2018: A year of responsible growth

Founder & Director, Pat Dwyer, shares TPB’s predictions for sustainable business in 2018.

While the world has often felt increasingly troubled in 2017, at The Purpose Business we’re confident in our ‘fearless forecasts’ that are set to deliver more positive news for 2018. Hope springs in particular for purpose-driven businesses, changing habits with greater environmental consciousness and Asia taking leadership.

Our fearless forecasts focus on purpose in business (issue 1), strengthening sustainability strategies (2-3), key/pressing issues (4-5), and the BIG three sustainability opportunities for Asia (6-8).

1. Purpose-driven business will rise from the east

How many times did we hear CEOs talk about purpose last year? There is no dearth of books, articles and podcasts about it and even founders of start-ups are expected to define it before hiring the very scrutinising millennial talent that come knocking at their doors.

How different purpose is from the erstwhile vision-mission-values is something that literature covered extensively. What we see as an exciting opportunity is to be able to tell the story of many years of purpose-led family corporations in Asia and listen to a selection of founders who are now emphasising their legacies of entrepreneurial spirits. In many other words, they themselves attest to having used a “north star” to drive how they viewed growing their business. The next generation of leaders- their children and grand children now agree that purpose is no longer simply about Freidman’s maximisation of profit for shareholders. Rather, purpose is the real raison d’etre of every company, and profit is a means to live out this sense of purpose. When purpose is activated consistently, it drives the way business treats its people, conducts processes and develops and delivers their products.

We are seeing more and more leaders in Asia speak about how purpose is driving their transformation to future-proof their business and we look forward to working with them in making this a reality.

2. Asian businesses will use the SDGs more meaningfully

As soon as the UN launched the 17 Sustainable Development Goals (SDGs, also known as the Global Goals) that aimed to end extreme poverty, fight inequality and injustice and fix climate change, all eyes turned to the private sector because governments, NGOs and global institutions cannot do this on their own. It’s been said many times that the SDGs will promote an opportunity for the private sector to innovate, develop new business lines, harness a global workforce and truly be a force for social good. According to PwC, who commissioned a detailed survey of business and citizens in 2015 right after climate week, 41% of businesses say they will embed SDGs into strategy and the way they do business, within five years.

However, what does this REALLY mean? Is it enough to publish visual sustainability strategies that are colour-coded like the SDGs they aim to align with? While we understand that “companies ‘cherry pick’ the SDGs they want to focus on and ignore others that don’t meet their corporate priorities or comfort zones”, there are planning methods that ensure the SDGs in focus affect the most material industry issues. While a mining company investing in tree planting and coral rehabilitation may directly impact goals 15 (life on land) and 14 (life below water) , it does not mean that it will not be expected to address issues of climate action (13) or decent work and economic growth (8), for example.

We look forward to more Asian companies looking at industry peers globally to ensure that they address meaningful issues and use the SDG targets and indicators, to inform the way they measure their operational performance and outcomes.

3. The role of the CSR Manager will evolve

“Is the CSR landscape in Asia maturing?” We often get asked a version of this question and it usually begs for proof points that “good” no longer means simply philanthropy. Rather, that sustainability has taken over traditional corporate social responsibility and it has a business case beyond cost savings (through reduced energy or water consumption). This could include driving innovation, new business opportunities or customer bases, operational efficiency, alignment with risk management or greater transparency.

In order to do this, we believe it is critical that sustainability be driven by someone who understands the business, or at least an aspect of its operations or management. A traditional CSR Manager in Asian companies for example, may have moved on from a career in the development world, or pulled from public relations/government affairs/human resources, and is not equipped to drive the understanding of sustainability within a company. Unless he or she spends time within the functional or operational departments, his/her effectivity to drive change will be limited.

Sustainability heads and their teams are better empowered when they understand and are part of key teams such as risk management (to handle ESG issues) or corporate procurement (to address responsible procurement practices), or the product development or service delivery side (to manage product responsibility or health and safety).

We look forward to seeing more CSR Managers in Asia evolve into better understanding their own businesses so that they grow beyond community development – and can make a better business case for it.

4. Impact measurement shifting from output to outcome

There are over 45,000 reports on the GRI Sustainability Disclosure database and almost 100,000 corporate responsibility reports on Corporate Register’s website. Despite the constantly evolving but largely dizzying matrixes of reporting frameworks that should make disclosures easier to read, sustainability reports are not bestsellers. Companies who insist on printing them in fact find them getting dusty on shelves and a vast number of employees have never seen them. Readers are no longer impressed by big numbers with infinite trailing zeros or the infographics that come with them, if they do not have context or impact. How do you know that 1,237,888 trees planted is a good thing? Is water saved equating to 109 Olympic-sized pools a good achievement? If that was a hotel chain with over 3,000 hotels, should it not be more than that? This is why storytelling as an approach to sustainability narratives have achieved much success- they make it real and relatable for the reader.

