2022 Virtual – ESG in South-East Asia: Policy Considerations for Improving Performance Across Sustainability and Social Parameters in the EV and Textile Industries
Note
This policy statement was prepared by Arjun Goswani, Director of Public Policy at Cyril Amarchand Mangaldas for the CACCI Policy Advocacy webinar held on December 14, 2022.
- ‘ESG’ stands for ‘Environmental, Social, and Governance’ – three pillars that broadly represent sustainability in practice.
- Climate change is widespread, rapid and intensifying. Employment and enforcement of labour standards have been adversely affected post-COVID-19. There is a growing recognition that businesses are one of the most important actors in the path towards sustainability and can be an effective agency for formulating change. The paper is in the background of COP27 – one of the most significant annual events bringing governments, the industry, and other stakeholders closer.
- ESG is going mainstream and becoming important for businesses, consumers, and governments. Just as business reputation is increasingly being linked to ESG performances, investors and consumers too are moving towards ESG-friendly products and businesses.
- A company could:
(a) reduce its emissions and improve its waste management practices (the ‘Environment’ or ‘E’ pillar),
(b) improve its labour and employment practices, safety standards, diversity in workforce and social inclusion (the ‘Social’ or ‘S’ pillar), and
(c) refine its stewardship policies and corporate governance as well as engage on better terms with its shareholders and other stakeholders (the ‘Governance’ or ‘G’ pillar).
These improvements may appear to be disparate, but together they contribute towards setting a business on a sustainable path. - While the adoption of ESG in practice may vary among jurisdictions (and may reflect the priorities of the domestic industry), there is a growing interest in businesses and investors in the Asia-Pacific region towards adopting ESG. Notably, the COVID-19 pandemic has made ESG considerations far more relevant to investors resulting in increased awareness and a shift towards ‘sustainable investing’. However, challenges remain in this difficult, but necessary journey. ‘Green’ sectors require greater government support, while large employment sectors must be able to transition towards a more socially sustainable business enterprise model.
- India is among the emerging market and developing economies that are leading domestic legislative efforts for codification of ESG-related considerations and framing policies to promote ESG adoption by businesses in a number of ways.
- Most surveyed jurisdictions have incorporated provisions that advance ESG objectives in their domestic laws and regulations, but there is variance in the scope and status of such incorporation, which are as follows:
- In most surveyed jurisdictions, director’s duties are generally owed only to the company and its shareholders. However, while India statutorily recognises duties of directors towards other stakeholders including the community and environment, Indonesia does so through a non-binding Code of Corporate Governance. In Australia, the prevailing interpretation is that there is a duty towards such stakeholders;
- While only Bangladesh, Indonesia and Philippines have national taxonomies for green/ sustainable finance, almost all surveyed jurisdictions have detailed regulations for green / sustainable / sustainability-linked / social bonds which are defined in relation to specified international benchmarks.
- The EV sector is rising to the challenge of reducing carbon emissions and improving air quality by using friendlier and cleaner energy. The EV industry is also driving innovation, entrepreneurship, employment and is promoting allied sectors like charging infrastructure and renewables for the generation of electricity.
- In Asia, governments are showing different levels of commitment towards electrification. Estimates suggest that by 2030, India and Indonesia will become the second- and third-largest electric two-wheeler markets in the world after China, growing by more than 60 per cent annually.
- Some measures that could help countries boost their domestic activity in the EV sector include:
(a) Fiscal initiatives, such as vehicle purchase subsidies, tax exemptions and reductions, toll waivers, lower electricity charges. At the same time, minimisation of fossil fuel subsidies and levy of carbon tax in a balanced manner may help drive EV adoption;
(b) Development of supporting infrastructure through installation of mandatory charging facilities for new and existing gas stations;
(c) Policy support through periodic review of EV policies to achieve state objectives, easily accessible platforms for information on EVs, review policies around domestic and foreign investment conditions in the EV sector.
- The textiles industry has long been touted as a major polluter. Investors and consumers are scrutinising the environmental costs of disposable garments, and there is more focus on adhering to minimum labour standards in the entire supply chain.
- On the other hand, industry leaders are responding by committing to very high standards of governance and transparency – by linking CEO’s objectives directly to sustainability; cutting CO2 emissions; better waste management; improving labour conditions; and closer oversight of the supply chain.
- Some measures that could help countries make their textile industry more sustainable include:
(a) To address concerns in relation to the ‘S’ pillar, SMEs (which generate about 70% of the worldwide employment) must advocate for sustainability-oriented legislations and create awareness on integrating ESG aspects in their businesses;
(b) A global ethical fashion guide or a sustainability index reflecting the sustainable measures adopted by the textile brands can influence consumer behaviour and lead to textile manufacturers transitioning to sustainable measures;
(c) A key driver for sustainability in the textile sector in developing economies is the increasing cross-border trade and subsequent free-trade and bi-/multi-lateral agreements, which can incorporate ESG considerations.
- Asia-Pacific economies are at various stages of development in terms of their EV and textiles sectors, and businesses are generally in different stages of incorporating ESG in their path towards sustainability.
- CACCI can, as a representative body of businesses in both developing and developed countries, be at the forefront an enabling business ecosystem that fosters incorporation of ESG. CACCI can draw on best practices and use those towards policy advocacy in Asia in these matters, including by recommending principle-based approaches to overcome some hurdles in adopting ESG practices, specifically in relation to the EV and textile sectors.
- There is an opportunity for businesses to learn from the experiences of counterparts in other CACCI member countries in terms of navigating regulatory and other challenges that may emerge.
- For its member countries, CACCI may consider setting up a research secretariat / team, that functions as a repository of knowledge on ESG and helps provide practical insights and low-cost advice to businesses on how to transition towards more sustainable practices.
The complete policy paper can be downloaded HERE.
The video presentation of the Policy Paper can be viewed in the CACCI YouTube Channel below:
