From asset management companies to investment banks and even regional water operators, the corporate world has given much emphasis on the need to pursue sustainability and meet carbon net zero as an effort to mitigate the damaging effects of climate change.
This is in light of the 17 Sustainable Development Goals (SDG) launched in 2016 by the United Nations. To date, the generalisation of these 17 SDGs cater to the needs of each nation, leaving them the freedom to map out their own path to meet these targets.
To make further sense of this increasing trend, the journalism team of Financial Literacy for Youths (FLY) Malaysia interviewed University of Malaya (UM) Professor Datuk Dr Rajah Rasiah to ignite a conversation on the importance of inclusivity, ESG, measurements for growth, and sustainability in the context of Malaysia.
According to Dr Rajah, what remains elusive in this global pursuit of sustainability is inclusivity.
The UM Professor of Economics said that the real essence of the issue is usually not captured as there is a distinct difference in concerns between policymakers and target groups.
“There is a need to address the issue of inclusivity among target groups from their own perspective in order to meet sustainable development goals, which is to participate with the policymakers to determine their destinies,” he said.
Recalling his experience of reading Pyramids of Sacrifice: Political Ethics and Social Change by Peter L. Berger during his undergraduate years, Dr Rajah said it is important to conduct research and gather on-the-ground data, to capture the real concerns of the target group before implementing policies.
“Imagine policymakers and politicians who live in Brasilia. They make decisions for people living in the Amazon equatorial forest. Now, these guys have never been to the forests. They then decide on their own to clear those equatorial forests to bring them some sort of progress.
“Then they end up cutting down trees and leveling the ground. The immediate consequences of that are that it leads to a huge amount of degradation of soil, causing floods, and destruction to the livelihood of the masses.
“This is akin to a situation where policymakers – ignorant of the circumstances facing targeted groups – determine policies for them. Sufferings felt by those only observing them can never be the same as those experiencing them. What more for the policymakers who don’t even observe them,” he said.
Addressing ESG Shortcomings
There is a perception that the implementation of ESG in the corporate world may require some adjustments in the way business is done, making the issue of rising operating costs to inevitably rise. Nevertheless, big corporations are doing fairly well.
Dr Rajah said there is transparency in the practice, but only when exporting to foreign countries. According to him, some countries such as Germany require companies to provide full disclosure on the instruments in place to measure sustainable practices before allowing them to ship their products into the country.
“I think that this practice should be expanded beyond exporters. It should be extended and embraced at the national level,” he added.
It is thus important for economic agents to adopt the new processes supported by operating manuals and other instruments and make the necessary disclosure in relation to this so that transparency is there for all stakeholders.
“It can easily be done here if only there is political will,” he said.
However, a formal discussion of ESG wouldn’t be complete without bringing up the phenomenon of greenwashing – an unsubstantiated practice of deceiving customers and stakeholders into believing that a firm is climate or environmentally friendly.
Dr Rajah suggests a few ways to mitigate this issue. For instance, greenwashing could be discouraged via higher taxes which increase over time if targets are not achieved.
Another method to ensure that the implementation is not delayed is to require the steps to be undertaken to achieve the stated SDG goals to be disclosed and monitored.
On this note, Dr Rajah reiterated the need for countries to have a proper plan for meeting the SDGs. Governments must play their role by providing incentives for compliance and fines and even jail terms as seen in South Korea for non-compliance.
“You can be a good entrepreneur by doing the right thing,” the economics professor added.
This will result in greater transparency, which shall help attract both domestic and foreign direct investments (FDI).
On Sustainability in the Malaysian Context
Shifting the discussion into the national context, ESG was laid down as one of the main themes of the 12th Malaysia Plan.
Speaking from his experience in the Energy Commission, Dr Rajah said the government has already taken some initiatives to adopt solar power and reduce the emissions of greenhouse gases (GHG).
