Time to move beyond business-as-usual in Asia: 3 recommendations for the private sector

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Business team brainstorming | © Chaay_Tee, Shutterstock

Today, Asia accounts for 42% of global GDP in purchasing power parity—a number expected to rise to more than 50% by 2040. The region houses 43% of the world’s largest 5,000 companies, which contribute $19 trillion in annual revenues to the world economy. Importantly, McKinsey and Company notes that Asia was the destination for $1 of every $2 in new investment in the past decade.

Within Asia, business activities are moving away from the region’s advanced economies towards many faster-growing ones. Of the top Global 5000 companies, Japanese firms’ presence has decreased drastically; the number of firms from Singapore and South Korea haven’t increased. However, Chinese and Indian companies doubled their share in the past decade while companies from the Philippines, Thailand, Malaysia, Bangladesh, and Vietnam have also risen to prominence.

But the growth-centric model comes at a cost. We do well to ask: has it translated into better lives for Asians?  This week the United Nations Economic and Social Commission for Asia and the Pacific (UN ESCAP) launched the Economic and Social Survey of Asia and the Pacific (2020 edition) to accomplish just that. Measured differently, the results are less appealing.

Looking at inequality, we found that the top 10% earners in the region receive nearly half the total income. Meanwhile, material use in the region tripled between 1990 and 2017. Indeed, according to UN ESCAP’s SDG Progress Report 2020, the region is not on track to achieve any of the 17 goals by 2030. In fact, most planet-related goals have either stagnated or regressed, bringing down progress on others.

This underlines an important point: even before the COVID-19 crisis, we’ve been living in the climate emergency decade, while continuing to walk on a business-as-usual path. As of 2017, the region used two-thirds of the world’s resources. Ninety-seven of the top 100 most air-polluted cities in 2018 were in Asia. The region has a serious waste problem, including solid, food, hazardous, plastic, and even e-waste. Over half of the world’s greenhouse gas (GHG) emissions come from Asia, making the region particularly vulnerable to climate risks. Over the last 50 years, Asia lost more than $1.5 trillion due to climate-induced natural disasters.

What’s the connection to public-private partnerships?

One way to bring prosperity is through partnerships between government and the private sector, often in the form of PPPs for service delivery.  In this area, Asia has outpaced other regions. However, the number of social-sector PPPs—those that aim to build human capital—is quite limited. Data from IJ Global shows that, from 2000 to 2016, of all PPP projects in education, health care, housing, and other social sectors, Asia saw only 5%, compared with 90% in OECD countries. Indeed, PPPs are often seen as a profit maximization financing method—through large-scale investments with returns guaranteed by government—instead of public procurement decision-making that allows the private sector to partner with governments in driving economic development and raise financing. But how exactly PPP projects affect public capital efficiency has always been unclear, partly because it’s hard to calculate the public sector’s cost of capital in its contribution to a PPP and, in turn, the project’s attribution to economic development targets. 

In light of this, ESCAP’s 2020 Survey calls for three actions from the private sector:

Integrate sustainability into business functions, even more. Many companies factor environmental, social, and governance (ESG) aspects in investment analysis and decisions. There’s room for much more. Companies can become a signatory to the UN Principles for Responsible Investment (UNPRI) to help guide this work. They can increase transparency and climate risk disclosure. Projects should require wider climate-risk assessment; additionally, to manage unforeseen crises, business-continuity risk assessment can be interwoven into financial models, natural and political force-majeure, and early termination clauses. Future-proofing PPP contracts from unprecedented events such as pandemics will go beyond simple renegotiations of terms, relief, and compensation events. Both pandemics and climate emergencies require a rethink of force majeure clauses to ensure business continuity.

Decarbonize, and faster. Transitioning to a low-carbon economy has been seen as a public sector issue, but not any longer! Carbon is an externality. Companies can adopt an internal carbon price to reduce emissions and mitigate climate-related risks while reaping opportunities emerging from the transition to a low-carbon economy. Companies like Mahindra & Mahindra ($10 per metric ton of CO2 emissions) and Infosys ($10.50 per metric ton of CO2 emissions) have started on this path.

Account and disclose full value chain GHG emissions. Most companies now measure their carbon footprints from production activities directly in their control— less so from upstream and downstream activities or value chains. Yet, according to the Carbon Disclosure Project, carbon emissions in supply chains are on average four times higher than from direct operations. The public sector can follow green procurement methods to ensure that the private sector is responsible for this, including employing resource efficiency through recycling, reusing, and better design and planning.

Most importantly, governments in Asia must seek companies that are committed to sustainability as partners and develop resilient PPP contracts. The COVID-19 pandemic is an opportunity for governments in the Asia region to build their crisis-resilience and prioritize social aspects in PPPs.

Having achieved so much, but also at risk of losing so much, Asia stands at a pivotal moment in its development journey.  As we enter the decade that culminates in the deadline for the 2030 Agenda, with new challenges acutely afoot, it’s clear our efforts so far are insufficient. We need collective action among all stakeholders to become true partners in this journey.   

 

Disclaimer: The content of this blog does not necessarily reflect the views of the World Bank Group, its Board of Executive Directors, staff or the governments it represents. The World Bank Group does not guarantee the accuracy of the data, findings, or analysis in this post.

 

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This blog is managed by the Infrastructure Finance, PPPs & Guarantees Group of the World Bank. Learn more about our work here.

 

Authors

Jyoti Bisbey

Lead Infrastructure Economics and Finance Officer, United Nations

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