At the ICD (Institute of Corporate Directors) Roundtable last month, we had an interesting and timely topic discussed: “Corporate Governance in the Green Era.” This was given to the members by Mr. Octavio B. Peralta, the Secretary General of ADFIAP, an association of development and financing institutions in Asia and the Pacific.
Corporate governance, which has had to be accepted ever since the first financial crisis triggered by one company which had such devastating effects on the capital markets in 2000, nonetheless found itself challenged once again by the derivatives crisis of 2008-2009 that rounded upon the financial markets world-wide. At the same time, our world is facing another crisis that could also devastate the globe if the problem is not addressed – we are talking of the recent events in various countries that fall squarely on what we call the environment and climate change.
It might be asked how these two apparently disparate topics should be an area of concern by the business and corporate sector, when most people would shrug their shoulders and say that the environment is the responsibility of government, in effect disclaiming any kind of individual responsibility. And this is where corporates and, development institutions can come in and partner with the government in aiming for a sustainable environment – for business, for the community, for everyone’s life for that matter.
To start with, and to emphasize that business cannot ignore the impact of climate change on their bottom lines, Mr. Peralta mentioned a recent report that analyzed greenhouse gas emissions of the 500 world’s largest publicly-traded companies found that businesses will not be immune to the predicted changes in climate and may thus experience disturbance to their operations and profitability. Thus the report says it makes good business sense for companies to start accounting for their own greenhouse gas emissions and thus enjoy the following benefits: (1) identifying reduction and subsequent money-saving opportunities; (2) cutting the company’s regulatory risks that may result from more stringent national, regional, or international efforts to curb global warming; and (3) enhancing reputational status in the eyes of their consumers and other stakeholders.
How then can we promote a “green governance” culture among corporates and business persons? ADFIAP began in 1998 to bring to its member banks the relevance and opportunities that “greenbanking” offers. With the help and encouragement of USAID, the European Commission-Asia, ADFIAP produced two environmental management tools for banks and financial institutions, namely, the “Internal Management System” that provides measures on how to operationalize “green banks” and the “Environmental Risk Scan” that provides a framework for integrating environmental aspects in bank lending decisions.
Likewise, Mr. Peralta presented case studies from the Philippines, Sri Lanka, Malaysia and China that show what the member-banks are doing to promote a low-carbon economy in their countries. In the Philippines, the DBP has three lending programs that (1) provide financing to owners or administrators of large tracts of land that can be planted with fast-growing and high-yielding fruit trees which helps reforest the countryside and sequester GHG as well as providing revenue streams for the property owner in the long run (DBP Forest); (2) provide financing projects that are greenhouse gas-reducing in accordance with the Kyoto Protocol (Clean Development Mechanism); and (3) provide opportunities for local government units, government-owned and controlled corporations, cooperatives, water districts, private corporations and private water service providers access to long-term funds so as to mobilize, encourage, and support activities and investments in environment-friendly projects (Environmental Development Project).
Sri Lanka has a Renewable Energy for Rural Economic Development project which aims to electrify remote rural homes through solar home systems and off-grid village hydro, wind and biomass projects. Malaysia has two funding programs, namely, the biofuel financing scheme that assists all biofuel related activities and the renewable energy and energy efficiency scheme that supports government efforts in developing and enhancing projects that have environmental benefits from renewable related projects. The fourth case study which is from China Development Bank describe initiatives that include controlling loans to industries with high energy consumption and high pollution, such as the protection of Crescent Springs in Gansu, the cleaning of the Quinhuai River , and the protection of the rare crested bird specie, the ibis.
Truly such initiatives can help protect the degradation of our planet as well as renew and support new life. Governments through their regulatory bodies – the Bangko Sentral ng Pilipinas, the Securities and Exchange Commission in the Philippines, for one – should take the lead in adding a “green slant” to corporate governance structures, policies and practices. Business can cooperate with government by being selective in the projects that they undertake, leaning towards those activities which protect and enhance the environment.
The ICD for its part might find it useful to include in the Corporate Governance Scorecard some questions and measures that would encourage companies to be green-savvy. In other words, let’s not merely concentrate on the now accepted principles that relate to the profit-orientation of shareholders, boards of directors, and owners and move towards encouraging “green governance”.