In fact, Malaysia is aiming for a 45% reduction in carbon emissions by 2030, and net zero by 2050. Commendable efforts thus far include the adoption of electric vehicle policies to encourage greener choices from consumers. Among other things, the government has launched three large scale solar (LSS) projects over the period 2018-2022 to increase the supply of renewable energy in the country.
However, he hopes the policies towards more targets will be formulated and equally important not to be reversed but maintained or improved going forward.
According to him, it is very important to review and assess the policies to ensure the process implemented is on course to meet the targeted goals and the nation needs responsible government and leaders to achieve this.
“I feel the government should be more involved in calling for accountability. We don’t have a clear roadmap on how to get there (sustainability),” he said.
Further, in the area of research support for the formulation of the appropriate policies, he believes that the availability of data for field research should not be restricted but be made more readily available so that the research findings are more reflective of the actual situation on the ground.
“What I think the government should do is make data readily available. It should not be seen as once they give data to scholars, scholars will end up condemning the government,” he said.
He believes the area of research is limitless and can help to increase the level of awareness in many areas of Sustainability such as the concept of Smart cities and the management of landfills for instance.
Reconsidering GDP and Alternative economic measures
On the question of gross domestic product (GDP), Dr Rajah expressed concerns.
Though GDP remains the economic standard to measure a nation’s growth, Dr Rajah commented on a major flaw in GDP calculation: it does not account for SDG factors, potentially resulting in misalignment between growth and sustainability. He said that the national accounts framework used to model GDP estimates emerged strictly for planning purposes, and was never meant to show social well being.
He instead proposed three alternative measurements: the Inverted U Shape Growth, Gini Coefficent and Environmental Coefficient. I did not say this.
Dr Rajah called for a new measure of socioeconomic metric that is able to complement rather than replace GDP to capture social well-being. It would ideally exceed the standard norm of measuring going beyond the growth in output of companies and nations. The multi-dimensional poverty index, the happiness Index, and the human development Index are some of the new measures that have emerged to complement the GDP.
Any incorporated factors in new measurements must be as comprehensive as possible, including accounting for any possible unintended consequences, and one that allows for revisions in future.
The application of subsidies by the government in Malaysia seems seriously flawed. “For example, maintaining subsidies for RON 95 is intended to assist the lower-end users but those not targeted take advantage of the price gap to free ride – e.g., the upper and middle class citizens, tourists from abroad, and those leaked across borders.” he explained.
As a focus on GDP growth to resolve poverty may be ineffective, he stressed the importance of a correct and clear definition of poverty.
Only then can the necessary resources be deployed and approved in budget allocations to address and alleviate poverty.
Dr Rajah quoted a model to incorporate sustainability conceptualized in The Doughnut Economy written by Kate Raworth.
In the book, a new green economic model is a scenario where the world economy and the social foundation would work in a complementary manner with its planetary boundaries to protect its own life-sustaining system.
“Any new green framework for the future economy has a chance of success if there are steps to monitor, review, recalibrate and reassess and modify if necessary,” he added.
Sustainability remains a new concept in the infancy stage to be wholly embraced by the whole world.
It cannot be denied, however, that increasingly clear warnings of the dire consequences of climate change: increasing rates of floods, desertification of lands, and higher recorded temperatures, are no longer ignorable.
The solution is at hand: the mass adoption of SDG goals within systematic means, coupled with sustainability awareness and action plans.
However, capitalism has remained in conflict with the SDG Goals to achieve sustainability?
Dr Rajah explained: “Capitalism has indeed evolved to be more egalitarian and different forms of capitalism have emerged now such as the democratic socialism seen in countries like Germany and the Nordic countries.”
“And this evolution has enabled a wider social agenda for instance to be taken into consideration.”
The achievement of a just world would require considerable experimentation and collaboration among countries with the political will to focus on the masses and nature rather than simply on protecting the interests of big business and authoritarian governments.
Journalists: Sean, Malcolm, Hana Zahra
Reviewers: Emeline Yong, Elina Yong
Uploader: Qurratul Ainin