A proactive path to clean air

The pursuit of profit is a compelling motive for businesses. Companies chase economic returns to satisfy their investors and, when all goods can be priced properly and companies can rely on the market to transact their products, the system works fine.

In reality, however, what economists call "public goods" cannot be priced. Clean air is a classic example of a public good - everybody wants it, but nobody wants to pay for it. In fact, everyone wants to free-ride on others for clean air.

But the economic impact of the haze shows that it clearly exacts a heavy toll. Indonesia recently estimated that the cost of the current crisis on its economy is more than US$33 billion to date, while the impact on the rest of the region can only be guessed at.

This year's lingering haze has shown the limits of regional political and diplomatic efforts to control the problem. Moves to deploy firefighting crews and aircraft - while making for good media coverage and visuals of being seen to "do something" - have little effect on the real root causes behind the haze.

Can't we do something more effective than literally firefighting?

To understand and tackle the problem, it is perhaps natural to focus on the companies starting the fires in the first place. However, viewing these firms in isolation ignores the bigger picture.

In reality, they are just one node in a spider web of supply chains connecting plantation managers, companies that purchase and process raw materials, financiers and other service providers, retailers, and ending - in some form or other - at the consumer.

Taking a holistic, total system view can produce multi-pronged measures that will "encircle" and pressure the culprit companies to change their ways.

The current move by the Singapore Environment Council, a non-government organisation, to block haze-generating offenders from certification under the Singapore Green

Label is a good start.

Major supermarkets in Singapore are using this as a basis to withdraw products sourced from implicated companies. Likewise, banks have been urged by industry associations to refrain from lending to them.

However, such moves still remain reactionary - it would be better to focus on more proactive steps to tackle the haze before the fires even start.

One way is to encourage the spread of sustainability reporting - a practice that is beginning to take root in Singapore. The Singapore Exchange (SGX), for example, is requiring listed companies to report on sustainability on a "comply or explain" basis from Financial Year 2017.

This method of disclosure lies between voluntary reporting and mandatory reporting, and recognises the diversity of companies and industry sectors.

It also allows a degree of flexibility to deviate from the guidelines if there are business or other reasons to do so.

In a study of sustainability reporting conducted in part by NUS Business School last year, it was found that only 29.8 per cent of SGX mainboard-listed companies did some form of sustainability reporting.

The exchange's new requirements should help to raise that figure by building a foundation for companies - listed or otherwise - to take heed of good practices. Encouraging a strong culture of sustainability communications should also motivate more companies to be part of the initiative.

At the macro level, meanwhile, regulators and the community at large will find the aggregate information useful, enabling policymakers to identify gaps and take steps to plug them.

The main challenge, however, lies in influencing the companies of Asean countries to build a firm basis for sustainability reporting. The haze, after all, is a transnational problem with transnational causes - solving it requires transnational action.

Specifically, Asean should serve as a launch pad, establishing a set of harmonised reporting guidelines for companies across the region to follow on a "comply or explain" basis.

An ongoing joint initiative between the Asean CSR (Corporate Social Responsibility) Network and NUS Business School to develop a national benchmark for sustainability reporting could help to encourage this. The programme is due to launch in Singapore in mid-2016 and then roll out to other regional economies soon after.

Another good example to emulate is the Asean Corporate Governance Scorecard launched three years ago to harmonise governance practices. Sponsored by the Asian Development Bank, the scorecard is in line with the overall desire to develop a single asset class and facilitate economic integration across Asean.

Having an effective discipline of reporting among companies will paint a clear picture of the state of sustainability in the region. But sustainability reporting should not be pitched as a public relations exercise - substance, not style, is what counts.

In today's social media-driven world, stakeholders are informed and sophisticated enough to tell the difference between window-dressing and concrete action. They are also attuned to aspects of reporting that are actually material to the company concerned and not distracted by incidental activities with little effect on core businesses and operations.

Rising consumer awareness and empowerment means that it is increasingly in the self-interest of companies themselves to propagate and practise sustainability. But reporting has to be self-driven - only with a strong bedrock of sustainability disclosure and compliance can stakeholders and companies act in concert to mitigate and eradicate environmentally destructive practices like those causing the haze.

This concerted action to tackle the root causes of the burning needs to be taken so that we will not be as helpless as now, when "PSI" might as well stand for "Please Stay Indoors".

• The writer is director of the Centre for Governance, Institutions and Organisations at the National University of Singapore Business School, and deputy head and associate professor of strategy and policy.

A version of this article appeared in the print edition of The Straits Times on October 24, 2015, with the headline 'A proactive path to clean air'. Print Edition | Subscribe