Realising sustainable trade in ASEAN: Four pressing issues

Trade within and beyond Southeast Asia will grow exponentially in the coming years, fuelled by increased digitisation and adherence to sustainable business practices. What are the challenges that must first be addressed?

Despite the crippling impact COVID-19 has had on the 10 economies that make up ASEAN, its long-term outlook remains positive. By 2030, ASEAN will be the fourth-largest economy in the world, valued at USD10 trillion1 – up from USD2.8 trillion in 20192.

The interconnectivity of sustainable trade and increased digitisation will be essential in realising the region’s promise. Of note, ASEAN’s transition towards a greener economy is estimated to amount to USD1 trillion in economic opportunities3. These will be generated in areas such as energy and natural resources; manufacturing and logistics; infrastructure, healthcare and education; and sustainable financing.  

At a recent webinar hosted by Standard Chartered, titled “Transitioning for growth in ASEAN”, trade and supply chain leaders identified four pressing issues that they believe need to be addressed to deliver sustainable growth regionally.

1. Supply chain digitalisation

With multinational companies (MNC) across the globe facing enormous pressure to reduce their carbon footprint, efforts to become more environmentally friendly are a top priority for most. Providers of goods and services in particular face intense scrutiny given 73 per cent of their emissions emanate from their supply chains, states Standard Chartered's report, Carbon Dated. MNCs are expected to cut around 35 per cent of their current suppliers as they respond to net-zero pressure.

The inability of MNCs to accurately monitor the environmental performance of their supply chains hinders not only their own organisations, but also the international community as it strives to achieve net zero emissions by 20504. Digitalisation of the supply chain is therefore critical for MNCs to identify where environmental issues lie, monitor them, and develop solutions to overcome them.

“Tracking is a big challenge for ASEAN countries,” lamented Tan Chin Hwee, CEO, Asia Pacific at Trafigura, and Co-lead of Supply Chain Digitalisation at Alliances for Action. Resolving this issue won’t be easy, due to the sheer number of suppliers that MNCs typically have. The immediate solution, he said, is for MNCs to promote supply chain digitalisation among all providers. “Without digitalisation on the supply side, which allows you to track, everything else is just theory.”

2. Gender equality

COVID-19 is expected to dramatically decrease the financial standing of women, especially in emerging markets5. Women’s employment is already 19 per cent more at risk than men’s6, and with almost 60 per cent of women working in the informal economy7, this makes them particularly susceptible to a wide range of challenges.

“Women and girls are particularly affected by impact of covid-19 especially in rural areas, from marginalised communities. They are at greater risk of job losses and falling into poverty,” warned Nguyen Thi Bich Van, Chairwoman at Unilever Vietnam. Women globally have undertaken yet more household chores since the onset of the pandemic8, while gender-based violence rose during lockdowns9.

Nguyen Thi Bich Van believes everyone has a role in supporting gender equality, especially businesses. She cited numerous initiatives launched by Unilever as examples, including a microfinance programme to help 50,000 women and their families to improve their livelihoods with evolving capital of around 350 billion VND (15.25 million USD)10, and the company’s Women do Business initiative, which aspires to support one million women with education and training by 202511.

3. Financing standards and best-practices

While many banks have committed to sustainable trade finance, the definition of what this entails varies greatly. To date, no industry body has produced an agreed set of standards and best practices.

Standard Chartered recently launched its Sustainable Trade Finance Proposition, which through rigorous metrics allows the bank to support select companies and industries that trade internationally, as well as the buying and selling of certain types of goods. Focusing on a wide range of products – including supply chain finance, invoice financing, receivables services, bonds and guarantees, and letters of credit – the proposition will help companies implement more sustainable practices across their ecosystems and build more resilient supply chains, which globally amount to more than USD19 trillion12 annually.

This and other initiatives from the few banks leading the charge won’t be enough to meet ASEAN’s sustainable trade finance needs, however, especially among SMEs. The market needs all banks to align with established frameworks and guidance, like those found in the debt capital markets with the launch of the Climate Bonds Initiative13 and ICMA’s Green Bond Principles14.

