Southeast Asia’s businesses can embrace social responsibility now – or learn the hard way

European laws such as carbon taxes and on supply chain due diligence are set to disrupt how business is conducted in Asia
Importantly, research shows customers, investors and capital markets reward companies that materially improve the world

Vincent Chin

Published: 5:30pm, 9 Jul 2023

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The case is clear – we must fix the pressing issues of pollution and social inequality that threaten our world. But who’s best positioned to make a positive and lasting social impact?

Traditionally, the role of implementing change has fallen to governments and charities. But these issues are far too complex and multifaceted for just those two stakeholder groups to address. There is a third player that can, and must, fill in the gap.

The business world must play a bigger role in addressing environmental and social causes. This is particularly urgent in Southeast Asia, which faces some of the worst consequences of issues such as global warming – and because of coming regulations.

The EU, for a start, has introduced a cross-border carbon tax. Under an agreement reached last December, the European Union will impose a pollution tax, starting with imports of iron and steel, cement, aluminium, fertilisers, electricity and hydrogen.

With taxes such as these, companies producing in Asia may suddenly find themselves unable to sell into Europe, one of the world’s biggest markets.

Germany has also introduced a supply chain due diligence act, which in effect will require companies to ensure their suppliers are free of human rights violations, such as child, forced or slave labour. Such legislation is likely to continue spreading across Europe and is set to disrupt how business is conducted in Asia. The bottom line is that buyers in Europe will no longer find it economically viable to buy from sweatshops.

Child workers wait to be registered by officials during a raid on a shrimp shed in Samut Sakhon, Thailand, on November 9, 2015. Photo: AP

That outlines the stick that companies need to worry about. But what about the carrot?

Boston Consulting Group research shows that customers, investors and capital markets reward companies that materially improve the world. Customers tend to be more loyal and willing to pay a premium. Employees are more loyal if they like what their company is doing. And companies with a meaningful environmental, social and corporate governance (ESG) strategy can get better access to capital.

There is also measurable impact – for consumer goods companies, the top decile of ESG performers attain stock market valuations that are 11 per cent higher, command price premiums that boost their gross margins by 4.8 per cent higher, and access one of the fastest-growing segments of the market.

Companies with material ESG programmes are also able to better attract and retain talent. Nearly two-thirds of millennials say they will not work for companies that are not socially responsible. Forward-thinking companies are evolving from regulatory compliance and charity, to creating real business value. It is a shift in corporate mindset from compliance to contribution.

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When it comes to making a real impact, I believe, if done right, the private sector has a huge potential to improve the world. Aligning business goals to create social impact will give rise to socially transformative businesses that will be rewarded by customers, employees and investors. The key, however, is defining goals that are core to a company’s basic business with measurable achievements.

Plenty of CEOs tout their commitment to making a social impact. But too often, that amounts to little more than an annual corporate beach clean-up, a visit to a hospital or charitable donations. Such actions may be well-meaning but do not really amount to much. Instead, companies need to make it a core part of their business, and not just window dressing.

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One example is Ola. The Indian ride-hailing giant has built an electric scooter factory in Tamil Nadu that its CEO Bhavish Aggarwal has pledged to staff entirely with women.

Ola’s Futurefactory will be the world’s biggest two-wheeler factory when it hits its annual output of 10 million units, with one out of every seven two-wheelers in the world coming from the women-only plant. This is a great example of how a company can create real business value by incorporating social impact as a core part of the business, instead of as an afterthought.

Outdoor clothing company Patagonia is another example of how authentic ESG can be a competitive advantage. Patagonia uses its platform to mobilise its customers towards climate action through the Patagonia Action Works, its partnership with activist athletes, and its promotion of responsible consumption.

Patagonia founder Yvon Chouinard, in a 2019 file photo, said last September that he was transferring shares of the outdoor brand to a trust and non-profit organisation dedicated to conservation. Photo: AFP

In the food and drink sector, Starbucks is a great example of a socially transformative business, with social goals built right into their supply chain: 99 per cent of the global coffee chain’s coffee is ethically sourced – and given its huge demand, this can alter the entire industry’s profile.

More companies across industries in this region should take a page from Ola, Patagonia and Starbucks.

There are three ways to move forward – our analysis shows the most effective plans fall into three broad categories: an inclusive supply chain, an inclusive organisation, and inclusive products and services. Ultimately, every company must figure out its path. Done right, it will be rewarded by customers, employees, and shareholders.

It is no longer enough to follow the clichés of corporate social responsibility. Southeast Asia’s companies must be socially transformative, changing their operations from the core, from their suppliers to who they employ and promote, and who they ultimately service.

This is not a nice-to-have, but a must-have. Taking the right action will deliver true return on investment for companies, generate value across operations and drive positive impact for all.

Vincent Chin is the vice-chair of Boston Consulting Group’s Public Sector practice globally and also leads the firm’s Social Impact practice in Asia-Pacific