BUILDING A BUSINESS FOR PURPOSE
The growing importance of ESG in the logistics industry
In 2018, global energy demand rose by nearly three per cent, which is the fastest growth rate since 2010. Additionally, sea levels have risen by three inches from 1990 to 2017. Climate change is increasingly becoming a reality.
Given this outlook, logistics providers in the region and globally are renewing their focus on environmental, social and governance principles. It is no longer a luxury confined to large firms, but rather, a licence to operate in the logistics industry. In fact, according to Cerasis, approximately 64.2 per cent of supply chain entities report implementing sustainable solutions within the last two years.
ESG principles are important for logistics firms as their operations tend to span across several markets and can therefore have a wider impact. Embedding these principles in business operations inevitably leads to sustainable markets and better outcomes for societies.
Dubai and the other Emirates of the UAE are leading the way and have introduced several environmentally friendly strategies and initiatives as they transform towards a green economy.
For example, Dubai has begun to green its fleet of government vehicles by purchasing over 4,000 electric and hybrid cars to replace gas and diesel vehicles. In 2016, the Dubai Water and Electricity Authority (DEWA) established the US$27 billion Dubai Green Fund to stimulate investment in clean energy and other green projects by providing seed financing, a de-risking facility, and facilitating crowdfunding.
Sustainability is a fast-growing area of interest for private businesses in Dubai as well. In July, the Dubai Financial Market (DFM) launched the Sustainability Strategic Plan 2025 – a blueprint to promote ESG issues among its listed companies, with the intention of becoming the region’s leading sustainable financial market.
This follows global reports and trends that point to the fact that companies with strong ESG values perform better financially, avoid bankruptcy risks and generate alpha. In fact, a Bank of America Merrill Lynch Report states that a whopping 90 per cent of bankruptcies in the S&P 500 between 2005 and 2015 could have been avoided by screening out companies with below-average environmental and social scores five years prior.
Given this backdrop, I firmly believe that logistics operators in the Middle East need to re-direct their focus on conducting business in a responsible manner. As a significant sector of the regional economy, it is up to our industry to examine the areas in which we can have an impact and therefore lead the way in protecting the environment, reducing pollution, and serving the community all the while ensuring good corporate governance. The logistics industry is constantly challenged to control and reduce carbon emissions while transporting products be it by road, sea or air.
Regulations also enable and ensure that businesses consider the impact of their operations on the environment; for example, IMO 2020, which comes into effect next year, has made it mandatory for shipping vessels to adopt low sulphur fuel across the globe. This will continue to urge logistics providers to adapt and create innovative solutions to address global problems facing us today.
Some of the initiatives companies could implement to reduce their carbon footprint could be to reduce their dependence on fossil fuel generated electricity through waste water treatment, using EURO IV technology, using bio-diesel, integrating hybrid vehicles into the fleet, using green buildings and leveraging solar energy.
Another aspect that needs attention in the logistics industry is the safety of drivers and sailors. Preserving the health and safety of logistics staff is of paramount importance when establishing an ESG framework, as it leads to good corporate governance. Technology today has advanced and there are various devices that can auto-detect fatigue and distraction thereby preventing accidents on the road for truck drivers.
Logistics companies have an obligation to recognise and promote the need for environmental stability and acknowledge the social impact of our business in the communities in which we operate. Additionally, it is important to be transparent with stakeholders in order to earn their trust and operate in a responsible manner.