Posts

economic recovery or climate action

Economic Recovery or Climate Action? Why Not Both?

By Adrian Pang

The raging COVID-19 pandemic that has gripped the world like a whirlwind, and social upheavals that have morphed into different beasts in different countries across the world have truly elevated the prominence of the “S” in ESG in a tumultuous 2020.

It is undeniable that these two events will fundamentally change how societies and the world organises and works. Social consciousness on public health and diversity have reached new heights. Even so, the pandemic and global economic fallout have slightly shifted primary discourses away from climate actions and environmental responsibilities – from momentum to transition to green economies and sustainable business models, to now focus on economic survival and resilience. In the short term, there are expected reductions of resources and budgets for sustainability due to economic fallout from the pandemic. But short-term economic recovery plans are insufficient to building long-term business resilience to face considerable climate risk.

Institutions need to create more socioeconomically and environmentally responsible strategies that address systemic changes required to transition to a low zero carbon global economy simultaneously with issues of human rights, racial, income and gender inequality, and overall health and wellbeing. Sustainable/Green Finance can be a substantial driver to lead a post pandemic world that values the wellbeing and survivability of the environment and society.

What is Sustainable/Green Finance

While there is not a formalised definition, green financing is generally perceived as financial flows (from banking, micro-credit, insurance, and investment) prioritising ESG risks and opportunities while still ensuring decent, if not positive rate of return. Green financing values social and environmental factors, impacts and sustainability. [1] It also brings accountability in business and financial decisions and strategies for the future. As the global economy reels from the pandemic, green financing is making significant headway into economic recovery plans. Entities in the public, private and not-for-profit sectors are encompassing this financial paradigm shift into their business continuity plans and economic resilience strategies.

Green Finance in Post-COVID 19 World

The COVID-19 crisis is seen as a rude awakening and a major stress test for the world’s social and financial systems to prepare for the long-term climate crisis. It is understandable that financial interventions and stimulus packages by countries need to address short-term health and economic weaknesses. However, governments should also strive to reshape ecosystems, investments, and production and consumption patterns through green financing to realise a resilient, and sustainable recovery as well as future. [2] The Financial Times argues that cost of climate inaction would amount to a staggering $600 trillion by 2100. This is inevitable at the current trajectory, as the world will not see its carbon emissions halved by 2030 as set out by the Paris Agreement. 2030 is also the expected year of climate tipping point – the point of no return for the climate crisis. Therefore, drastic measures like Green Finance are required now to make systemic changes in the post pandemic world.

The World Bank has recently published a guide for financial regulators in emerging economies to scale up green finance in their countries. [3] The guide can help financial institutions to structure and refine green finance products (e.g. loans, credits, and guarantees) as well as encourage investors to invest in impact investments opportunities that comply with sustainability criterions. The European Union is pushing for a Green Deal for economic recoveries post pandemic. The regional bloc has set up a new “Green Recovery Alliance” that brings together politicians, CEOs, NGOs, think tanks and subject matter experts across the continent to identify and drive green finance and investments. Elsewhere, the slogan “Build Back Better” is increasingly a catchphrase for many governments to tailor their economic recovery strategies to incorporate low-carbon and clean economic developments. Hong Kong and China have implemented mandatory ESG disclosure for companies while French bank Natixis voluntarily incorporated climate risk into its credit decision-making process. [4] South Korea has also pledged to a “Green New Deal” as it recovers from the COVID-19 induced economic losses. [5] Overall, there are encouraging signs that countries are embarking on the green path to economic recoveries.

Moving Forward and Organisations’ Roles

The conundrum between prioritising economic recovery or climate action remains needlessly real. Indeed, countries in Asia, of which many are emerging economies remain reliant on restoring traditional economic and financial fundamentals (which are often carbon intensive) to reboot their economies. [6] This is counterproductive to global progress made on the sustainability front.

2020 is on course to record the largest drop of GHG emissions, estimated at 8% year on year. [7] However, this reduction is due to enforced lockdowns and decreased traffic volumes globally and it is likely to be an one-off anomaly post-pandemic. The world needs to achieve at least 7.6% reduction annually between 2020 to 2030 to keep global temperature increase to less than 1.5 degree Celsius by the end of the century.

