Circular economy – are we ready yet?

 by Ewelina Łukasik-Morawska, Engagement Manager at GES

The short-sighted focus on producing and consuming as cheaply as possible has created a linear economy in which objects are used and then discarded as waste. For all the good it has brought us, this economic model is in need of a new direction. The global population will continue to grow and many emerging nations will seek to improve living standards. This is putting enormous pressure on the environment and leading directly to resource scarcity. A circular economy seems an ideal alternative to the linear “take, make and dispose” model. This model ensures we make the most of limited resources by reusing or remanufacturing products that would have ended up on the rubbish dump. It makes both environmental and economic sense, and businesses, communities as well as investors, stand to gain a lot from this sustainable model[1].

Over recent years, the concept of a circular economy has gained momentum. Many elements have already been considered as part of broader political and societal programmes. For example, the UN’s Millennium Goals and the recently articulated Sustainable Development Goals[2], to name just a couple. The initiatives call for increased resource efficiency in consumption and production, sustainable management of natural resources, and substantially reduced waste generation through prevention, reduction, recycling, and reuse.

Plastics are one of the most wasteful examples of the linear, take-make-dispose economy. Global production of plastics has increased twentyfold since the 1960s, and reached 322 million tonnes in 2015. It is expected to double again over the next 20 years. With 8 million tonnes of plastic leaking into the oceans each year, we all need to re-evaluate the way we make, use and reuse plastics[3]. In practice, it means opting for reusable materials, ending wasteful manufacturing processes, embracing renewables and avoiding toxic chemicals. GES already delved into the topic in a blog post dedicated to plastics[4].

Fortunately, there are companies such as those which signed the UK Plastics Pact, that understand how important it is to apply circular economy principles to global plastic-packaging flows. The Pact, which was signed in April 2018, is part of an international initiative which aims, through collaborative work of different parties, to eliminate single-use plastic packaging and redesign all plastic packaging to make them reusable, recyclable or compostable[5].

GES believes that institutional investors can use their role as shareholders of corporations to put the circular economy transition higher on the list of priorities for the private sector. That is why GES has decided to pay particular attention to the issue and shape a stewardship and risk engagement theme to encourage companies to adopt initiatives that address issues with plastic waste and pollution. But are we ready for this new way of doing business?

[1] https://www.ellenmacarthurfoundation.org/circular-economy

[2] https://sustainabledevelopment.un.org/sdgs

[3] http://web.unep.org/unepmap/un-declares-war-ocean-plastic

[4] https://www.gesinternational.com/2017/06/19/the-everyday-polluter

[5] https://newplasticseconomy.org/projects/plastics-pact

 

20 May – World Bee Day

by Bruce Jackson, Senior Engagement Manager at GES

In December 2017, the United Nations General Assembly adopted by consensus a resolution declaring 20 May as World Bee Day. Every year on this day, the attention of the global public will be drawn to the importance of preserving bees and other pollinators. People will be reminded of the importance of bees for the whole of humanity and invited to take concrete action to preserve and protect them. The resolution was co-sponsored by 115 UN Member States.[1] Dejan Židan – head of the World Bee Day project and Deputy Prime Minister of the Republic of Slovenia stated:

“Bees and other pollinators finally have the place they deserve in view of their importance for the world and for humanity.”

Carla Mucavi, Director of the Food and Agriculture Organization of the United Nations (FAO) Liaison Office in New York, commented:

“Bees play a crucial role in increasing crop yields and promoting food security and nutrition. Without them, we could lose a variety of food such as potatoes, pepper, coffee, pumpkins, carrots, apples, almonds, tomatoes, just to name a few. In short, without bees, FAO cannot achieve a world without hunger.”

In fact, according to the UN Food and Agriculture Organisation of the 100-crop species which provide 90% of global food, 71 are pollinated by bees. [2].

20 May was chosen for two reasons, firstly May is the month in the Northern Hemisphere when bees are most active, and 20 May coincidently is the birthdate of Anton Janša (1734–1773), a pioneer of modern beekeeping and one of the greatest experts in this field in his day. He was the first teacher of modern beekeeping anywhere in the world and published two books on the subject.

Neonicotinoids

The European Union made a contribution to World Bee Day when in April 2018 it banned the outdoor use of neonicotinoid pesticides, following an assessment by the European Food Safety Authority (EFSA)[3].

On 17 May, an EU court upheld the partial ban, stating that the European Commission had been right to restrict their use in order to protect bees and that the European’s Union’s precautionary principle could be applied if there was scientific uncertainty about risks to human health or the environment. An appeal had been lodged by Germany’s BASF and Switzerland’s Syngenta who collectively have three of the main neonicotinoid-containing products which are now restricted[4].

Neonicotinoids are a class of neuro-active insecticides, effectively neurotoxins, which act upon the central nervous system, leading to nervous stimulation, disorientation and blocked receptors – the effects are irreversible. They affect a bee’s behaviour, such as foraging and navigation, but can also cause death. However, we should include a word of caution from Dave Goulson of the University of Sussex, UK:

“If these neonicotinoids are simply replaced by other similar compounds such as sulfoxaflor, cyantraniliprole and flupyradifurone (all new systemic insecticides), then we will simply be going round in circles,” he said. “What is needed is a move towards truly sustainable farming methods that minimise pesticide use, encourage natural enemies of crop pests, and support biodiversity and healthy soils.”

