Sustainability Videos & Lecture Series

Pamela Mar: Hello. Can everybody hear? Okay. Just to explain briefly, my position at the Fung Global Institute is actually a sort of part-time moonlighting position. I am actually working on sustainability for the Fung Group which has three listed companies and another three unlisted companies. It’s basically a consumer products group doing apparel, household goods, furniture, ceramics, anything you wear on your body, you hang on your body, or you use in your house with the exception of electronics. So we don’t do mobile phones and stuff. What we do is we do everything from designing to marketing to sourcing to producing to delivering to distributing to warehousing consumer products for global companies like Wal-Mart, Costco, Marks and Spencer, and so on. What I do is I actually work on supply chain issues in the supply chain. That involves anything from greening our own offices to working with factories on their energy issues and on their social issues. It deals with social compliance, labor rights, human rights, anything in that kind of social and environmental responsibility field.

The chairman of the group, Victor Fung, he has been a longtime advocate of Asians in global issues. He founded the Fung Global Institute after many, many years of thinking and planning as a way to bring Asian perspectives into the global debate. One of those issues is sustainability and, as I work for him, he asked me to start up the sustainability research portfolio for the Fung Global Institute. On the corporate side, I’m working on the very mundane operational issues of how do companies operate in a socially and environmentally responsible way when they’re dealing with producing consumer goods which, as you know, are very—usually sort of the lower end of the supply chain, so you have a lot of social issues. Then on the sort of macro-macro side, the 50,000 feet level, we’re working on what does Asia need to do to become more sustainable in the future?

Today my talk is mainly on the Fung Global Institute side, which is mainly the macro side, the major challenges. There is some material at the end which is actually informed by the work I do for the company. The company pays me, so I mean [laughter] —so yeah. I mean, it’s an important dimension and it’s probably one that actually affects everybody here. Just as a sort of—sort of an earmark, we once did a study and the company Li and Fung, it actually—there’s an estimate that 40 percent of the clothes sold in America are actually touched by our company. We don’t own any factories, but we basically orchestrate the entire supply chain. We’re one of Wal-Mart’s biggest suppliers, if not the biggest. It’s a—there are a lot of challenges in dealing with the factory workers who are in our supply chain.

Anyways, okay so today, sustainability. Okay, here we go. All right, so everyone here has been hearing more and more about sustainability. You’re in the Global Institute of Sustainability, and in Asia, too, actually, it’s like the new buzz word. You have green this, green that, sustainable this, sustainable that. Actually, when you talk to people, people who don’t actually work in sustainability, if you say oh I work on sustainability, the first question they’ll usually as you is oh, so what’s that? What I’d like to do is actually give you the, what’s that, from an Asian perspective. For us, the starting point for any global discussion on Asia is usually the fact that Asia is becoming the world’s new growth driver. The estimate is that something like 40 to 50 percent of global growth, GDP growth, for the next decade is actually gonna be driven by developing countries who are primarily located in Asia. We’re talking China, India, to some extent Indonesia, and most of the Southeast Asian nations, as well, are growing their—they’re growing anywhere between like five to eight percent a year.

If you think of that on a national scale, when you think of the number of people who are in Asia, just from a sheer objective scale point of view, we have 3.5 billion people. If those people are actually gonna grow at a rate between six and eight percent, then that significantly impacts global growth. This chart here is actually you see the projection of world growth and you see the projection of Asian growth, and actually, those two are the same. Then you look at the rest of the world here and it’s actually pretty flat, okay? You think what is gonna make our world grow? It’s actually Asia. The other thing is that Asia’s also driving global consumption, so for any multinational company, what you’re really concerned about is the growth and consumption cuz that means you gotta produce goods and services which can be absorbed by the population. You see here, China and India, by 2050, they’re just gonna swallow up global consumption, okay? If a company—that’s why multinationals are moving their headquarters to—they’re forming global headquarters in Asia. It’s to capture that kind of growth.

