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The search for substantive sustainability

Written by Deloitte Southeast Asia Innovation Team Published on   6 mins read

ESG considerations are now a part of almost every investor’s process.

Sustainability is now among one of the most talked-about subjects, with climate change and other environmental issues being top of mind for governments around the world. Organizations are increasingly focusing on environmental, social, and governance (ESG) factors to mitigate related risks in the long term and evaluate how far advanced they are with sustainability in their businesses. While a rising hot topic (pun intended), it should be noted that this shift in attention and resources towards sustainability did not appear out of thin air. Pressure from government regulators, NGOs, and society at large have been the main drivers of the movement. Most notably, according to the ESG Report 2021, ESG considerations are now a part of almost every investor’s process. With so much urgent emphasis placed on sustainability, how do we hold businesses accountable for their claims, and how are they turning this growing concern into business opportunities?

The challenges of greenwashing

According to the Climate Bonds Initiative, while businesses globally have made substantial advancements in sustainable finance, Southeast Asia still punches below its weight relative to its global GDP and growth share. According to a survey, institutional investors view greenwashing—where an organization presents itself as more environmentally friendly than it actually is—as their top concern when integrating sustainability into their investment decisions. As the “sustainable” label becomes more commonplace and mainstream for investors and organizations, the challenge of identifying greenwashing becomes harder. Companies design campaigns to promote their sustainability efforts, but how much is driven by green policies instead of window dressing? Even though a growing list of organizations have announced ambitious green targets and goals, some do so without clear pathways to attaining them. In addition, many household names have not provided clear emission reduction targets despite their ambitions to tackle climate change. A cursory glance at a random company’s website could show a rosy outlook, yet there may be a lack of substance behind some of those commitments.

To avoid greenwashing, businesses will have to step up accountability. IKEA, as an example, has committed to a zero-waste approach, pledging to remove all single-use plastics from home furnishings and ensuring that they use products made from 100% renewable resources in their restaurants. The “IKEA Sustainability Report FY20” details the ambitions and progress of IKEA’s People & Planet Positive strategy and allows the public to hold the company accountable to its goals. Another example would be Unilever. Sustainability has been solidified as part of its corporate identity through the Unilever Sustainable Living Plan, which sets targets for sourcing, supply chain, and production on everything from energy and water use to treatment of suppliers and communities where they operate. In addition, Unilever has established a robust governance structure to ensure that its sustainability goals are met.

Companies can find relief in knowing that this is not a one-sided effort. Global regulators also have the responsibility to combat the ills of greenwashing with more powerful enforcement tools. For businesses, it is recommended that financial reporting and sustainability reporting frameworks be developed in parallel. In addition, the economic impact of climate-related risks may need to be reflected in financial statements to help the public make sense of the impact of their investments. To this end, in Singapore, the Green Finance Industry Taskforce, convened by the Monetary Authority of Singapore, has recommended a “traffic light” approach to cater to the widely varying starting points seen among companies in Southeast Asia. Companies will be classified as green, red, or yellow, based on how their activities align with their own sustainability objectives, allowing companies to identify areas of improvement and act upon them. 

Greenfield business opportunities

In this era of sustainability, new business opportunities have emerged as markets and society shift their focus to addressing the global challenge. One startup that is leading the way is Singapore-based Magorium, the recent winner of Nanyang Technological University’s ideasinc 2020, and waste technology competition Waste 20/20. Magorium is refining a “trash to treasure” workflow that converts plastic waste into a material that can be used to pave roads. There are similar solutions, but they only work with cleaned plastic waste. Magorium’s technology can process food-contaminated plastic, thereby widening the range of plastic waste that can be upcycled into useful road-building material.

Today, consumer demand for environmentally friendly products has never been higher. According to a global analysis commissioned by the World Wildlife Fund, the popularity of internet searches for sustainable goods worldwide has increased by 71% in the last five years, and companies are quickly moving to respond. For instance, the popular clothing store Uniqlo has a clothing line made from recycled plastic bottles.

