Investors, consumers can spur firms to clean up their act

Corporate environmental disasters emanate from around the world.

The most recent one is the haze from forest fires in Kalimantan and Sumatra that began in mid-August caused by companies engaging in illegal slash-and-burn practices. As a result, five Indonesian companies (Asia Pulp and Paper, Bumi Sriwijaya Sentosa, Rimba Hutani Mas, Sebangun Bumi Andalas Wood Industries and Wachyuni Mandira) have been served with legal notices by the Singapore Government.

Last month, Volkswagen was discovered to have fitted 11 million of its diesel cars with devices installed with software that rigs emissions tests.

In August, hazardous chemicals exploded at a warehouse owned by Tianjin Dongjiang Port Ruihai International Logistics.

And the list goes on.

These disasters have negative impact on human health, economies, destruction of flora and fauna and, at worst, loss of life. Yet, many of these disasters are man-made and avoidable. It appears that companies are not operating their activities in a responsible and sustainable way. Profit seems to be the sole objective of existence.

On Sept 27, then Minister for Environment and Water Resources Vivian Balakrishnan said at the United Nations Sustainable Development Summit in New York that Singapore has launched a new programme where it will work with partners on sustainable development. The UN report, "Our Common Future", defines sustainable development as "development that meets the needs of the present world without compromising the ability of future generations to meet their own needs".

Dr Balakrishnan said that "as a responsible global citizen, Singapore will continue to give back to the international community". So, in Singapore, what can we do to contribute towards this end? And when an environmental disaster occurs in another country but adversely affects Singapore, what can we do?

We can contribute in various ways. Educational institutions can make it mandatory for students to take a module on business ethics. Ethics and ethical decision-making need to be taught and cultivated from young. Students should learn that profit and net present value are not the most important criteria for making business decisions.

The impact of business activities on the environment is equally, if not more, important.

Educational institutions in Singapore have a sizeable number of foreign students. When these students graduate and return to their countries, some of them will eventually become corporate leaders. They will benefit from the education here and be able to make more balanced decisions that make a positive impact on the environment and society.

By applying commercial and legal pressures, investors can avoid contributing capital to errant companies. Instead, they could invest in sustainable companies, such as those in the Dow Jones Sustainability Indices and FTSE4Good Index Series. Faced with possible difficulties in raising capital, companies will be forced to operate sustainably.

Lenders can reject loan applications from errant companies. They can also terminate existing credit facilities of errant companies. With the risk of rejection and termination of credit lines, companies will have to ensure that their business activities are sustainable.

Investors and lenders can also demand for audited corporate responsibility/sustainability reports to be prepared annually for greater responsibility and transparency. The report should disclose environmental and social performance information.

Customers and procurement officers can boycott goods and services provided by errant companies. The threat of lower demand will drive companies to adopt sustainable business practices. They can choose to buy from companies that value people and planet. Examples include hypermarket chains which ensure that suppliers do not violate human rights, cosmetics companies with products that are not tested on animals and furniture makers which procure wood from environmentally responsible suppliers. Suppliers can decide not to supply materials to errant companies. By continuing to provide supplies, suppliers risk being accused of being complicit with errant companies. Therefore, they face the risk of negative actions from their stakeholders.

Employees can blow the whistle if their companies pollute the environment. They should be provided with a communication channel to notify the relevant authorities of corporate misconduct.

The media can play an important role in public awareness of environmental incidents by reporting on errant companies and exposing their unethical behaviour.

Legal actions can be taken to sue companies for environmental pollution. Under the Transboundary Haze Pollution Act 2014, Singapore can fine a local or foreign company $100,000 a day, up to a maximum of $2 million for haze pollution in Singapore.

The above suggested solutions call for a register of errant companies to be created. This directory enables individuals, companies, regulatory authorities and non-governmental organisations to identify errant companies so that appropriate actions can be taken by relevant parties. To prevent, identify and monitor errant companies, a lot of information-sharing is needed. Singapore will also need to collaborate more closely with other countries and international agencies.

•Dr Paul N. C. Tiong is a senior lecturer and Dr Timothy W. K. Chan is academic director of the Academic Division at SIM Global Education.

A version of this article appeared in the print edition of The Straits Times on October 21, 2015, with the headline 'Investors, consumers can spur firms to clean up their act'. Print Edition | Subscribe