Okay, so when anyone in sustainability looks at Asia’s growth, in the corporate sector, I kid you not, we look at Asia’s growth and we celebrate. We’re like our growth was formerly reliant on the US and Europe, and especially for consumer products, okay? It used to be that the OECD nations, the advanced countries, were responsible for like 80 percent of global consumption. If you were not selling to Europe and the US you would basically have no business. It’s changing because Asia is growing and because consumption is basically flat in the OECD countries. If you’re not in Asia, then you don’t have a business. The problem is that if we’re—if Asia’s gonna consume like the US—you’ve all heard this before, I guess. If Asia’s gonna consume like the US and Europe, we’re sunk, okay, from a climate change point of view. Because of the carbon emissions that are currently used to generate that kind of—those kind of products and services.

The thing is, if Asia’s gonna continue to grow at six to eight percent GDP growth a year, it’s gonna be a big problem for global emissions unless we can actually figure out a way to get Asia to grow in a more sustainable way, which is to decouple energy consumption from economic growth. That is a question that is basically haunting every Asian nation, because as global citizens we want to actually be responsible, but nobody’s got the formula yet. There are technologies and there are new ways to generate energy without the same carbon impact, but those cost money and so there’s big debates going on about the IPR associated with that, because of course, all the IPR was researched and developed in the OECD countries. Because it’s privatized, when they—when other countries want to use that IPR, those technologies, there’s license involved. Developing countries, we don’t have a lot of money, but we need the technology. Right now there’s a lock and we’re not allowed—we’re not able to use a lot of the technologies that are currently available. When we look at East Asia and the Pacific, basically Asia’s carbon emissions is basically growing really fast unless we can change that. You see here, well China’s already generating more carbon emissions than the US. It’s something that the US political kind of—the US political system is—I wouldn’t say celebrating, but at least they feel maybe they’re a little bit off the hook. Of course, from a per capita point of view, China has 1.3 billion people, US has 300 million. From a per capita point of view, that’s perhaps understandable, but it’s still a challenge. India is actually rising pretty fast, too.

The thing is we have to change China, we have to change India. We have to change the way they’re growing because if we don’t deal with China and India, then there’s no way we’re gonna have a hope to keep within the safe range, the two degree rise. Just on the two degree issue, Nicholas Stern, who is the—actually, he’s the head of—he’s the co-head of the sustainability program for the Fung Global Institute. He has recently estimated that we are not on track for even four degrees. We are actually on track to five to seven degrees above preindustrial level by any time between 2050 and 2100. If you just think Asia, a lot of—we’re actually—very many are archipelagos. Indonesia, Thailand, Malaysia, they all have very long sea borders, bordering the sea, and all of the eight major Asian cities are all either along the sea or along major rivers. If we just think of the destruction of that, ADB has actually estimated that the cost is gonna be between five and seven percent of national GDP. We think of Thailand, the GDP, and just take five to seven percent of that off.

Actually, Thailand already experienced it when it had the flooding. There was like three months where parts of Thailand, parts of central Thailand were flooded because of years of deforestation, because now we have more strange weather. I mean, entire industrial estates—industrial estates which are all built around the sea because you need a port, right, to ship the goods in and out. Car factories, hard disk drive factories, a lot of the electronics factories, they were just unable to operate for two months. Even Li and Fung who—which actually has a factory in right north of Bangkok, we actually had pretty good disaster preparedness, so it made us look really good because we sandbagged and all our staff was trained to deal with situations like that. Our factory is fine, it’s dry, but beyond the factory’s walls, actually there was like a flooding up to 0.8 meters which is like three feet. That’s a lot of flooding, which means goods cannot come in and out. Even though the factory’s fine, we actually can’t operate, right, because the whole out—surrounding area was flooded. What we did is actually we just turned the factory into like a community relief center. That’s it. But like two months, take two months out of your operating revenues and for the year, that’s pretty significant. Thailand’s impact on Q4 of that year was actually hit by like three to four percent. It’s a significant impact.

