Q&A South-East Asia Perspective – Sustainability, Let’s Talk
Karl Godderis is an experienced Asia-Pacific banking, management consulting and business development executive, with over 20 years experience working in South-East Asia. He recently shared his thoughts from a South-East Asia perspective for #sustainabilityletstalk15.
My biggest takeaway from our conversation is the complexity involved in managing stakeholders when it comes to sustainable investing in South-East Asia. For example, agribusiness involves more than the farmers and producers themselves. It requires business facilitation, financial investment, government policy and intervention. Combined with the increasing global need for food supply, the role of NGO’s, and the necessity of mitigating risks for food producers.
It is an intricate and delicate balance to align when delivering sustainable outcomes, enabling longevity for producers and farmers whilst engaging external stakeholders to the process; ultimately ensuring sound decision-making across the agribusiness supply chain.
Q: WHAT DOES SUSTAINABILITY MEAN FOR THE INDUSTRY?
I was involved with sustainability issues from two different perspectives within Indonesia over the last 8 years; initially from within the banking sector and later on through agribusiness across various plantations.
Banking Sustainability Perspective
My first experience of witnessing sustainability issues having a significant business impact, was during my time working in banking. Following an acquisition of a local banking institution by a foreign player, the latter intended to introduce best practices on sustainability in lending activities. At the time the acquired entity had a very significant level of exposure to the palm oil industry. In general the new sustainability requirements were reasonable and borrowers were given a generous 2-year time frame to give evidence of compliance. It was an unpleasant organizational experience. Partially due to typical change resistance, but to a large extent due to culture differences between local employees and clients versus our international best business practices. We lost some employees and clients over the matter. Looking back at it now, most measures introduced were straightforward and part of today’s common practice rather than best practice.
Admittedly back then I always thought sustainability was another word for Corporate Social responsibility (CSR), and about various activists scaring supply chains. We now see the larger players in various agribusiness related industries taking sustainability to the next level. I do see still issues around fully embracing sustainability at the lower and mid-scale end of various agribusiness industries in countries like Indonesia. For the remaining thousands at this end of the scale, it is more a matter of transforming local business cultures and ensuring legal effectiveness. This is where you would see a much stronger role for the government.
Agribusiness Sustainability Perspective
Another aspect of sustainability I have experienced involved agribusiness sectors like palm oil and cocoa growing, where ‘smallholders’ significantly contribute to product supply. My more recent work involved looking at new banking models and 3rd party funding systems to allow for a sustainable way to lend money to smallholder farmers, ensuring sustainability both from the position of the borrower and the lender.
The industry reality is major global food brands sell products where along the supply chain the smallholder farmer with 1 to 2 hectares of land provided the ingredients to the end product. To give an example, there are 2 million smallholders in Indonesia alone, and the cocoa industry globally is 90% smallholder based. It is fair to say that the majority of these farmers don’t meet modern sustainability standards.
At a practical level, if the world wants to keep smallholders as part of the food supply chain, which it should, it is in the long run going the generate economic value for all. However, in the short run, it requires investment, especially to the smallholders themselves. The vast majority of these farmers don’t have equity so where is the investment going to come from?
My experiences have left me with an overall positive feeling that all the solutions are there to run a globally sustainable agribusiness industry, leaving enough on the table for all current stakeholders. Many of the larger corporations, arguably, have taken the path of sustainability, because it makes business sense. As for the millions of smaller players in the supply chains, the greatest challenge is there are too many stakeholders involved in finding a solution.
Q: WHAT KIND OF CHALLENGES DOES THE INDUSTRY FACE?
Significant culture clashes
- To a certain degree with palm oil leading the pack with respect to sustainable practices, the global food sustainability debate still has a strong foundation of the developed world versus the developing economies. Making this debate even harder is a certain level of cognitive dissonance among Western producing countries having a blind eye on their own sustainable production challenges, whilst developing economies sometimes naively pursue a logic of defending a “historic right” to be non-sustainable.
- It is a very delicate balance as on one hand companies are wanting to do the right thing by ensuring operators and businesses they are associated with are operating sustainably, though by doing so, many other stakeholder groups can be offended by this. Extreme examples include rioting and protesting, but it does happen.
- Everyone is doing the best they can, though it can be frustrating as it is not easy to have all participants at the table on the same page. It can cause problems and slow down production for industries if not handled well.
Consumer preference and behavior
- The reality is, we need more food. This puts significant pressure on the agribusiness industry globally.
- It is difficult as consumer preference and behaviors also contribute to this element of the discussion.
Economies of scale
- How do you achieve economies of scale particularly when there are large areas of small holders?
- Economic feasibility is driven by scale.
- Evolving methods of harvesting increase up-lift in production – which ultimately leads to sustainable outcomes.
Q: HOW INTEGRAL IS BUSINESS SUSTAINABILITY TO ITS STRATEGY?
It is essential, particularly when you consider a vertically integrated food business. There is no interest or benefit by not being sustainable when all the aspects of the supply chain – production/by-product wastage, packaging, integrated farming practices, waste management – they are all integral to sustainable practices and performance.
Currently there is enough attention on organisations to want to engage sustainable approaches voluntarily. Though it is lacking a global big picture approach towards policy and standards.
Q: WHAT ARE FIVE WORDS THAT MAKE YOU THINK OF SUSTAINABILITY?
- Climate Change
- Food Supply
- Economic Viability
- Complex Stakeholder Management
- Common Sense