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The basics of 'environmental' in Taiwan's ESG

'One solution fits all’ package for ESG doesn’t exist

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We face environmental risk daily from unwanted accidents. The photo shows Uniprofit cargo ship sailing under the flag of Belize stranded near a h...

We face environmental risk daily from unwanted accidents. The photo shows Uniprofit cargo ship sailing under the flag of Belize stranded near a h... (CNA photo)

We already know that Taiwan embraces ESG (Environmental, Social & Governance) as best practice of corporate development in Taiwan to maintain its high global standing and attractiveness for investment.

In this second opinion piece on ESG I’d like to go to the start of the acronym and focus on the “E” (Environmental) aspect. Put simply, the environmental aspect of ESG is of major importance for listed companies and those seeking to engage in green finance.

Also, interestingly, to me at least, I was recently asked to review a draft ESG policy for an organization that is not listed, has no intention, or need to engage in green finance and really was concerned whether it should adopt a policy. I noted its adoption would create responsibilities for the organization which it had possibly not thoroughly comprehended and one of those responsibilities was to show its environmental credentials.

Environmental concerns used to be for environmental activists but as I’m sure we are now aware, issues such sustainability, environmental stewardship, and climate change are mainstream focal points and, as discussed in the previous piece, Taiwanese consumers are backing sustainable products.

Investors also continue to shift to socially responsible companies and industries. Also, because concepts like climate change and sustainability aren’t easily defined, investors are increasingly reliant on ESG metrics which are quantitative, long term, and can be subject to public disclosure. In Taiwan’s case, this is where the Taiwan Depository & Clearing Corporation (TDCC) and its ESG Dashboard has certainly proven to be the driver of sustainable transformations and the promoter of international environmental standards for the Taiwanese market.

There is a plethora of ESG advisory firms in the market, only too ready and willing to advise on all aspects of ESG and no doubt issue an invoice commensurate to the size of the advice. This opinion piece is in no way derogatory of the capabilities of these firms, but I wonder, can we at least make some sense and some simple meaningful suggestions on what constitutes “environmental” (and even how might smaller companies or organizations, or indeed interested individuals can contribute to alleviating environmental concerns)?

We should at least have a basic understanding of “environmental” before we proceed. I see environmental, in the context of ESG, as the impact that any company has in relation to resource consumption, its carbon footprint, and in particular, waste disposal.

However, a quick visit to the internet will also provide you with an even more lengthy list of environmental concerns. In no particular order, the list includes – climate/greenhouse gas emissions (and related climate change risks), energy efficiency, air and water pollution, water scarcity and waste management, biodiversity, habitat protection, deforestation, overpopulation, ocean acidification, ozone layer depletion, and acid rain. This list is not exhaustive, but it does demonstrate at least some magnitude of environmental issues companies and the global population face.

We face environmental risk daily even if it is because of an unwanted accident (e.g., a road accident resulting in oil or waste spillage, an oil tanker running aground and leaking its toxic cargo). This form of environmental damage is easy to see and appreciate. However, not all environmental damage is so visible.

I was recently commissioned to author an article on the insidious damage being done to our global environment by microplastics (at less than 5mm in size, these microplastics are harmful to oceans and aquatic life and ultimately human life). Anyone who has visited a Taiwanese beach after high tide can attest to the volume of plastic waste washed ashore.

I know we all feel we should do better at environmental protection and improvement, but if you are a company with ESG obligations, why must you take note of the “E”? Well, some quick and easy examples are –

  • Customer, investor, and community scrutiny - Customers, investors, and communities are exerting pressure on businesses to disclose environmental impacts and demonstrate responsible, sustainable practices.
  • Brand Reputation - A brand can be irreparably damaged by a major environmental disaster, but they can also be tarnished for less dramatic reasons. Brands that are seen as wasteful, overly consumptive or environmentally dangerous will be penalized by the public and those all-important investors evaluate the potential for reputational risk even if your business has a low potential for major disasters. However, companies that demonstrate significant investment in sustainability and change can gain back their good name even after negative publicity around environmental issues.
  • Rules and Regulations - Offsetting and preventing environmental harm is a key political agenda. Lawmakers and regulators are responding to constituents and pushing for environmental protection at local and national levels. Businesses that anticipate environmental problems and mitigate risk will have an advantage as rules and regulations change. Being proactive reduces the chances of costly violations.
  • Sustainability is Profitable - Energy efficiency and good resource management can reduce spending. Even though there may be a significant up-front cost, major changes in how your business impacts the environment can head off expensive and destructive environmental incidents. Reduction in waste and initiatives to reuse and recycle can also decrease costs.
  • Employee Engagement - A culture of sustainability can inspire employees and allow them to participate in something that matters. The workforce, especially the younger generations, are aware of environmental issues and are often concerned about their own negative environmental impact.

For the purposes of Taiwanese companies that must be able to show their ESG credentials, I thought it would be interesting to see how the TDCC itself is handling the “E” in ESG. By reviewing the TDCC’s website I was pleasantly surprised by the frankness of the TDCC when it admitted that especially in relation to environmental aspects of ESG it admitted that “it needed to fully understand its own practices … before it could propose clear measures for improvement” to the Taiwan market.

The TDCC put its words into action, and we note from its website that, as for environmental protection, it “enhanced the digital financial environment and reduced the impact of business activities on the environment.” TDCC, through the development of comprehensive dematerialized issuance of stocks and bonds, book-entry operations, automation of issuer connection, e-voting platforms, TDCC ePASSBOOK, and electronic transmission of application forms, significantly reduced the amount of paper used in Taiwan's financial industry and carbon emissions from physical documents.

TDCC became a champion for the paperless concept. The organization also encourages its employees to implement energy conservation and carbon reduction into TDCC's daily operations and corporate culture to not only improve work efficiency, but also to engage its employees and reduce its resource consumption.

Before we conclude, I also noted that even companies that are not required to be ESG compliant (and for that matter, individuals) can also do their bit for the “E” in ESG. Some simple ideas include –

  • Gradual replacement of old light bulbs and fitting with energy efficient bulbs
  • Simply turning off all unnecessary electronic devices and lights at the end of the day
  • Setting your air-conditioning to energy-efficient levels
  • Separate your waste
  • Donating time and money to charities that are advocates for the environment
  • Organizing a beach/hiking train clean up
  • Encouraging young people to be actively involved

Again, the ESG message and evidence of actionable commitment to the “E” must come from the very top echelons of every company.

How do you think your company or, indeed you, yourself are doing for Taiwan’s environment?

Paul Shelton is an experienced banking executive with a 30-year history of working as Head of Legal and & Compliance and MLRO for the Asia Pacific branches of major international financial institutions in Japan, Singapore, Australia, and Hong Kong. He is also experienced in working with financial regulators across the Asia Pacific and provides consultancy services to Taiwanese financial and non-financial industry associations in all aspects of Compliance, AML/Sanctions, and Governance. Paul now resides in Taipei.