That’s climate change, but actually, Asia’s problem is not just climate change. We have serious, serious water issues, both clean water, enough water [laughter] , and water in the right places. The things is, the issue of—everybody knows about scarcity, that water is not well-distributed in the world, but the issue of clean water is actually very serious for manufacturers and for companies because for a lot of electronics products, even to generate electricity, and even for some dying and production processes like mills, textile mills, actually the kind of water you need is actually very clean water. If the water is dirty, which you look at some parts of southern China and there have been a lot of water studies which show that actually the quality of the water is basically—you wouldn’t even wanna flush your toilet with it, okay? It is a very, very serious contamination, and that’s just because you’ve had years of industrialization where what do factories do with their waste? They have to put it somewhere.

It’s only recently that actually enforcement has started to pick up a lot. We see in the Pearl River Delta, which is China’s sort of industrial—a big, big production belt, that in municipalities where there’s been greater enforcement, a water quality guidelines and wastewater guidelines, actually, those are the factories which actually handle the issue better. A lot of it is due—it’s not necessarily that the laws are no there, but it’s the practice of enforcement and getting factories and producers in the habit of taking care of their wastewater. The methodologies and the training and the technologies are there, but we really need to work on the habits of global supply chains. The other issue—so that’s also toxics in that water supplies a lot of food and ecosystem services. Once you pollute the water, then actually that whole kind of ecosystem goes out of whack. So [laughter] you have heard that they—that in China recently, there were 6,000 pigs, 6,000 dead pigs floating down a main river in Shanghai. Shanghai is like a global city and the main river, the Huangpu River, going through Shanghai had 6,000 pigs—carcasses of pigs. Of course they cleaned it up, but what do you do with the water after that? I would guess this is not the first time it actually happened in China. It’s just that more of this stuff is getting reported. It’s not necessarily that the incidence of pollution is increasing, but that you now actually have more data on it and you have more data getting out.

This is—you see here, it says 426 and 356, that’s actually the index for air pollution from Beijing. I don’t know if you actually had reports here. This is the concentration of PM2.5 in the air. Okay, so 2.5 is the—it’s a kind of—it’s a very, very small particle, the kind that gets stuck in your lungs that you can’t actually breathe out, so once it’s there, it’s there. The WHO, the World Health Organization air quality guidelines I think for the US is something like 25, the concentration of PM2.5 in the air should be something like 25. Now, there are some Asian nations where the air quality guideline allows maybe somewhere between 75 and 100. I think Hong Kong’s at that level. The official WHO air quality guideline is 25, so when you see 425 in the air in Beijing, like just think about the amount of pollution that that signifies. Actually, the Beijing pollution in the—I guess it was around December or January and February was actually off the scales. The scale goes up to 500 and actually the recorded pollution in Beijing was something around 700 or 800, an absurd amount. You think of not only the daily impacts in that everybody has to stay home and that you basically have very poor visibility which promotes traffic accidents, but just think of the long-term public health implications of that. The kind of spending that the system is going to have to sustain. Here is a country, China, which is just now trying to build its national health system.

The thing is, what this is all doing is it’s basically teaching people that the environment is not something that they can sort of put aside to be dealt with after industrialization takes place. You have to put the two hand in hand. That’s what the Chinese government is trying to do by marrying sustainability, sustainable development into its twelfth five-year plan. When the premier said that China’s growth is unbalanced, unsustainable—let’s see, it’s unbalanced, unsustainable, and a third on—he was very widely quoted because he actually said that a full year before he stepped down as premier. To have such a—to have the leadership make such a frank admission of what everybody knew of the elephant in the room was actually a huge breakthrough. So now China’s actually going through a very active conversation on what is the purpose of industrialization? What is the purpose of economic growth?

Now, for a country which has long prided itself on growing at eight to ten percent GDP growth per year for the past 20 years, it’s like a national habit. We have to grow, grow, grow, grow because we have 1.3 billion people who need food and water and shelter. Now for them to say oh, we’re gonna grow at only 7.5, only 7.5, okay, so that is—that’s a big, big change because now they’re saying we’re gonna sacrifice several points of GDP growth for sustainable development. It’s not just a sort of economist 7.5 percent, several points of growth. What this means is that there’s less money being generated by the system. It means that companies are gonna be making less money, people are gonna be buying less. China is going to be expanding. The amount of money generated by China is actually going to be shrinking. I mean, it’s not gonna be shrinking, but it’s growing at a less fast pace. For a country that’s used to generating wealth at such a great pace, it’s actually—it’s not a comedown; it’s just an admission that there are other things that are important for the nation.

Aside from the whole environmental picture, I know that in developed countries, actually, a lot of the attention on sustainability is actually on the environment, because you have climate change, you have a lot of things about pollution, and you have all the new technologies seem to be focused on achieving environmental sustainability. I guess that’s reasonable because everybody here is well-fed. You have housing, you have electricity, you have roads. Everything’s basically—the basic needs of the people are met. But in Asia where actually we have huge social needs which remain unmet, then actually our conversation about sustainability is more—is equally on the social side. That is not only from a sheer poverty point of view in that you have still 800 million people who are living on less than $1.25 US income per day. Just think about $1.25. That’s the poverty line. You have 800 million people who remain at that level. You need a certain amount of industrialization to give those people the jobs and the growth and the electricity and the running water and so on.

Then you also have a situation where actually the income gap in society is increasing. If you think about it, Asia has grown very, very fast in the past two decades. I guess for most Asian countries which have grown fast, actually the income disparity has widened which means that there’s something slightly wrong with the type of growth if the rich are getting richer at a faster pace than the poor are getting a big less poor. The thing is, what this means is that you have elements within society which are actually promoting a certain amount of instability. For Asia, where we take social harmony and consensus and sort of inclusiveness very seriously, there’s not this rugged individualist attitude. It’s that society comes first. So for societies which take social harmony very seriously, actually to have a widening income gap is actually a big problem. Also, because Asia has a very underdeveloped civil society compared to US and compared to Europe, that there’s not as many outlets for people who are discontented with their lot in life to actually express themselves. You have a lot of sort of—you have a lot of risk that the elements in society who are not benefiting from globalization and who are not benefiting from national growth might do something to disrupt social harmony. That is a serious consideration from a social harmony and social stability point of view.

This is just sort of the Gini coefficient. You see that actually when economists look at what is a dangerous range for the Gini coefficient, they usually say anything above 0.4, so 0.4, no over. Sometimes 0.42, sometimes 0.45, but you see here that there’s a lot of Asian nations which have all grown very fast, China, India, and now Cambodia, since 2005, since the end of the Multi Fibre Agreement. A lot of apparel manufacturers have now started to locate in Cambodia. That actually the income disparity is actually quite wide. This is a very serious problem given that these two here, that’s 2.5 billion people. You don’t want those nations to actually be very unstable. Something has to be done, and this is something that China has recognized and that the leadership is now beginning to talk about. That’s why the Chinese—new Chinese leadership, they told the party members, so the Communist party members, you are not allowed to have ostentatious displays of wealth. If anyone has been to China, you know that all the nice cars are basically—many of them are owned by the government. The Audis, the Mercedes, the nice SUV, the Lexuses, all the imported cars which are subject to high tax, actually many of them are owned by the government because as a government official you must look the part, right? Many government officials wear nice watches, a lot of kind of fine clothes and stuff.

That has been sort of an—it’s not a national habit, but it’s just become known that in China the government has access. So now the new government said well, actually, that is actually very bad because if the government is—if the government cadres are being treated so well, then what about the ordinary people? The government’s supposed to work for the people. Now the new government actually said no ostentatious displays of wealth, and actually there have been studies that since the new government said that, the decrease in spending on banquets and fine goods and cars and so on is actually impacting the national economy. That there are restaurants which are actually doing less well because there’s not as many sort of fine dining and expensive wines and so on. I mean, that’s just one of the adjustments that it’s totally logical that the government should cut down on ostentatious displays of wealth, but there is a national impact and there are going to be job losses from that. There is an adjustment that every country needs to go through in order to get its social stability elements correct. Okay, so the thing is, we’ve always had problems in society. There’s always been issues, social issues. There’s always been environmental issues.