The same consumer demand can be seen in the food industry. The global food system, encompassing production and post-farm processes such as processing and distribution, is a striking key contributor to emissions. To address the change in consumer demand, the industry, even at a country level, is beginning to adopt new and innovative methods to grow food in sustainable ways. For example, Singapore has been investing in non-traditional methods of agriculture and food, such as vertical farming and alternative proteins. Temasek Holdings, Singapore’s investment arm, recently extended its reach to local companies making inroads in sustainable food products, such as Sustenir and Apollo Aquaculture. In Thailand, the Thai Union has made investments in alternative protein and functional nutrition startups.

Urban hubs are also significant contributors to climate change, responsible for 75% of carbon emissions. According to Deloitte Economics Institute’s new report, “Southeast Asia’s turning point: How climate action can drive our economic future,” Southeast Asia stands to lose approximately USD 28 trillion in economic potential if climate change is left unchecked. In the same vein, the region could instead gain USD 12 trillion in economic value by leveraging its potential to export decarbonization to the world. To that end, governments across Southeast Asia are looking for alternative, cleaner ways to produce energy. In Southeast Asia, Vietnam, Thailand, the Philippines, Malaysia, and Indonesia represent 84% of the region’s total installed renewable energy capacity. Innovative clean technology companies like Sunseap, a solar energy provider, play a huge part, aiming to reduce emissions by providing cleaner and more efficient energy solutions.

In urban hubs across Southeast Asia, both governments and corporations are turning their attention to the market opportunity for electric vehicles and batteries, which is rapidly gaining momentum. Indonesia aims to have EVs form at least 20% of total domestic vehicle sales by 2025, with government-backed incentives such as tax incentives for battery and EV manufacturers. Not to be left behind, private automotive startup manufacturer VinFast, Vietnam’s first domestic automaker, has released designs for three electric SUV models to add to its future model lineup. In Thailand, Nissan has announced comprehensive plans to make the country its hub for EVs in Southeast Asia. 

Investing in our future

With the ongoing “push to green” movement comes increased pressure on companies to boost their green credentials. The key is to establish clarity and standard definitions necessary for markets to know what constitutes green investing. Green investments in Southeast Asia are estimated to total a hefty USD 3 million, and ASEAN is seeking to develop a framework that aims to establish and maintain categories and definitions of sustainable economic activities to help members have a common and more precise understanding of green financing and standards.

Younger investors are trending towards sustainable investing, alongside their interest in putting their money where their values are. As a result, brokerage firms and mutual fund companies have begun to offer exchange-traded funds (ETFs) and other financial products that invest into companies with sustainable developments. The benefits of taking sustainable practices seriously are clear; companies with a comprehensive sustainability strategy can gain a competitive advantage in the marketplace and enhance their long-term value creation. Sustainable practices attract more customers, allow better access to resources, lower energy and water consumption, and even reduce operational costs. Additionally, sustainable practices can lead to greater social credibility and may help companies secure more government support and subsidies. As it stands, sustainability in business is expected to further outgrow its niche status as companies are realizing the risks of falling behind if they do not adapt.

Regardless of who we are and what we do, companies, governments, and society at large have a moral obligation to each other to sustain the planet for our future generations. Our society benefits from improved water and air quality, reduced waste, and increased sustainable energy sources in the long term. Encouraging the conservation of natural resources and seeking alternative solutions boosts a company’s standards and brand and enhances its social credibility. If companies make sustainability important in their businesses, they can contribute to bridging a deeply important conversation in the face of modern consumerism. This societal impact can reach far and wide, and we do not see it stopping anytime soon.

About the authors: This piece was co-authored by Richard Mackender, Tan Shuo Yan, and Lim Shu Jun. Richard Mackender leads the Deloitte Southeast Asia Innovation team, a cross-function, cross-country unit dedicated to driving innovation as a long-term value creator across Deloitte’s Southeast Asia operations.


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