We believe that effective reporting – especially for impact measurement – is key. It can be better practiced, by shifting, more importantly, from output to outcome-based reporting.

An organisation starts with inputs, i.e. the resources it dedicates to sustainability programmes. This can include $$$ donated, # of volunteer hours dedicated, specific expertise like financial literacy advise or medical services rendered, etc. As such, outputs are the fruits of what inputs have borne. Because of $$$ donation, 90 classrooms were built. Because of 987,458 volunteer hours, 50 orphanages benefitted from extra hands and legs on storytelling, exercises, feeding programmes. Because of expertise without charges, non-profits were able to write better sponsorship proposals or administered hundreds of free vaccines.

There is nothing wrong with these outputs but perhaps the story remains unfinished. So what, if 507,458 volunteer hours helped 50 orphanages? Say the company that did that operates in 60 countries with 60,000 permanent employees. That only means that every employee volunteered for 8 hours for a whole year – assuming every single one of them did – and that’s hardly best practice these days. It’s therefore more meaningful to report the outcomes, which are the impacts or value rendered because of the programmes in place. If 90 classrooms meant that 1,000 underprivileged children got to go to school and graduate on to university, then the outcome is an increase in the labour force or an improvement in that city’s literacy rates. If a financial literacy training programme was administered to 500 migrant workers and this meant that 20% of them were released from debt after 2 years, then they can start looking at savings for heading home. These outcome indicators often answer the question of what social/ environmental value or longer-term impacts the programmes bring to society. As Robert Penna says in The Nonprofit Outcomes Toolbox:

“…impacts are what we hope for, but outcomes are what we work for.”

5. Lids off single use plastic

From Plastic Paradise, The Smog of the Sea to A Plastic Ocean and David Attenborough’s Blue Planet II there is no excuse to not being aware of the plastics problem. Particularly, single-use plastic – which has marked our days with fast, cheap convenient living – has been one of the single biggest contributors to landfill-bound plastic and more than 8 million tonnes of plastic waste leaks into the oceans every year destroying entire ecosystems and entering the human food chain (UNEP 2017). Up to 80% of the plastic in our oceans comes from land-based sources. If current pollution rates continue, there will be more plastic in the sea than fish by 2050. Single use plastic span everything from straws to coffee cup lids, plastic bags, coffee stirrers and takeaway food packaging. Across the globe, there is a call to rethink the way we use these disposable plastic and where possible, eliminate them and consider all other alternatives whether they may be in form of bringing reusable bags or water bottles. Where we see the biggest potential is of course in the way businesses use their scale and power to manage this problem in 2018 and beyond. After all, businesses have influenced our habits – be it from our morning java on the run or our shopping and packaging preferences.

We urge businesses to map their plastic use across products, packaging, deliveries beyond their corporate office use of plastic and consider alternatives or decisions on where they can either reduce, reuse of recycle. For beverage companies, innovation will bring the solutions like Danone and Nestle coming together to produce the first 100% bio-based PET bottle known as Natur-ALL. For food packaging companies, research and development may introduce biodegradable or chemical-free vessels, so that we continue to enjoy the goodies we love, without the packaging going into the seas.

6. Peeling back on food waste

When even Pope Francis himself comments on the issue; “We are called to propose a change in lifestyles, in the use of resources, in production criteria, including consumption that, with regard to food, involves growing losses and waste. We cannot resign ourselves to saying someone else will take care of it”, we know we will ultimately have to change the way we view food waste generation and management. An average of over half a kilo of food is wasted per person per day in Hong Kong making up 35% of municipal solid waste (MSW) according to Government statistics.

While we all have heard of nose-to-tail or stem-to-root cooking, the truth is that food waste is still something we don’t address with urgency on a daily basis. 2018 will see greater chatter around the subject not solely through regular education channels. The number of chefs who themselves are committing to zero waste efforts are increasing, more restaurants are priding themselves with craftily serving dishes made from food waste or menus planned to use all parts of the ingredients and more establishments being asked to disclose how they manage food waste all will drive daily habits to change. We are hopeful that there will be a push to prevent food waste before it even starts, rather than simply addressing it in downstream operations (composting, donating to food banks, etc).

