Is the circular economy Asean’s secret weapon for Covid-19 recovery?
Developing economies have often seen sustainability as a sinister plot by the developed world to keep them in their place. The rich world, miff the developing countries, has profited off years of unsustainable industrialised production to become the masters of the global economy. And now, they are using sustainability as a fig leaf to hinder emerging economies trying to narrow the gap. Global climate change regulation has often been hindered by such countries demanding their “right to pollute”.
Meg Argyriou, acting CEO of Climate Works Australia, laments in a story published by The Conversation, a network of not-for-profit media outlets: “Decarbonisation is often not a priority for less developed countries, compared to key issues such as economic growth and poverty alleviation. Many countries struggle with gaps in technical and financial expertise, a lack of resources and inconsistent energy data. More fundamentally, poor governance and highly complex or fragmented decisionmaking also halt progress.”
Such concerns, however, are increasingly unfounded, according to a position paper by the EU-Asean Business Council. On the contrary, they argue that circular economy models are potentially a sustainable driver of long-term growth for Southeast Asia. In contrast to linear economic models based around production, usage and then disposal, circular economy models aim to eliminate waste, keep products in continual use and regenerate natural systems.
“Circular economy models provide the foundation for resilience, preparedness and competitiveness, bringing crucial benefits for both the economy and environment across all levels. This will be vital in addressing the environmental complications stemming from climate change and the increasing amounts of waste produced by Asean’s fast-expanding economies and populations,” says Donald Kanak, chairman of the EU-Asean Business Council and Eastspring Investments.
In search of a green Asean
Asean leaders are increasingly beginning to make sustainability a part of the regional agenda. At the 35th Asean Summit in 2019, the Asean Leaders’ Vision Statement vowed to “strengthen resilience of Asean economies to make them sustainable and less vulnerable to future shocks by stabilising manufacturing, promoting complementarities in the regional supply chain through technology exchange, and ensuring food security and energy security”. They also promised to strengthen existing Asean frameworks to better account for sustainability.
Observers are also coming around to the idea of a “green recovery”. According to the Jakarta-based think tank Economic Research Institute for Asean and East Asia, the adoption of circular-economy principles could lead to economic growth of US$324 billion ($441 billion) and create 1.5 million jobs in Asia over the next 25 years, with cost savings being a major contributor. The International Labour Organisation sees new jobs being created in Asean within the resource management and protection, as well as natural resource utilisation within public administration. The International Renewable Energy Agency found that 63% of all renewables jobs were recorded in Asia in 2019.
The paper also notes that sustainability has increasingly become a key part of future trade agreements among Asean’s regional economic partners. The EU reaffirmed its commitment to mainstream social and environmental sustainability concerns in EU trade agreements, while other countries like South Korea have also placed sustainability chapters and clauses in trade agreements like the Korea-US free trade agreement. For Asean, developing a sustainable economy could be key to ensuring the further expansion of trade agreements going forward.
The switch to a circular economy could drive internal economic innovation as well, with dynamic young companies increasingly tailoring their product offerings to capitalise on the emerging sustainability revolution.
Singapore-based Greenpac, for instance, has created the world’s first nail-free wooden packaging design that is 100% reusable and recyclable, reducing the weight, transport costs and carbon footprint of packaging. Led by prominent entrepreneur Susan Chong, the company was given the World Packaging Star Awards for Transit Packaging by the World Packaging Organisation this year.
Circular economy reforms are particularly important in the area of infrastructure development, with Asean states like Myanmar and the Philippines deemed vulnerable to climate change. According to the Asian Development Bank (ADB), Southeast Asia needs to invest US$210 billion – 5% of projected GDP – a year over the next decade in infrastructure just to maintain current levels of growth. Otherwise, it warns, climate change could erode 11% from the region’s GDP by the end of this century; sustainability is key to Asean’s economic future.
Changing climate patterns could also levy significant disruption and costs to regional businesses. MGI finds that in Ho Chi Minh City, the direct infrastructure damage from a “100year flood” — one with a 1% chance of being equalled or exceeded in a given year – could rise from about US$200 million to US$300 million today. Worse, this figure could rise to US$500 million-US$1 billion by 2050. Knock-on costs could reach as high as US$8.5 billion in 2050. Extreme rainfall events are expected to increase significantly as climate change grows steadily worse.
The report also finds that by 2050, between US$2.8 trillion and US$4.7 trillion of GDP on average in Asia annually, or more than two-thirds of the global total, will be at risk from the loss of effective outdoor working hours because of increased heat and humidity. Three quarters of global capital stock that could be damaged from river flooding in a particular year is in Asia. By stemming the rate of climate change, a circular economy could mitigate this impact on the region’s lived environment and economy.
Adopting a circular economy could also see Asean enjoy better raw material security as prices of commodities rise. “Current production and consumption patterns resulted in an overall 150% increase in commodity prices between 2002 and 2010, negating the real price declines over the last 100 years,” notes the position paper.
The paper observes that the role of the circular economy in minimising raw material consumption could insulate Asean from such risks. With manufacturing accounting for over 20% of Southeast Asia’s GDP, lower raw material costs could allow Asean to become an attractive alternative to China for manufacturing, as firms look to redirect supply chains away from China to improve resilience.
Regional businesses are increasingly embracing the green agenda. Dutch dairy cooperative Friesland-Campina sees circularity as key to operating in balance with nature. Its stated purpose, “Nourishing by Nature”, is about sustainable nutrition and making the entire dairy chain — from grass to glass — more sustainable.
“Climate-neutral products can only be achieved if governments, consumers, retailers, other companies and suppliers all contribute to this movement,” says Leslie Chong, the cooperative’s public affairs and communications director for Asia, Middle East and Africa.
Developing a green mindset
How, therefore, should Asean countries go about developing a circular economy? In the short term, the position paper recommends governments remove regulatory barriers to the transport, reprocessing and reuse of post-consumer materials and improve infrastructure for waste collection, separation and reuse of plastics. It also calls for them to price negative externalities and provide structural and economic support for recyclable and recycled materials. In the long run, countries should invest in circular economy education, training, innovation incubators and transition projects to get society used to a circular economy, says the position paper. It also calls for the development of a policy framework to integrate informal waste workers into a modernised waste/material recuperation sector and develop common circular economy standards and frameworks that can be standardised across the region.
NUS Business School’s Sumit Agarwal has in fact called for a more comprehensive international standard of ESG assessment to be developed to better understand the extent to which an investment is sustainable. Such a standard, he argues, should assess the source, method and resources used in producing a product as well as the extent to which the product can be reused. With the fragmented state of ESG standards now comparable to the “Wild West”, he says, it is only with such a globally-accepted ESG standard that a firm’s ESG compliance can be accurately assessed and strategies devised to mitigate any potential sustainability challenges.
But ultimately, what matters most is a mindset change about the role of sustainability in the future economy. Say Peter Bakker, president and CEO, World Business Council for Sustainable Development, and John Elkington, executive chairman and co-founder of consulting firm Volans, in a World Economic Forum thought piece: “Building back better is about much more than corporate social responsibility: it is about truly aligning markets with the natural, social and economic systems on which they depend. It is about building real resilience, driving equitable and sustainable growth, and reinventing capitalism itself.”