Sustainable Practices in Asia Benefit the Bottom Line

The BEI Forum, started in 2010, is designed to lead the banking industry into collectively directing capital towards environmentally and socially sustainable economic development. Participants at next week’s conference will tackle topics including net zero deforestation and investor perspectives on sustainability risks and opportunities in corporate value chains in Asia.

Indeed, more companies in Asia are finding that sustainability and environmental initiatives have a positive business impact and they are doing more. In its annual
‘Global 100 Index’
released at the 2014 World Economic Forum (WEF) in Davos last January, Corporate Knights (CF) – the Canada-based media and research company focused on clean capitalism drivers – cited Australia-headquartered Westpac Banking Corporation as the top company globally in corporate sustainability.

CF also ranked other Asian corporates among the top 100 as well, assessing companies against their global industry peers by using a screening process that assessed sustainability disclosures, Piotroski F-Scores (used in determining best value stocks), product categories and a sanctions review of the amounts that companies have paid in sustainability-related fines, penalties or settlements.

Westpac says that operating sustainably is at the heart of its culture and practices. Sustainability, it believes, means “embracing new ways to do business to create a better future” and “responding to the emerging issues we believe will affect the sustainability of our communities and, therefore, our own operations.”

Singapore’s Keppel Land, the real estate arm of multinational Keppel Group, ranked second in Asia and 17th globally. Like Westpac, its Sustainability Report said that it is committed to establishing and maintaining high standards of environmental protection and will continually innovate to improve its environmental performance. “Resource efficiency is not only our responsibility,” Keppel said, “but makes good business sense.”

China’s Absence

While no company in China made it onto the CF Top 100 list, sustainability is getting increasing attention in that country as well, with the changes being driven by the government. Reuters reported that premier Li Keqiang declared at the opening of the annual meeting of parliament in March that China would “declare war” on pollution, with the government unveiling measures to tackle what has become a hot-button social issue.

Globally as well, an increasing number of firms are enhancing their sustainability practices. Reinsurance giant Swiss Re, for example, recently updated four policies within its sustainability risk framework, in response to recent risk developments affecting industries including oil and gas and forestry. Swiss Re said that out of 210 business transactions that were screened through this due diligence process in 2013, 27 received negative recommendations and were stopped, while another 26 transactions received positive recommendations but had conditions attached.

Along with these company initiatives and conferences, an increasingly broad body of research shows just how important sustainability actually is. Research by Stanford University professor Hau Lee, for example, showed that responsible supply chain practices are associated with lower operating costs and improved overall performance, despite “sometimes massive monitoring expenses.” Whereas costs increase when environmental violations result in lawsuits or regulatory issues, for example, measures aimed at reducing waste, water, and energy use throughout the supply chain can improve environmental performance and lead to cost savings.

Lee found that companies that reap the most benefits have adopted three “counter-intuitive principles.” First, they partner with suppliers to improve factory working conditions and supplier management systems, because the most effective results come from partnering. Second, they provide positive incentives for compliance rather than policing suppliers, because encouraging buy-in on responsible supply chain requirements gets better results. Thirdly, they participate in industry working groups to share and develop responsible practices, which are associated with lower social and environmental violations. The net result, Lee said, is that rather than being a cost burden, responsible practices can reduce operating costs, improve performance and also enhance a company’s public image.

Additionally participants at the Boao Forum for Asia, which was held in China in April concluded that the supply chain is arguably the single largest driver of profitability for Asian businesses. They will have to focus on building and developing sustainable supply chains while reducing wasteful practices, participants said, in order to align operations with demand for environmentally sustainable products.

As just one example, Dao Partners principal Ray Cheung wrote in a Wilson Center article that the Hanjiang Dafu and Putian Hanjiang shoe companies in Fujian Province were forced to reduce their air and wastewater pollution, rather than just paying fines, because client WalMart demanded that suppliers solve their pollution problems if they wanted to continue doing business with the US multinational. “Market demand, regulatory pressure, and economic benefits are the principal drivers behind multinational corporations adopting green supply chain strategies,” Cheung said.

Along with changing their practices to protect the environment, then, companies in Asia are focusing more on sustainability to enhance their performance by making sure the supply chain works more effectively and to improve financial results.

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