The bottom line remains, we need to protect the Earth now more than ever. The pandemic is a good reset for how things work. In fact, the world is ready for a paradigm shift on green finance where climate and sustainability elements can closely entwine with economic recovery and development.

Companies and organisations also have significant roles and responsibilities in realising more sustainable development and popularising green finance post COVID-19. Some possible actions are: working with governments to stimulate green recoveries, supercharging corporate resilience and prioritising climate risks, bailouts or financial tools with sustainability strings attached, enhancing ESG performance and disclosure, altering business models and practices, and identifying sustainable values in business deals and developments.[8] All these potential strategies can involve and abide by values of green financing. We have seen a strong push for the big “S” in 2020, let us also push for the big “E” and “G”.

Reach out to us to find more about how you can enhance your sustainability/ESG strategies and performances as well as how green financing could work for your organisation or business.

[1] https://www.cbd.int/financial/gcf/definition-greenfinance.pdf

[2] https://www.unenvironment.org/regions/asia-and-pacific/regional-initiatives/supporting-resource-efficiency/green-financing

[3] https://www.esi-africa.com/industry-sectors/finance-and-policy/world-banks-guide-to-scale-up-green-finance-in-emerging-markets/

[4] https://www.eco-business.com/news/what-is-green-finances-role-in-the-covid-19-recovery/

[5] https://www.reuters.com/article/us-southkorea-environment-newdeal-analys/jobs-come-first-in-south-koreas-ambitious-green-new-deal-climate-plan-idUSKBN23F0SV

[6] https://asia.nikkei.com/Spotlight/Asia-Insight/Asia-risks-missing-green-economic-reset-after-coronavirus

[7] https://earth.org/green-economy-post-covid-19-economic-imperative/

[8] https://www.strategy-business.com/article/The-environmental-opportunity-created-by-COVID-19?gko=0051f

sustainability_reporting_healthcare_sector

The Future of Sustainability Reporting for the Healthcare Sector

By Cheryl Lee

The COVID-19 pandemic has thrust healthcare systems and the healthcare industry into the global spotlight in recent months, as governments raced to conduct mass testing and secure isolation facilities, while healthcare systems creaked under the strain of a dramatically increased patient load, exacerbated by the shortage of healthcare workers and equipment.

If there is one thing the pandemic has taught us, it is that healthcare systems must be resilient, especially in times of crisis. As summarised by the World Health Organisation (WHO), “For health systems to be resilient, they require quality health services that are delivered prior to, maintained during, and improved upon following an emergency.”[1] WHO places the promotion of health and well-being, which includes creating resilient healthcare systems, at the centre of the 2030 agenda of the United Nations’ (UN) Sustainable Development Goals (SDGs).[2]

Health and well-being have clear links to each of the 17 SDGs:

Source: WHO, 2016

Public and private healthcare organisations play essential roles in building a resilient healthcare system. To effectively play their roles, healthcare organisations need to be clear on their corporate purpose, mission and strategy, and communicate these well to align internal and external stakeholders, who can then better support the organisation in the delivery of its mission and strategy. For publicly listed companies, this communication tends to take the form of an annual sustainability report, where the organisation discloses its strategy and activities undertaken that have created value (financial and non-financial) for stakeholders and wider society. While most organisations publish sustainability reports, many often fail to adequately reflect the company’s mission and strategy in the topics they report on. COVID-19 has heightened growing stakeholder and societal expectations that companies should be responsible corporate citizens; it is no longer simply beneficial but imperative that organisations re-examine their mission, strategy, and communications, taking into account all stakeholders’ interests. We looked at the sustainability reports of publicly listed healthcare companies in the region and identified key areas for improvement in their sustainability strategy and reporting:

Report on environmental topics like waste, water, biodiversity, energy and emissions. Climate change, coupled with the ease of travel, means that we can expect greater transmission of infectious diseases and more frequent pandemics. Clean environments reduce the incidence of pollution-related diseases that are highly preventable. It is time that healthcare organisations recognise the importance of environmental management and climate change adaptation and mitigation, and start addressing their impacts on the environment in reporting.

