BRINK ASIA | September 3, 2018
In a world where the only stable situation is change, megatrends are driving transformation at the global level. On the one hand are the degradation of natural capital, adverse demographics and economic imbalances. On the other hand are more robust regulatory frameworks, sustainable business models, innovation and more advanced technology.
We see these megatrends pitted against each other around the global economy. Nevertheless, given Asia’s breakneck pace of economic development, population growth and urbanization rates, the tussle is perhaps greater in this region than in other parts of the world. And in this context, all stakeholders have a role in bringing about change—whether they are businesses, investors or governments.
THE ROLE OF BUSINESS
Responsible business models are essential for companies to protect the human and natural environments where they operate and from where they source their materials. Fortune 500 companies are considered to be more able and more willing to improve their overall performance and engage their business partners than medium- and small-sized companies. In all cases, there are companies at which sustainability efforts are part of brand-building exercises.
The Global Compact of the United Nations, the Global Reporting Initiative, the Organisation for Economic Co-operation and Development, the International Organization for Standardization and the International Integrated Reporting Council have proposed a series of performance indicators that, theoretically, should lead to more efficient business practices. Numerous companies have adhered to one or more of these efforts, creating a global momentum. They have also played a very active part in the 2030 Agenda for Sustainable Development. However, can this momentum be sustained over the long term? Or are new types of rules and players needed for compliance purposes?
One of the most well-known examples of sustainable growth is Unilever. With a market of 2.5 billion people, the company aims at reducing social and environmental impacts with its Sustainable Living strategy. Reduction in greenhouse gases, water use, waste and packaging, and sustainable sourcing, among many others are part of their performance indicators. Having visited Unilever sites in Thailand, I can understand how this is done: efficiency improvements at all levels of the production chain and involvement of the workforce in planning and implementing numerous initiatives for which they develop ownership. The U.S. Environmental Protection Agency’s suggestions for industries to improve their water efficiency include many of the ones Unilever has adopted globally: behavioral, operational and equipment changes that are expected to result in more efficient use of resources.
Regarding communication of sustainability practices, the CDP A-List 2017 report on climate, water and forests includes 32 companies in Asia: 19 of them are in Japan, 11 in South Korea and one in Thailand and China each. An analysis by the NUS Business School in some ASEAN countries mentions that companies seem to increasingly recognize the importance of sustainability reporting. If done thoroughly, better reporting should be useful for companies to identify operational areas where improvement is necessary, but not otherwise. As noted by CDP, problems are very complex. It may be that large companies are not always aware of the smaller companies that are part of their production chains when they involve numerous parties. In other cases, companies’ interests do not align with compliance or sustainability efforts.
Sustainability movements, reporting, constant NGO and media scrutiny all push companies to have more responsible growth, hopefully reducing their impacts on human and natural environments.
THE ROLE OF STAKEHOLDERS
The role of shareholders and investors is equally or more important, as they can promote and sustain change from within. One of the so-called new types of investors are the millennials who are, more often than not, concerned with social causes and protection of the environment and more familiar with the use of digital technologies to enlarge their network and share their views. And they have an important role to play in company performance.
A study published by UBS Group finds that millennials will experience the fastest growth rate of net wealth. By 2030, the millennial generation could be worth nearly $24 trillion, and a large chunk of this will be intergenerational wealth transfers. To put this in perspective, it will be one and a half times the size of the U.S. economy in 2015.
Millennials seem to be more concerned with transparency from business and with contributing to the global common good. In fact, 87 percent of millennials are likely to evaluate the sustainability criteria of the products they buy. If so, we can expect them to be a more diverse and inclusive group of investors who will be more concerned with environmental and social causes and who will be more likely to demand ethical practices from businesses. However, accounts on the performance of millennials are mixed and generally show that they still have to become more environmentally conscious in practice.
Even if not wealthy, there are hundreds of millions of young people in both the developed and developing world who share the same concerns: improving their quality of life and protecting the environment. Interest for change comes, in many cases, from the poor environmental conditions that affect their daily lives. China, India, Brazil and the fastest-growing economies in Africa represent the next frontier to further encourage initiatives that will lead to more sustainable practices. In China, the Sustainable Development Indicator System is meant to be a framework for sustainability metrics on economic, environmental, social and institutional aspects for cities and provinces. In India, business initiatives seem to be on the rise, but more is expected given their environmental footprint.
THE ROLE OF GOVERNMENTS
At the same time that shareholders and investors drive global sustainability efforts with a more responsible attitude, efficiency measures on the part of governments continue playing an important role as well, particularly in terms of reducing resource use. Singapore is an excellent example of this, mainly in the water sector. Water efficiency benchmarks have been developed for several years for different sectors based on their operations. These include office, retail, hotel, water fabrication and semiconductors, with a focus on large consumers. Best practice guides in water efficiency have also been developed for buildings and refineries, petrochemicals and chemicals. They will help the nondomestic sector to save water, one of the scarcest resources all over the world.
Many companies, including in Asia, are trying to be more environmentally responsible and more inclusive and supportive of equality and diversity, mostly as a result of both stakeholder and shareholder pressure. Society should continue demanding more ethical business practices, as these can drive positive transformation across the region. However, stringent implementation of efficiency measures is critical as well—for which the governments and regulators have a very prominent role to play. And in the long run, the benefits of adhering to sustainable, ethical business practices will be manifold for business, too.
Dr. Cecilia Tortajada is senior research fellow, Institute of Water Policy, Lee Kuan Yew School of Public Policy, Singapore, and editor-in-chief, International Journal of Water Resources Development. She has been an advisor to major international institutions like FAO, UNDP, JICA, ADB, OECD and IDRC, and has worked in countries in Africa, Asia, North and South America and Europe on water and environment-related policies. She is a member of the OECD Initiative in Water Governance.
This article was first published by BRINK ASIA, September 3, 2018.