Fostering sustainability: What consumer countries can do?
Prof Simon Tay, Chairman, Singapore Institute of International Affairs
Mr Arief Yuwono, Deputy Minister for Environment Degradation Control and Climate Change, Ministry of Environment and Forestry, Indonesia
Your Excellency Mr Stig Traavik, Norwegian Ambassador to ASEAN, Indonesia, Timor-Leste
Ladies and gentlemen
1 A good afternoon to everyone. I would like to express my gratitude to SIIA for inviting me to participate at this Dialogue.
2 2015 is a significant year for the United Nations, because the General Assembly will be considering the proposals to formulate a set of Sustainable Development Goals. Every Single country, including Singapore and ASEAN member states, will have a role to play. Therefore, the theme for this dialogue: “Sustainability: A New Profit Driver?” is apt and timely. Today, I would like to make four points.
3 First, on empowering consumers. There is an increasing trend where consumers are demanding for environmentally friendly products, but the key problem impeding this empowerment is information asymmetry. Some would argue that there is a lack of market demand for sustainable products and a lack of motivation for sustainable methods of production. I would beg to differ.
4 The changes to consumer behaviour are clearly already underway. Overall, there has been an awakening in the consciousness of consumers on the importance of environmental sustainability.
5 Several consumer market surveys that have been conducted in the last few years have shown that the environmental record of companies and their product and services does play a major part in the buying decision of consumers. And this is not only a phenomenon in developed countries. A 2014 survey done by Nielsen showed that 55% of global online consumers across 60 countries have said they are willing to pay more for products and services provided by companies that are committed to positive social and environmental impact. The propensity or willingness to buy socially responsible brands is strongest in Asia-Pacific (64%), followed by Latin America (63%) and Middle East/Africa (63%). Paradoxically, the numbers for North America and Europe were only 42% and 40%, respectively.
6 There is a significant number of consumers who demand, and are willing to pay more for product and services that are sourced sustainably. I believe that this preference of voting with their feet and their wallets will grow stronger in the years to come. Therefore, the key point is that we need to reduce the information asymmetry or the information gap between consumers and producers.
7 Therefore, branding, labelling, packaging and marketing are all critical. Industry sectors that are first to develop standards and labels for sustainable products will have a head start.
8 I can see plenty of room for improvement in the palm oil industry. I believe many of those in the audience today, would be aware that palm oil permeates through many of our daily products. It is used in things ranging from cakes, chocolates, cosmetics to detergents and fuels. I have always found it surprising when I pick up these products, to see a cryptic line referring to “vegetable oils and fats”, rather than coming upfront to say that this is palm oil. This is an example of the need to being upfront and communicating accurately and fairly to consumers.
9 On a more encouraging note, I have noticed how the food industry is gaining momentum in making some progress in this area. You might be familiar with F&N Magnolia milk which you can easily find in all our supermarkets. They have switched their packaging to Forest Stewardship Council (FSC) certified cartons. To create consumer awareness on their eco-friendly packages, they advertise and hold promotions that encourage consumers to take care of the environment with enlightened purchasing decisions. This is a good example of reducing the information asymmetry, by being upfront, and gaining credibility and market share.
10 Bringing down the cost of producing sustainably, and holding polluters to be accountable for negative externalities, is therefore, the larger strategic objective. This will require the exercise of political will, comprehensive legislation, international cooperation and determined enforcement. This is not something that can be done by individuals but instead, it requires collective action.
11 This brings me to my second point, that of leveraging technology. We know that technology is an important enabler. Not only does it increase business productivity, it can also transform the market and societies that we operate in.
12 A week ago, I gave a speech at the SMU’s Sim Kee Boon Institute of Financial Economics Annual Conference. I touched on how technology has profoundly changed the entire financial sector. How brick-and-mortar stores and business models have had to change their modus operandi and they have had to ride on technological waves such as the Internet, mobile networks, internet shopping, transparency, the ease by which campaigns can be started and the fact that secrets are so hard to keep. All these are transforming the way that we live, work, purchase and interact and the way our culture evolves.
13 Similarly, there is potential for another transformation in the future of the product supply chain tracking and monitoring. Let’s take satellite monitoring technology as an example. The World Resources Institute’s Global Forest Watch Fire and SIIA’s Haze Tracker use satellite monitoring technology, overlaid with company concession maps, crowd-sourced data, and on-the-ground networks to facilitate the identification of fire and haze culprits and this in turn will promote a transparent forest management across the region.
14 The development of space technology had been rapid ever since the first satellite, Sputnik 1, was launched in 1957 by the then Soviet Union. Today, it is estimated that there are more than 1,000 active satellites orbiting the Earth and some are capable of taking high resolution photography. These high resolution satellite imagery coupled with global positioning system have greatly strengthened the ability for us all to embark on detailed environmental monitoring.