Ensure accessibility to healthcare. As headlines put it, “COVID-19 doesn’t discriminate.” The widespread and rapid growth of the pandemic shows that accessibility of healthcare is crucial, not just for the individual but for the greater good of communities, cities and countries. Healthcare companies have a responsibility to promote equitable access to basic healthcare and medicines, enabling sustainable development to be achieved for all.

Invest in innovation and technology. Innovation and technology are important drivers of change. Embracing technology is also one way healthcare systems can compensate for a shortage in healthcare workers, especially since this shortage is set to worsen in the coming years in developed countries due to ageing populations. COVID-19 has forced many healthcare organisations to explore new methods of providing healthcare – such as via teleconsultations and mobile apps. Even after the pandemic, many of these new innovation and technology-enabled changes will likely to be here to stay, and prove a transformative force for the industry in years to come.

“Health is an end-point that reflects the success of multiple other goals.” Dr Margaret Chan, WHO Director General [3]

Enhance alignment with the SDGs. As evidenced by the WHO, health promotion plays a major role in advancing the global agenda of sustainable development. Healthcare organisations should look to align their efforts beyond just Goal 3: Good Health and Wellbeing, because the achievement of all of the other 16 goals are contingent on global health. For example, prioritising health needs of the poor can help them break out of the poverty cycle (SDG 1); advocating for sexual and reproductive health literacy can empower women and girls (SDG 5); ensuring accessibility of health services and particularly primary care can help reduce inequality (SDG 10), and promoting low-carbon development creates cleaner and healthier environments (SDG 13).

Foster strong partnerships. With government healthcare spending continuing to rise globally[4], support from the private sector and voluntary welfare organisations is essential to create sustainable systems that meet the populations’ healthcare needs. SDG 17, Partnerships for the Goals, emphasises the need for public-private partnerships both within sectors and across sectors. Strong collaboration, knowledge-sharing and dissemination of best practices across different partners will help build resilient and sustainable healthcare systems.

Health is a fundamental right that cannot be achieved in isolation from sustainability. At the core, they share the same mission to improve human well-being, both now and in the future. By incorporating sustainability into their corporate mission and strategy, healthcare organisations stand to reap the benefits of the natural synergy between healthcare and sustainability while helping to build resilient healthcare systems, future-proofing their business and creating long-term value for all.

[1] WHO, http://www9.who.int/servicedeliverysafety/areas/qhc/resilient-health-systems/en/

[2] WHO 9th Global Conference on Health Promotion, 2016

[3] WHO 9th Global Conference on Health Promotion, 2016

[4] WHO Global Spending on Health: A World in Transition Report, 2019

Building supply chain resilience through sustainability

Five action plans for businesses to adopt after covid 19

Planning ahead
The global events in the last few months have demonstrated the high importance of supply chain management for many businesses. COVID-19 has caused an unexpected, global supply chain disruption, leading several businesses to re-examine their supply chain risks and strategies.

Moving forward, building supply chain resilience should not limit businesses to assess only their financial and credit risks. It is expected for them to move past these risks to also assess risks arising out of their supplier sustainability operations. Sustainability has played a vital role in recent years in shaping business strategies by influencing purchasing decisions. Supplier environmental compliance, workers’ rights and safety, and good governance are some of the aspects that have driven pressures from industry and buyers alike.

Past events have demonstrated loss of reputation, and consequently revenue, when sustainability risks are overlooked in supply chain operations.

However, due to the current economic slowdown and need to defend critical business assets, sustainability considerations might be pushed to the back seat. This might seem like a short-term success strategy, but in the long-term, it would be detrimental to the overall business growth. We are proposing five-step action plan for businesses to adopt, and to overcome short and long-term supply disruptions.

Action Plan 1: Protecting Human Capital should be a Key Priority
As one of the most vulnerable section of the supply chain, labourers and migrant workers face several challenges, especially concerning their livelihoods, health and safety. COVID-19 has put a spotlight on the living conditions of several such low wage earning workers, making them most susceptible to the virus.