I guess the message here is that today is different simply because of technology and because of communication, because in one day and age, problems did not actually get known beyond the local area. Today, basically using the internet, you can find out anything you wanna know about anywhere in the world. I don’t say this sort of lightly. It’s that people in sort of middle America can actually find out what is going on in a factory in China. They can find out where this good has been produced. What factory, what the workers are making there. They may even be able to get in touch with the workers, okay? What this means is that companies have to become more transparent because people can actually find out what’s going on. It means that as people learn more about the environmental and social impacts of the goods that they produce, or that they consume, that they might actually begin to care more about these things.

So [laughter] Selena, I guess she’s a singer. I actually don’t know who she is, but anyways, I’ve heard she’s a singer. She went to an opening of one of her fashion lines that she had put her name on, and actually they—some activists had found out that it was produced in a factory where workers were making probably the minimum wage in China. The minimum wage in China has been rising, but it’s still something like 1,300 RMB, so it would be around $200.00 a month, $200.00 a month US, anywhere from $200.00 to $400.00 a month. That qualifies as sweatshops for the US, so actually these activists went to the opening of—the fashion show and told Selena about this. These are—this is not in Asia, okay? This is not an Asian perspective. This is in the US, so you have people who are pretending to not wear any clothes because they’re protesting on sweatshops. Then this is from Bangladesh. You have workers actually rising up because they’re not making enough money, or they’re not being paid their rightful wages, or they’re being forced to work overtime and not being given their contracted time and a half. All of these, the message is just that you can’t hide. Companies are having to actually come clean on everything that they’re doing in a supply chain, and anyone from Apple to Tommy Hilfiger to any number of brands, they’re actually having to answer questions about, you may not own the factories, but how are the workers being treated? Because you are buying the goods, so you are responsible.

This one, she is actually a worker making iPhones in Foxconn, which is—it’s a large Taiwanese production firm which actually does most of Apple’s business, so they produce goods for Apple, Nokia, Dell, any number of major brands. Actually, she, as a lark, she took a picture of herself with the iPhone and then she forgot to delete it before putting it in the box, so the buyer in the US opened the phone and she [laughter] found this picture of a girl who helped manufacture her phone. See, this is just technology. What it does is it actually teaches the consumer about what is going on in—what has been done in a product. When we used to say the product was—it’s the quality of the good, it’s the physical attributes of the good and so on, that—today, that’s changed. The product that we have to be responsible for is actually all the processes which went into making that. If you think of the increase in responsibility for companies, it’s actually enormous. Consumer awareness is actually driving a lot of change. What we know is that all of these issues are affecting Asia.

As Asia considers its next sort of stage of growth, if we think for the past quarter century, Asia’s basically focused on getting out of poverty. That’s been the major mission. You grow as fast as you can so that you can provide jobs and housing and food and electricity and infrastructure so that people can actually live basic, basic lives. Now we’re at the cusp of sort of middle—we’re moving into this middle income range, so from the poor countries almost to the middle income range. Middle income is anywhere between, say 5,000 to 15,000 per capita GDP. Now China’s at 5,000. I think Thailand must be around 6-8,000. Malaysia’s around the same level. Indonesia’s a bit low, 3,000 GDP per capita. What we know is that actually Asia’s mission should now be to, how do you give people a better quality of life? What we know from the Fung Global Institute is that there’s a number of challenges that are going to inform how we grow in the future. There’s one that says evolving growth model.

The Fung Global Institute actually has four research dimensions which are actually interconnected in that what we wanna do is actually present a new vision for how Asia’s gonna grow in the future. There’s financial aspects in how do we learn the lessons from the financial crisis in the US and Europe? How do we not run into the same problems of financial instability, of a lot of money being spent on actually things that are not that productive? How do we channel our national resources to things that will actually help the people—help the majority of people actually live better lives? There’s a financial aspect that we’re trying to work on. There is an issue of growth models and what is the role of governments? The traditional model in advanced capitalism is that the state should play one role and that the market should basically operate relatively freely.