“This will help prevent greenwashing, and will also ensure that what is considered ‘sustainable’ aligns with multiple criteria and not just one aspect,” explained Roberto Leva, Trade and Supply Chain Relationship Manager at Asian Development Bank, and Co-chair of ICC’s Sustainable Trade Finance Working Group. Since the launch of green bonds in 2007, global issuance has topped USD1 trillion15.

4. Industry know-how

With 78 per cent of MNCs saying they will remove slow-to-transition suppliers by 202516, businesses in ASEAN run the risk of not meeting these high sustainability standards and hence losing out. This is particularly the case in Malaysia, as roughly two-thirds of its exports are shipped to regions that typically hold such high standards17.

To help exporters adopt sustainable business practices, the Malaysia External Trade Development Corporation (MATRADE) launched its Sustainability Action Values for Exporters (SAVE) programme in 2019. The aim is to create awareness and upskills Malaysian exporters towards adopting global sustainability practices across many industries and positions the country as forward-leaning economy with which to trade.

“The global supply chain is imposing certain conditions on sustainability practices, so we have to prepare exporters to meet these expectations,” noted Raja Badrulnizam, Director for ASEAN and Oceania at MATRADE. And it’s not just traditional industries like manufacturing that are benefitting; he highlighted MATRADE’s e-commerce programme, which enables businesses to export to more than 40 countries globally. ASEAN is a key target market, given the region’s digital economy is expected to grow from USD100 billion in 2020 to USD300 billion in 202518.

While trade within and beyond ASEAN holds a number of acute challenges, the future for the region is bright. “Not all the solutions exist today,” enthused Roshel Mahabeer, Executive Director of Sustainable Finance at Standard Chartered. “All players need to collaborate. Banks need to work with companies to develop technology that introduces elements of traceability and support; provide know-how; and then make that information available so we can make better and more proactive decisions, and understand the impact of our actions.”

1 https://www.weforum.org/agenda/2020/06/8-ways-asean-consumer-habits-will-change-by-2030-shaped-by-covid19-tech-and-more/

2 https://www.aseanstats.org/wp-content/uploads/2020/11/ASEAN_Key_Figures_2020.pdf

3 https://www.bain.com/insights/southeast-asias-green-economy-a-trillion-dollar-opportunity-video/

4 https://www.un.org/sg/en/content/sg/articles/2020-12-11/carbon-neutrality-2050-theworld%E2%80%99s-most-urgent-mission

5 https://www.undp.org/press-releases/covid-19-will-widen-poverty-gap-between-women-and-men-new-un-women-and-undp-data

6 https://www.undp.org/press-releases/covid-19-will-widen-poverty-gap-between-women-and-men-new-un-women-and-undp-data

7 https://www.ilo.org/global/about-the-ilo/newsroom/news/WCMS_627189/lang--en/index.htm#:~:text=Out%20of%20the%20two%20billion,in%20the%20most%20vulnerable%20situations.

8 https://www.bbc.com/news/world-55016842

9 https://www.unhcr.org/news/stories/2020/11/5fbd2e774/gender-based-violence-rise-during-lockdowns.html

10 https://vietnamnews.vn/economy/816002/unilever-vietnam-president-better-gender-inclusion-better-business.html

11 https://vietnamnews.vn/economy/816002/unilever-vietnam-president-better-gender-inclusion-better-business.html

12 https://www.wto.org/english/res_e/statis_e/wts2019_e/wts2019_e.pdf

13 https://www.climatebonds.net/

14 https://www.icmagroup.org/sustainable-finance/the-principles-guidelines-and-handbooks/green-bond-principles-gbp/

15 https://www.climatebonds.net/2020/12/1trillion-mark-reached-global-cumulative-green-issuance-climate-bonds-data-intelligence

16 https://www.sc.com/en/insights/carbon-dated/

17 https://wits.worldbank.org/CountryProfile/en/Country/MYS/Year/2019/TradeFlow/Export/Partner/by-country

18 https://blog.google/around-the-globe/google-asia/e-conomy-sea-2020/

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