Living in confined spaces with poor ventilation and minimum space to move, there has been mass spread of the virus among these communities. While businesses and economic activities have been halted in many of these countries, there has also been widespread unemployment and job insecurity bringing a lot of these workers to the brink of poverty.

This raises questions on measures to safeguard workers’ health and livelihood, key to wider business ethics. Priority given to protecting human capital must take precedence for any business and this should be followed through in the supply chain.

The ‘new normal’ must embrace the concept of social sustainability assessment for suppliers as part of the procurement procedure to gauge how suppliers are providing for their workers and their sustainability. Worker health, safety and security must be built into our suppliers and our business continuity plan to ensure a supply chain operation.

Action Plan 2: Supplier Environmental Risk Assessment while Sourcing
Several businesses facing supply chain disruptions currently would possibly look at switching suppliers to ensure future business continuity. Diversifying supplier base has been known to prevent major disruption of product supply. Businesses often deprioritise sustainability while sourcing for new suppliers.

Operational necessities such as price, quantity and quality often take precedence over sustainability concerns. However, for business continuity, it is critical for business to also look at supplier sustainability risks prior to sourcing.

According to a report by the World Economic Forum, environmental risks, in particular, have high impact and likelihood of occurrence in the coming years (The World Economic Forum, 2020).

These include climate action failure, extreme weather and natural disasters, which have in the past been known to severely disrupt the supply chains (an example, 2011 Thailand’s severe flooding disrupted several supply chains). Environmental sustainability risk assessment of suppliers could supplement the operational considerations during sourcing to avoid future supply disruptions.

Action Plan 3: Strengthening Supplier Partnerships and Customer Relationships
COVID-19 has played a spoilsport in managing relationships with suppliers, highlighting the dark side of procurement practices for many businesses. According to a recent report by Sustainable Apparel Coalition, many fashion brands have cancelled completed orders from their supplier manufacturing units (Sustainable Apparel Coalition, 2020).

Cancellation of completed orders brings about a ripple effect – from mistrust across industry players, economic instability to suppliers, and wide-spread unemployment of workers. This might lead to negative consequences for the business when the economy recovers. Businesses need to make meaningful partnerships with suppliers that extend beyond financial and material transactions, to sail through unprecedented events such as COVID-19.

Strengthening customer relationships is as important as strengthening supplier partnerships. In this tough time, customers are also facing economic instability and constraints that is changing their purchasing behaviours. Moving forward, businesses need to extend beyond the traditional role of providing goods and services to customers, to that of engagement and purpose. Maintaining transparency and following through on their commitments are key ways for gaining customer trust and maintaining a healthy supply chain.

Action Plan 4: Executing Scenario Planning and Waste Mitigation Strategies
Supply chain disruptions brought about by COVID-19 has resulted in higher inventory, therefore leading to longer lead times for many businesses. For sectors handling perishable items, this would translate to a lot of wastage. For the food industry alone, processing and transport breakdown, as well as panic buying has resulted in soaring prices and rotting crops posing a global food crisis.

Post COVID-19 would have to look at supply chain operations to devise plans to ensure crisis management and business continuity strategies. Businesses need to explore using several scenarios that could disrupt various stages of their supply operations, and devise waste management plans accordingly.

This might even mean relooking at diversifying customer base in addition to supplier base, also targeting waste mitigation strategies during times of crisis. Building collaboration with various stakeholders in the supply chain would help in overcoming some of the pain points. Avoiding waste could avert disposal costs for larger volumes of items and could also generate alternate revenue streams during crisis.

Action Plan 5: Digitalisation of Supply Chains>
Efforts to digitalise supply chains have been ongoing for many years. Many of our current products go through complex, global network of processes before reaching the end consumers.

Businesses are now starting to look at investing in technology and digitalising the supply chain to help better forecast the demand and manage diversification. Some data analytics tools provide opportunities to identify vulnerabilities in supply chain operations and predict risks.

Digitalisation could also help in real time inventory visibility, provide optimal transportation routes, and reduce lead time. All this would improve performance and reduce waste. Digitalisation is the future of enhanced supply chain management.

Contributor:
Sanjala Hari
Senior Consultant
Paia Consulting Pte Ltd
sanjala@paiaconsulting.com