Call it the Wal-Mart challenge. A move by the world’s largest retailer to ask suppliers to report their greenhouse emissions is an ominous sign for executives in Asia, where many of them operate. In the long run, it might be just what the region needs.
First, some background. Asian companies performed dismally in CLSA Asia-Pacific Markets’ maiden survey on climate change. Most respondents proved to be “largely oblivious” to the issue, the Hong Kong-based brokerage found.
About 40% of the 582 companies responding to CLSA’s corporate-governance survey ignored the newly added “Clean and Green” section. Of those that took it seriously, 64% scored a zero. That prompted CLSA to warn that it’s “reckless” for organizations to ignore the environmental impact of their businesses amid rising social pressure.
Enter Wal-Mart Stores Inc. The Bentonville, Arkansas-based behemoth hasn’t yet said what it will do with the emissions data. Yet given the pressure US executives are under from customers, politicians and activists, companies will probably soon begin to blacklist suppliers and nations.
“Once the likes of Wal-Mart start asking for such information, it may be only a matter of time before Asia finds itself in a losing position as activism in Western countries grows,” says Amar Gill, head of thematic research at CLSA.
For most corporate managers in Asia, Gill says, it hasn’t sunk in that business has a carbon footprint. Every enterprise consumes electricity, requires employees to travel and will have negative effects on the environment.
As Wal-Mart’s ever-growing interest in the issue attests, Asian companies “could soon be at a disadvantage if they don’t take steps to address the challenges,” Gill says.
The bottom line is that heeding calls for environmental responsibility is no longer a choice. You would think that darkening skies from Beijing to Jakarta and from Manila to Mumbai would drive the point home. So far, they haven’t.
“If this is going to be the Asian century, which I hope it will be, then Asia needs to take the lead on this,” says Rajat Nag, director general of the Manila-based Asian Development Bank.
Sadly, no leadership has come from the largest emitter of greenhouse gases: the US.
It’s great that President George W. Bush has evolved from dismissing climate change as a conspiracy theory to convening conferences, as he did in Washington last week. Yet by refusing to endorse the carbon-dioxide limits needed to avoid the most damaging effects of global warming, Bush is just encouraging Asia to drag its feet on going green.
Bush blew off the Kyoto accord in 2001 because some big developing nations are exempt from the required carbon cuts. That served China well; it took the onus off officials in Beijing to figure out how to grow rapidly while also reducing pollution. Japan, the US’ staunchest ally in Asia, hasn’t applied the pressure it should on Bush to offer a better example. After all, if the richest nation won’t change, why should poverty-plagued China, India or Indonesia?
Also, Europeans and Americans polluted plenty in the 19th and 20th centuries. In the spirit of fairness, it would seem that Chinese, Indians and other developing nation populations should be able to do the same as the West did.
On Tuesday, Yasuo Fukuda, Japan’s new Prime Minister, reminded investors why CLSA rates Japan one of the “clear leaders” in its commitment to the environment. Fukuda called on his government to step up efforts to meet its Kyoto greenhouse gas-emissions target.
Along with companies in South Korea and Taiwan, CLSA found Japan to be among the most environment-friendly. Those with “Clean and Green” scores of more than 80% include Japan’s NEC Corp., Sharp Corp. and Toyota Motor Corp., Korea’s Samsung SDI Co., Posco and Hynix Semiconductor Inc. and Taiwan’s Zyxel Communications Corp., China Steel Corp. and Taiwan Cement Corp.
The message needs to travel farther and wider in Asia. Governments, of course, are expected to take the lead, says Nag. Yet, Asia is already beyond the point where it must strike a balance between growth and getting control over the environment. The cost of not acting today will be slower growth, dirtier skies and ever-increasing health problems that add to public debt.
It’s worth noting that on the broader issue of corporate governance, CLSA’s latest study—conducted with the Asian Corporate Governance Association—was less than encouraging. The average score for companies in ex-Japan Asia rose just 1.2 points, a much smaller improvement than previous years.
The reason? Thriving economies and markets, which CLSA says are reducing pressure to clean up business dealings. The real dark side is that the faster Asia’s economies move, the bigger the environmental cleanup will be 10 or 15 years from now. It’s a risk that executives and investors are mostly ignoring. Wal-Mart is one exception.