15 Similar to the way personal computers became commoditised and replaced the mainframe computers, the emergence of micro and nano satellites by developers and manufacturers such as Spire, Planet Labs, and SkyBox are also transforming space access in an unprecedented manner. For those who may not be aware, micro and nano satellites are relatively small in size. Some nano satellites can even be as light as a few kilograms and cost less than US$1 million to build, launch and deploy. As this technology becomes more commoditised, the price tag will fall. What this means is that we will be able to see in real time, where and who is burning the forests or exploiting our natural resources irresponsibly.
16 Another example is a biological one. Double Helix, a Singapore-based company, has taken a lead in the development of DNA analysis of trees and wood. This enables them to take any piece of furniture, do DNA analysis and identify the primary forest in which it came from. In other words, there are now biometric methods to assess the veracity and integrity of the documents and certificates that are produced for purposes of import and export and the global distribution of wood. This has made a significant difference in combating illegal logging. The price of DNA sequencing which has already fallen dramatically over the last decade will continue to fall and this too will be commoditised.
17 In the area of sustainability monitoring, the Forest Trust has also made use of the cyberspace technology and launched online monitoring dashboards for numerous companies in our region. This provides a platform for company managements to have a real-time picture to see what is happening in their concession areas. Companies which are already using the dashboards include Wilmar, APP, Golden Agri Resources, Cargill and others.
18 Technology can be a powerful game changer. It will allow consumers and non-government organisations to have more information. It will allow managements to have a better idea on what is happening within their areas of control and it will help us make companies and people who are participating in the supply chain more accountable.
19 This brings me to my third point, on building confidence in the supply chain system. Consumers expect a transparent and sustainable supply chain. How do consumers know, when they buy the finished product, that it is something that they can buy with confidence? If you are an investor in the company, how will you know for sure, about the way the business is being conducted by the company? This really is an issue of confidence, trust and verifiability.
20 A lack of direct influence over suppliers further down the supply chain can have downstream effects. We know that if the company does not bother to keep detailed records, it does not hold people throughout the entire chain accountable, then you can get problems, not only with the sources of the commodities, but even with issues on the management of the workers’ health & safety, social and environmental standards. It is therefore crucial for us to view audits not as an intrusive, tedious and an unnecessary process, but rather as a way to build confidence and that the transparency actually helps build the branding and market access. This is an area where the NGOs can help play a crucial role because you can act as credible and objective third party auditors. This will raise consumers’ confidence that when they buy the finished product, the process has been vetted and that it has been audited by people who are fair and by people who do not have vested interest in skewing the results one way or the other.
21 The Roundtable on Sustainable Palm Oil (RSPO) has done a good job in this area. It has united stakeholders from the palm oil industry to develop and implement global standards for sustainable palm oil. Members that do not meet the mark will be blacklisted. This will keep companies on their toes and hopefully, reward those who are doing the right thing in attaining sustainability.
22 Finally, my fourth point is that we need to enlist financial institutions into the effort. Consumer countries are usually also investing countries. Financial institutions such as banks and investors have significant influence on the functioning of markets and on the corporate behaviour of the producers and therefore, there is leverage.
23 Such recognition has led to the expectation that banks and financial institutions will be responsible and ethical in their investments or loans. In other words, we expect banks and financial institutions to do a hygiene check. It is not just a matter of interest rate but also about how the company is deriving its source of funds, and what its methods of production are. Will there be environmental, social and in extreme cases, even political risks in your investments? This has to become part and parcel of your standard due diligence.
24 For example, banks are important sources of capital for the palm oil sector. According to the BankTrack Report 2010, from five years ago, banks have provided about 24% of the total financing needed and it was further reported that in the past decade, more than USD50 billion have been invested in the Malaysian and Indonesian palm oil sectors. I believe this number has grown significantly since then. And if you include local sources of capital within Indonesia and Malaysia, there is a significant flow of money into these sectors.
25 As lucrative as the industry has been, it has also faced recurrent criticisms for deforestation. Bringing the context closer to home and the region, we have suffered from transboundary haze pollution. That is merely a symptom of an underlying problem. We need to hold companies and people all the way down the supply chain accountable for their actions and we have to deter companies and people from embarking in irresponsible land clearing methods like slash and burn.
26 Due to environmental scrutiny and campaigns by environmental NGOs, banks have also become part of the watch list. Therefore, please pay attention to this, and remember that questions will be asked not just of the companies involved but also of the financiers and the banks behind the industry.
27 I believe the finance sector can do more, and does want to do more. I also believe that consumer countries and investor countries working together with their financial sector will be equipped with the necessary tools, knowledge and the will to do more.
28 I would like to conclude by stating the obvious. Sustainable practices are not an end itself but the means to an end. Let us not forget that we live in a part of the world that is entitled to make developmental progress but we want to do so, in a sustainable way. That is the most enlightened, long-term way to achieve progress in a fair manner without having large segment of your population being penalised and being fair to all your stakeholders within your country and within your region.
29 Let me make an appeal for a stronger and closer cooperation amongst companies, NGOs, governments, citizens, investors and consumers. That is the only way to truly create a system based on sustainability with the correct signals, correct incentives and disincentives, to align behaviour and to get everyone to do the right thing.
30 Thank you all very much.