UN GLOBAL COMPACT CEO SANDA OJIAMBO: ESG IS GOOD BUSINESS

BEIJING, Nov. 16, 2023 /PRNewswire/ -- By China Report ASEAN

The United Nations Global Compact, the world's largest international organization promoting sustainable corporate development, has long been committed to helping companies comply with the ten Global Compact principles in human rights, labor standards, environmental protection, and corruption avoidance when formulating business strategies and conducting business operations. Today, more than 23,000 companies from 170 countries have joined the organization, of which nearly 900 are Chinese enterprises. Sanda Ojiambo, Assistant Secretary-General and CEO of the UN Global Compact, recently sat down with China Report ASEAN to discuss Environmental, Social, and Governance (ESG) investment and China-ASEAN cooperation. Ojiambo opined that because China and ASEAN share common goals in sustainable development, they should enhance collaboration on green technologies and share best practices.   

China Report ASEAN：The Science Based Targets Initiative (SBTi), created by UN Global Compact and other organizations, is consistent with the 1.5℃ temperature control path of the Paris Agreement and is currently the most widely used corporate carbon neutral evaluation standard in the world. How have Asian enterprises participated in SBTi?

Sanda Ojiambo: The UN Global Compact calls on companies from all regions, industries and sectors to set near-term science-based targets aligned with a 1.5°C pathway and long-term science-based targets aligned with the SBTi's Net-Zero Standard. Doing so will ensure that their targets are verifiable, in line with the latest climate science, and are being reported and monitored transparently.

For their first time, 317 companies headquartered in Asia set a science-based target in 2022. This represented a 127% increase in the number of Asian companies setting a science-based target compared with 2021.

As the source of many of the world's supply chains, growth in China can have a powerful effect on the scope 3 emissions, those emissions that are not produced by the company itself and are not the result of activities from assets owned or controlled by them, but by those that it's indirectly responsible for up and down its value chain, of companies all over the world.

China Report ASEAN：What difficulties do you think developing countries face in target setting and action planning to achieve "carbon neutrality" goals? What are their key needs?

Sanda Ojiambo: Nowhere is the tension between promoting growth and fighting climate change more palpable than in Asia. Many Asian governments have been struggling to cope with severe urban air pollution and the increasing frequency of powerful storms and floods. While Asia accounts for the world's largest emissions of greenhouse gases with the highest carbon intensity, it is also home to 99 of the world's 100 most climate-vulnerable cities.

The net-zero transition is a massive undertaking that requires enhanced state capacity. Laggard state-owned enterprises with outsize carbon footprints and state-controlled banks that are over-invested in fossil fuels need to become leaders in advancing renewable energy. Similarly, governments must develop and implement mission-driven policies to price carbon use accurately, encourage green innovation, and phase out dependence on oil and coal in a socially and politically sustainable fashion.

Some state-owned companies have already begun responding to these challenges. The Chinese government has directed the "Big Five" state-owned electricity companies to take the lead on greening the system. State-owned financial institutions are also changing: China's Exim Bank, for example, has adopted a green framework for its domestic operations.

But we cannot reach global carbon neutrality without significant contributions from the private sector, the skills and technologies they can bring to the transition are even more critical.

China Report ASEAN：UNGC is one of the earliest proponents of the ESG concept. Nowadays, more and more companies around the world agree with the ESG concept and have put it into practice. What do you think are the motivations for companies to continue to invest in ESG? How do you expect the global implementation of ESG concepts in the following 10 years?

Sanda Ojiambo: The concept of ESG was first coined by the UN Global Compact (UNGC) in 2004. Back then, the UN Global Compact's seminal report Who Cares Wins argued that companies and financial institutions could significantly enhance their performance and create more value for shareholders if they became better at managing a broad range of environmental, social and governance risks.

By these measures, ESG is succeeding. Of more than 2,000 academic studies, according to management consultants McKinsey, around 70 percent found a positive correlation between ESG scores and financial returns – whether measured by equity returns, profitability or valuation multiples. Increasingly, too, companies with good ESG frameworks are being rewarded with lower borrowing costs – up to 10 percent lower, according to some estimates. Lenders reason that companies with healthy ESG scores have better governance and risk management processes, and therefore represent a lower lending risk.

Over the next decade I expect ESG reporting to be tightened with measurable targets to address stakeholders concerns around increasingly wooly goals and misleading claims. The U.S. Securities and Exchange Commission (SEC) has a number of ESG-related proposals pending including extensive proposals covering climate-related disclosure and cybersecurity matters, as well as measures relating to human capital management and board diversity disclosures. Meanwhile, public and other large companies with a presence in the European Union will need to consider the new Corporate Sustainability Reporting Directive (CSRD), effective January 1, 2024. And in the U.K., there are plans to develop the U.K.-specific sustainability disclosure rules which will mean companies listed on the London Stock Exchange will have had to include climate-related disclosures on a "comply or explain" basis in their reporting since January 1, 2022.

We should not forget that, time and again, companies that perform well in ESG also perform better financially. ESG is not only about doing good, it is simply good business sense.

China Report ASEAN：How does UNGC assess the opportunities and challenges of scientific and technological innovation in promoting sustainable development? And specifically, the Chinese business community?

Sanda Ojiambo: Companies should invest more strategically in research, development, and innovation partnerships. Now, individual company investments in new technologies, products, services, and business models to deliver specific SDGs are necessary but not sufficient. There is untapped potential to leverage different combinations of public, private, and philanthropic finance and undertake joint efforts to accelerate or scale progress in crucial sectors and systems.

China is home to 143 of the world's 500 largest companies, as well as to 44 million+ small and medium-sized enterprises (SMEs). The Sustainable Development Report 2021 ranks China 57th globally in terms of sustainable development. The strategy argues that, given the size of its economy, foreign investment, and trade, China can have a "profound impact" on sustainable development at home and abroad. To help this happen, the UN Global Compact is working to foster business innovation and SDG partnerships through the Global Development Initiative.

China Report ASEAN：What are your views on how China and ASEAN countries can collaborate on green economy? And how can the private sector contribute?

Sanda Ojiambo: China and ASEAN countries host some of the most dynamic and emerging markets in the world, and share common goals of sustainable development and addressing environmental challenges. Collaboration can create a unified approach to tackle pressing issues.

Enhancing collaboration and investment in green technologies and products between China and ASEAN can drive economic growth and at the same time boost a greener economy. Establishing or joining platforms for sharing knowledge, best practices, and research findings can accelerate the adoption of green technologies and strategies as well.

Meanwhile, by investing in green projects, innovative technology, and sustainable supply chains, the private sector can be a driving force to a green and sustainable growth. Collaborative partnerships between businesses, both local and multinational, can amplify impact and bring forth scalable solutions.