Let us all hope that this is a move toward more sustainable farming practices.  But the last word should go to Anton Janša who wrote:

“Bees are a type of fly, hardworking, created by God to provide man with all needed honey and wax. Amongst all God’s beings there are none so hard working and useful to man with so little attention needed for its keep as the bee.”[4]

[1] UN press release, https://www.worldbeeday.org/files/declaration/17_12_20_PRESS_release_WBD_ENG.pdf, 20 December 2017

[2] UNEP, Global Honey Bee Colony Disorders and Other Threats to Insect Pollinators (Nairobi, 2010); Michelle Allsopp and others, Plan Bee — Living Without Pesticides: Moving Towards Ecological Farming (Amsterdam, Greenpeace, 2014).

[3] EFSA: “Neonicotinoids: risks to bees confirmed”

[4] Reuters, https://www.reuters.com/article/us-eu-environment-bees/eu-court-upholds-insecticide-ban-to-protect-bees-idUSKCN1II0WU  (17 May 2018)

[5] Anton Janša, 1775: A full guide to Bee-keeping”

Changing tides for the South Korean chaebol?

 by Anders Planck-Hendriksen, Engagement Manager at GES

In December 2017, GES travelled to Seoul, South Korea, to engage with some of the country’s largest companies as part of the GES Business Conduct Engagement and the Emerging Markets Engagement programme. A key issue when engaging with South Korean companies relates to the large, family-controlled conglomerates, known as chaebols. These conglomerates were central to the country’s post-war transformation into an Asian “miracle economy”. The massive economic power of these conglomerates, combined with little transparency and often complex ownership structures, have seen the chaebols become the centre of the debate about corporate governance in South Korea. In the past decades, several high-ranking company officials have been investigated, and sometimes convicted, on charges relating to tax evasion, embezzlement and bribery.

The chaebols were also central to the corruption scandal which erupted in December 2016 and led to the fall of the President Park Geun-hye, who was recently sentenced to 24 years in prison for bribery and abuse of power, among other charges. The scandal involved corporate donations paid by as many as 53 companies to two of Park’s confidante Choi Soon-sil’s foundations. The National Assembly described the donations as bribes personally benefiting Ms Choi and paid in return for favours ranging from lucrative licenses to presidential pardons and corporate mergers. During Park’s tenure as President, she also granted pardons to several company Chairmen convicted on various corruption charges.

Coinciding with the latest corruption scandal in December 2016, the Korea Corporate Governance Service published the Korean Stewardship Code intended to promote active ownership and greater transparency among institutional investors, inspired by the 2010 UK Stewardship Code. Although the Code initially received a lukewarm welcome from asset owners and asset managers, much-needed traction was gained when South Korea’s largest institutional investor, the National Pension Service (NPS), announced intentions to implement the Code in 2018. This is expected to be a game changer for corporate governance in South Korea.

In response to recent years’ increased scrutiny, several of the dominating conglomerates have announced measures to increase transparency and accountability. In 2017, Samsung Electronics announced measures to increase accountability in managing financial donations and monetary support for CSR-related activities and funds, as well as plans to increase dividends in the coming years. More recently, at Samsung’s shareholder AGM in March 2018, the company further announced the establishment of a Governance Committee comprised entirely of independent directors, as well as intentions to separate the CEO and Charman roles for the first time in the company’s history.

Meanwhile, several entities of one of the largest chaebols have announced intentions to stop holding their annual general shareholder meetings on the same day starting this year – a common practice in Korea which is highly disadvantageous for minority shareholders. Last year, more than 40 per cent of listed South Korean companies held their general shareholders’ meetings on 24 March, and still only a fraction allows electronic voting.

GES visits Seoul annually to engage local companies both reactively (incident-driven) and proactive (risk-driven), and we continue to encourage developments to promote transparency and accountability, especially within the dominating chaebols. Through ongoing dialogue, we are able to constructively voice feedback on the company efforts we encounter, in turn creating the right foundation to help companies better understand and align with investors’ expectations and concerns.

 

 

 

 

 

 

 

 

 

 

 

References

Bloomberg: Moon’s chaebol coma (10 January 2018);  South Korean scandal may force change of chaebol ways (5 January 2018)

Nikkei Asian Review: Samsung heir’s release will not kill South Korea’s reform drive (9 February 2017); South Korea’s chaebol show shareholders some respect (2 February 2018)

Pulse News: Korea’s National Pension Service to introduce stewardship code in 2018 (12 March 2017)

Reuters: Changes in chaebol governance culture could diminish the Korea discount (30 October 2017)

The Economist: South Korea’s antitrust tsar has a good shot at taming the chaebol (6 January 2018)

The Korea Times: President vows to reform chaebol (10 January 2018)

The New York Times: Money, power, family: Inside South Korea’s chaebol (17 February 2017)

Samsung: Samsung Electronics holds Annual General Meeting of Shareholders (23 March 2018)