Key Asian markets provide an interesting study in the market pressures that can both help and hinder the integration of sustainability.
We spoke to practitioners in China, Hong Kong, Singapore, Malaysia, Japan and the Philippines and found that they are eager to accelerate the process of integrating sustainability. We see regulation and global customer demand putting pressure on companies to embed sustainability but, as with many markets, there are not yet clear signals from consumers for sustainable products and services.
Leading practitioners in the region suggest there is a clear case for integration, as evidenced by activity happening at a number of companies. For example, CLP Group (formerly China Light and Power) has developed a 3 part model (Innovate, Incubate, Integrate) enabling the company to develop and integrate the new capabilities and functions needed across the Group for a sustainable business over the long term. Below we explore some of the dynamics in the region that we believe will play a role in fostering future integration.
The dominance of family-owned conglomerates
Family ownership of companies is a somewhat unique structural characteristic in the region and it can have a strong influence on the degree to which sustainability is embedded. Between 80 and 90% of companies in Southeast Asia (not including China and India) are family-owned (1).
When the chairman or CEO is committed to sustainability, as is the case with Hongkong and Shanghai Hotels Ltd or Pacific Andes International Holdings Ltd, it can trigger a strong focus on sustainability throughout the company. And since leaders of family-owned businesses typically remain in their positions for some time, this commitment to sustainability can have long-term impacts. For example, John Swire & Sons, whose businesses include Cathay Pacific Airways Ltd as well as maritime and mining operations, will celebrate its 200th anniversary next year, and Chairman Barnaby Swire has said that the business will be judged on its impact on the environment and the community. Head of Sustainable Development Mark Watson has a dual reporting line to the Chairman of Swire Pacific (the publicly listed entity) and to the John Swire & Sons finance director (private group), and he is mandated to drive strategy to ensure enhanced sustainable development performance across the group.
As new generation family members take on greater leadership roles in their companies, they often bring their perspectives and learning from overseas education. This trend may shift the prevalent culture of valuing consensus and humility in parts of the region, which, in the past, has challenged shifts to greater transparency and engagement.
Global customer demand
Social, environmental and economic change is transforming how business is run in many parts of Asia. Companies that represent major parts of the supply chain for global brands, such as Li & Fung Ltd or with accelerated international growth like Huawei which has expanded into 170 countries in less than 20 years, have been strongly encouraged by their customers to improve the sustainability of their practices.
Importance of regulation and reporting
Government action and stronger reporting requirements are crucial in this part of the world to drive business action on integration. The Hong Kong Stock Exchange (HKEx) has singled its intent to use listings requirements to improve sustainability reporting similar to exchanges in Malaysia and Singapore. This is significant as many Chinese companies are listed in Hong Kong. In sharp contrast to reporting practices of South African companies, which we explore further on page 96, currently only 46% of companies listed in Hong Kong report on sustainability performance (2).
Bodies like GRI see this change as a positive development not only for promoting corporate transparency in the region but also positive for the global economy (3). Local practitioners are hopeful that this driver will start to shift the growth – and compliance – driven mentality where the primary responsible business lens is philanthropy and CSR, and even eventually influence the mass of small – and medium- sized enterprises that make up the majority of the business community in these key markets.
Aligning with national development
Many companies are aligning their sustainability efforts with, or are encouraged by, national development plans. In Singapore, for example, the government has made strides to increase the number of green buildings, while China’s latest Five Year Plan has led to business innovations in the area of renewable energy.
In the Philippines, real estate company Ayala Land Inc. is aligning itself with national development goals and pioneering a holistic approach to urban development and renewal as well as infrastructure creation. Its vision, mission and core value statements indicate its founder’s commitment to long-term value creation. Since 2007, the company has continuously sought ways to integrate sustainability into its business model. By starting to analyze its value chain in the past two years, it came up with four sustainability focus areas that cover site resilience, pedestrian and transit connectivity, eco-eficiency and local economic development.
The role of technology
Many practitioners in the region find the intersection between technology, innovation and sustainability promising. Technology can improve efficiency, widen the lens of transparency and advance employee engagement. For example, Cathay Pacific Airways Ltd has launched an online application that encourages employee-led innovation on how to make the airline more sustainable.
More broadly, practical, scalable solutions like animations shown in multiple languages in factory canteens and take-home DVDs improve worker and family education and foster engagement on topics like water conservation and safety.
Overall, practitioners across the region are ambitious – with a healthy dose of restlessness – regarding the progress of integration. Yet through the work of the tenacious and experienced sustainability practitioners we spoke to, gears are clearly shifting within businesses, especially larger ones. It will take time, but there is no doubting the rising levels of competency and ambition that will drive larger scale change.
“To embed the principles of sustainability into the business to enable the company to exist for decades to come – that is integration, and that is what MTR strives for.” Janice Lao, Sustainability Manager, MTR Corporation Ltd.
“Successful integration involves every department, not just the sustainability department.” Natalie Chan, Director, Corporate Responsibility & Sustainability, The Hongkong and Shanghai Hotels Ltd.
“We’ve seen an increase in capacity of the sustainability practitioner base in Hong Kong, driven by greater awareness of the strategic opportunities to be gained from the incorporation of sustainability within business operations. Further integration of sustainability into core business functions will follow as these practitioners move up and around the business and into other positions of influence.” Mark Harper, Senior Manager – ESG Advisory.
(1) “The Family Business Factor in Emerging Markets.” McKinsey Quarterly. Web. December 2014.
(2) Consultation Paper: Review of the Environmental, Social and Governance Reporting Guide. Hong Kong Exchanges and Clearing Limited. Web. July 2015.
(3) Fogelbert, T. “A Message to Stock Exchanges Throughout Asia.” Eco-Business. Web. September 2015.