In Asia we found that actually for developing countries you need actually the state to frame things a bit more progressively and a bit more decisively so that you get the right social outcomes and the right environmental outcomes. We’ve seen that if western style capitalist growth has produced certain social and environmental outcomes, which are now very hard to deal with because every society is basically formed, that in the process of forming societies you actually need the state to play a bigger role. We’re looking at China and India to see how do the Chinese and Indian models of growth, how can we learn to have the states and markets work a bit differently so that we can meet our social and environmental challenges?

Global supply chains. Everybody knows Asia’s the world’s factory. We have a lot of infrastructure built and we have a lot of know-how that’s gathered up in how we run supply chains, but the issue of supply chains and production is actually changing. You have a lot of new factors: you have sustainability considerations; you have to think about resilience; you have to think about speed; you have to think about the changing dynamics of consumption and that consumption is moving to Asia and going to be stagnant in the US and Europe. You have to think of a lot of different ways in which supply chains are gonna have to operate in the future. It’s no longer you produce in Asia and you sell in the west. We’ve gotta actually become a lot more flexible. There’s a number of challenges that we’re dealing with, with global supply chains.

Then the last one, Asia’s sustainable development, is actually how you—how Asia is gonna find the way to grow sustainably so that it can meet its social needs while not pushing the world off the edge of climate change. That’s primarily what the project that I’m working on is concerned with. What we wanna do is actually—we have standard triple bottom line. We need growth in order to keep working on poverty alleviation. We need environmental sustainability in that we need to be able to grow without maxing out the planet’s resources and the ecosystem’s ability to regenerate itself fairly. Then on the social angle, we actually want to have growth that benefits the majority of people in society. It’s very—it’s actually a very simple formula. You need social elements, you need environmental elements, and you need growth. We’re not saying we’re not gonna grow. We’re saying we’re gonna still grow, but we have to figure out how to do so in a smarter way. The things is, sustainability is often associated with higher costs for businesses, but we think that if markets are changing and if consumers are changing, actually there are new markets and new forms of consumption that are being created which can actually replace the sort of brown economy that we’re trying to phase out. There’s gonna be some dislocation and definitely there’s gonna be job losses, but actually, we—societies in Asia need to figure out how they can actually mitigate the losses and transition the people who will—the so-called losers and not be—not have the whole society be disrupted by that transition process.

Okay, so we have identified what are the areas that Asia needs to work on in the short-term? When you think about societies, in the US all the infrastructure’s built. Cities are basically built. What this has done is actually—it’s locked in your carbon footprint because if your national transportation system is built on roads, well to get from A to B you actually have to—do have to drive. Or you have to take the plane which has certain environmental impacts. In Asia, well, we’re actually still in the design stage. We can actually still think about how do you want to edit people’s life choices so that they can live more like Europeans and less like Americans? I’m really sorry to say this, but that’s basically the challenge and that we’ve seen that the sort of road-intensive, suburban, sprawling kind of development is actually going to be disastrous for Asia. You heard China has a big urbanization program in that from now until like 2025, as many people are going to move to cities in China as actually exist in the United States. So think, 200 to 300 million people are going to urbanize. That is actually the population of the US. Think of development on the scale, and these are not cities that are already built; these are cities that have to be built.

If you’re gonna build those cities and if you’re gonna connect up those cities, how do you do it in a way that is actually environmentally sound? What is the buildings infrastructure? What is the transport infrastructure? How are you gonna move goods around? That is actually the design challenge of Asia. It’s also the design opportunity because if Asia gets it right, that means that actually those 300 people—or it’s going to be something like 700 million people, including the people who are already living in cities, those urban dwellers are actually going to have—they could possibly have very environmentally efficient lifestyles. If you get the buildings right, if you get the transport right, two major, major things. When we think about how does Asia—how is Asia gonna grow sustainably from an environmental point of view, a lot of it is in design. The right materials, the right technologies, and the right design. That’s two of the areas that we’re working on.