An easy 3-step would start with 1) tracking waste where it starts and ends. For restaurants or hotel kitchen, it’s about assessing where wastage strikes between food preparation, spoilage and service and making decisions on reduction at that very point; 2) portion control is not about rationing. 3) Rethink storage – the freezer is your friend; reuse airtight bottles of unfinished tins of beans or tuna – and try to pickle! Vegetables may easily go, but pickling extends not only their shelf life but also their flavour.

7. Investors growing interest in long-term value: sustainable finance

In our opinion, 2017 saw a rise in awareness across the broader term called sustainable finance – orienting investments towards long-term and sustainable outcomes. At least for the markets we operate in – Hong Kong, its neighbouring China, Singapore and the Philippines – there have been conversations about what it means and how it can make a larger impact by funding sustainable development that is, financing the way we “meet the needs of the present without compromising the ability of future generations to meet their own”. While much has yet to be understood about the differences between the mechanisms of sustainable finance, along with how ROI is calculated, and most importantly, what roles various stakeholders play – it cannot be denied that there are remarkable opportunities for private lenders and investors particularly for Asia.

The UN Environment Programme (UNEP) partnered with DBS in producing the first estimates of green finance flows and opportunities across ASEAN. The report, Green Finance Opportunities in ASEAN, cites profitable green finance opportunities that financial institutions can tap into not only to solve very pressing problems but also to create much needed positive impact in the region. We are excited by this wave of opportunities and one distinct place to start is to align investor relations teams’ understanding of sustainability with the depth of work that sustainability teams have dedicated themselves to. Without surprise, an area of non-alignment, at least in Asia, exists between Investor Relations and Sustainability teams. They’ve never had to collaborate (why would they? ) but in the last 18 months, there have been increasing demands from corporate, institutional, even proxy shareholding investors for companies to disclose their ESG performance.

Investors as big as Aviva, Blackrock, Vanguard and many others turn to indices and surveys that score Asian companies’ performance largely based on disclosures within sustainability reports. If these reports are not done meaningfully or strategically, investing analysts will not know how to appropriately account for their performance and will therefore rely on the thorough of work of entities such as MSCI, SustainAlytics, DJSI, etc. We know that investors starting to expect climate change related financial disclosures (see the work on the Taskforce for Climate-related Financial Disclosures, TCFD) and are going to look for honest and transparent reporting beyond the superficial “comply or explain” format for ESG reporting. Investor relations teams will have to rely on the thorough data work that sustainability teams belabour time on, particularly in ensuring alignment with reporting frameworks.

Investors are increasingly integrating consideration of these sustainability issues and metrics into their decision-making. Unfortunately, few companies are successfully getting clear sustainability performance messages out to their investors. We look forward to hearing how sustainability teams across Asia synergise with IR teams better this year.

8. Industry leaders are emerging

We’ve heard it before – sustainability is a journey and it takes every business to shift in order to create impact. We have seen how sustainability leaders have charged on with various strategies- from M&S Plan A to the Unilever Sustainable Living Plan but the truth is, no business can do it alone, regardless of size or global presence.

Industry collaboration has proven to tip the scales at least. We are encouraged by the apparel industry’s push for greater transparency in human rights and labour practices through the Sustainable Apparel Coalition, the Sustainable Shipping Initiative’s Case for Action (tracking seven global trends and three challenges that prepare them for Vision 2040), and the Global Sustainable Tourism Criteria, that since 2008 has been setting sustainable tourism parameters for public policy-makers, destination manager as well as hotels and tour operators.

When industries come together and make certain sustainability practices the norm – it becomes easier to measure impact and compare best practices against each other. While CO2 emissions are better tracked and measured today through standard emissions factors, it wasn’t always so. The hotel industry had inconsistencies in the way carbon emissions have been reported in the past- some calculated per guest, some per guest night, etc. The World Travel Tourism Council launched the Hotel Carbon Measurement Initiative (HCMI) to aid hotel groups in ensuring measurements were done the same way, effectively making it more fair for corporate clients to assess their performance when requests for proposals (RFPs) queried emissions management.

Which industries will come together to lead in Asia? In Singapore, consumer goods giant Unilever, together with Ayam Brand, Danone, IKEA, and Wildlife Reserves Singapore have come together to push for even greater commitment for sustainable palm oil use. In the Philippines, big businesses have committed to investing in a plastics recycling plant.

We look forward to seeing more meaningful collaboration across businesses to drive scaleable solutions for some of our most pressing environmental and social challenges.