UN GLOBAL COMPACT CEO SANDA OJIAMBO:ESG IS GOOD BUSINESS

By Huang Jiangqin

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

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 short-term sciencebased targets aligned with a 1.5°C pathway and long-term sciencebased targets aligned with the SBTi’s Net-Zero Standard. Doing so will ensure that their targets are verifiable, aligned with the latest climate science, and reported and monitored transparently.

A total of 317 companies headquartered in Asia set a science-based target in 2022 for the first time. This represented a 127 percent increase of Asian companies setting a sciencebased target compared with 2021.

As a major host of many of the world’s supply chains, growth in China can have a powerful effect on scope 3 emissions—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?

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 outsized carbon footprints and state-controlled banks overinvested 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,and the skills and technologies they can bring to the transition are even more critical.

Companies that perform well in ESG also perform better financially.

China Report ASEAN: The UN Global Compact was one of the earliest proponents of the ESG concept. Today,more and more companies around the world are embracing the ESG concept and putting it into practice. What do you think motivates companies to continue to invest in ESG?How do you think ESG concepts will be implemented globally over the next 10 years?

Ojiambo:The concept of ESG was first coined by the UN Global Compact in 2004. The organization’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 regarding increasingly dense goals and misleading claims. The U.S. Securities and Exchange Commission (SEC) has several ESGrelated proposals pending including extensive proposals covering climaterelated disclosure and cybersecurity matters and measures relating to human capital management and board diversity disclosures. Large public and private companies with a presence in the European Union will need to consider the new Corporate Sustainability Reporting Directive(CSRD), effective January 1, 2024. And the U.K. has plans to develop localized sustainability disclosure rules which will mean companies listed on the London Stock Exchange must include climaterelated disclosures on a “comply or explain” basis in their reporting starting 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 the UN Global Compact assess the opportunities and challenges facing scientific and technological innovation in promoting sustainable development?And specifically, the Chinese business community?

Ojiambo:Companies should invest more strategically in research,development, and innovation partnerships. Now, company investment in new technologies,products, services, and business models to deliver specific SDGs is 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 over 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: How do you see China and ASEAN countries collaborating on the green economy?And how can the private sector contribute?

Ojiambo:China and ASEAN countries host some of the most dynamic and emerging markets in the world and share common goals on 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 can drive economic growth of China and ASEAN while making the economy greener. 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 become a driving force for green and sustainable growth. Collaborative partnerships between businesses, both local and multinational, can amplify the impact and foster scalable solutions.

(Tian Yuan, Assistant to the Executive Secretary of the Greater Bay Area Science Forum Secretariat, also contributed to this article.)