Sustainable supply chains is another one which I’ve mentioned already, is that you have a lot of existing production infrastructure. What actually do you do with that to actually make it produce goods that are in a more environmentally efficient way and in a socially fair way, as well? A lot of that deals with retrofitting factories with looking production techniques, assembly lines, how assembly lines are set up to actually get them to use less resources but produce the same amount of goods. It’s actually a lot of—it’s basically a very new area for supply chain operation. How do you get factories to actually consume less while producing the same amount of good and while being more socially fair by paying better wages, by retaining their workers and so on?

Public services delivery. If you’re gonna put a lot of people in cities you better actually have a pretty good public services delivery program, which means health, education, utilities, social services, that because if you don’t actually provide those services, then actually people’s quality of life is not that high. Very simple. That’s a lot of the systems that China and India need to build, is that the thing about China, everybody says great hardware, poor software. Great hardware meaning that they can build a massive new airport in like a year, but then you actually go through the airport and you notice that there’s a lot of missing pieces. Things don’t connect up, services don’t exist, people are actually standing around doing the wrong things. So you actually need to work on the software. If China’s task in the past quarter century was build the hardware because people need hardware, people—the country needs roads, the country needs infrastructure, now China actually needs to both work on the design of hardware, but also work on the software which is actually operating those and making things work the way they’re supposed to.

Technology and business is an aspect that at least I can’t overlook. The things is, we think that if business—business is actually gonna fund a lot of the improvements. There’s a certain amount of seed funding that’s gonna come from the government, basically start of funds. Take an example of building energy efficiency. The government can actually kick the market off by saying all government buildings are going to achieve a certain amount of energy efficiency by—within a given time. That creates a market for environmental services and for building services. The rest of the sort of conversion of buildings is actually gonna come from the private sector, using private money. The ICC, the International Chamber of Commerce, has estimated that of the total amount of spending on greening the economy, actually somewhere between 75 and 80 percent’s gonna come from the private sector. The public sector funding is gonna be a seed funding and it’s gonna be important, but actually the majority is the private sector.

That’s why everyone’s so concerned about talking about incentives. How do you incentivize the private sector to actually spend its money on things that are productive in the long-term and productive for society in economies, but not privately remunerative in ways that they’re used to? The thing is, you need business—you need to incentivize business. You need to provide business the sort of the framework for continuing to innovate and continuing to put in, invest, and continuing to provide jobs for people that are actually going to be important in the new economy. The thing is, we don’t want to necessarily—or put it this way: enforcement by government and new regulation is a quick way to get results. It’s a quick way to get change, but what it does is it doesn’t provide that framework for business to innovate and create and take initiative in ways that are actually profitable in the long-term from an operational point of view. Societies need to find a balance between, what is the right role of the state to guide private sector, and what is the right role for the markets? That’s a question we’re also working on.

Then the last one: agriculture, food, and water. Clearly, water’s an issue. Agriculture and water are issues, and so that is another area that we’re actually trying to figure out sustainability for Asia. Just a few examples. For energy, one of the things that we’ve done at the Fung Global Institute is actually say we bring together the finance community with the sustainability community to actually figure out, how do you channel investment to more sustainable uses? Everybody knows there’s like several trillion dollars of derivative in trading, investing going—just pure financial trading. A dollar goes around the world a given number of times because people are betting on it. They will have a fund or they’ll take a—exactly what happened in the US. They’ll take a basket of mortgages, pile on some derivative products, sell that off, chop it up, slice it, sell that off, and so you have a lot of—there is money in the system. The question for Asia is that if we don’t want to invest in bets, how do we get the financial community to actually invest in things that we want? The things that will actually be good for our future economy: infrastructure, energy efficiency, technology, those are all good things to invest in.

The thing is, it’s not the question of is there enough money to actually build the future? We have enough money. The question is how do we re-channel those funds? How do we incentivize the fund managers and the asset managers and the investors to actually invest in things that society finds useful? Unfortunately, what we found in Asia is that these two communities, the sustainability people, the greenies, the tree huggers, they never talk to the hardcore investment bankers and the fund managers. This is like two different—they even speak different languages, okay? [Laughter] The thing is, we try—we need to actually get these two communities to talk more to each other. We brought them together and that’s—the conclusions are what I’ve just told you, is that there is enough money in the system, but we need to actually work on more public policy frameworks to get the money channeled to more productive uses.

Some of the things we discovered, that sovereign wealth funds, the state holdings like Singapore Investment Corporation, the Gulf in Middle Eastern countries have a lot of sovereign investing, that actually those funds are the funds that actually do have a long-term interest. They can actually invest for the long-term without having to answer to the short-term, quarterly earnings kind of audience. If we can get the sovereign wealth funds to actually channel more of their funding to sustainability, then actually that would make a big difference, too, because they send the signal that these are good investments. We know that they’re good investments, but people in the financial community probably need a few more signals in order to be convinced. We’re working on, for Asia, getting these two communities to talk to each other and to figure out what are the new vehicles? What are the new investment means? What are the new frameworks for long-term return that will actually incentivize a financial community to actually work for us?

Next one: urbanization. Here we’re focusing on the Pearl River Delta. The Pearl River Delta is basically the manufacturing—one of the manufacturing heart sort of belts of China. At its peak, the Pearl River Delta I think maybe as few as five years ago was producing something like 30 percent of China’s exports and 10 percent of China’s GDP. It’s a huge amount. China has something like over 30 provinces, and so Pearl River Delta basically is one of those. To think that ten percent of your GDP is actually coming from one of your provinces, the amount of production that takes place there is actually huge. You have a big concentration of wealth. You have a big concentration of industry.

Now the challenge is that as China decides that it wants to move up the value chain and sort of get out of clothes, toys, and footwear, and so on, that because it wants its people to have a higher quality of life, and because it wants to deal with the pollution that’s left over from that kind of low-end production, that actually it’s going through a huge process of industrial transformation. You basically think what do you do with the thousands of toy factories? How do you transition them to be high tech, to be looking at IT, to be talking about R and D and innovation? That’s what China wants to do. The program for the Pearl River Delta is actually industrial transformation. With that, a whole new set of environmental demands, because if you actually want to operate at a higher value chain with better-educated workers, then you actually need to provide a different kind of living environment. There are all kinds of new challenges which are faced by the Pearl River Delta.

That’s another area that we’re working on, and Hong Kong—Hong Kong is basically there, so we have a fair amount of visibility into what is going on in the Pearl River Delta. Visibility—I mean, actually physically, because the pollution for the Pearl River Delta comes down to Hong Kong, so we more or less feel it. Then also in terms of our business connections because many of the Pearl River Delta factories are actually owned or connected to Hong Kong companies. It’s basically Hong Kong’s backyard. We’re working on trying to see how does a region undergo industrial transformation from a low end to a higher end? We’re working on sustainable development in Hong Kong, so Hong Kong actually has a very poor environment. In fact, I think Hong Kong’s pollution and Hong Kong’s Gini coefficient may be among—may be even number one for advanced industrialized cities. Hong Kong’s GDP is actually quite high, but its income disparity is very wide. Our air is horrible in that it’s bad, okay? [Laughter] Take my word on that, because—and I could quote to you the air quality indices and so on, but actually, for Hong Kong as—if it views itself as competing with New York, London, and Tokyo, then actually the air is just not up to standard.

The thing is, Hong Kong is also undergoing its own transformation, and people are also demanding a different set of quality of living. The thing is, if China—so Hong Kong’s always been a service provider to China. We were the gateway to China, we helped foreigners access China, we provided a lot of the logistic services, we managed a lot of the supply chains in China. We know how to deal with Mainland China, or so Hong Kong people think. If China is moving to take sustainability more seriously and if China is moving up the value chain that actually presents a different set of demands for Hong Kong. While Hong Kong has to deal with changing environment, changing people’s expectations, it also has to deal with, from a business point of view, how does it actually be useful to China in the future? For any of you—I don’t know how deeply the news from Hong Kong actually gets into the US, but actually, Hong Kong has reverted to China in 1997. Many people ask, so how has that changed things? Actually, for me, I haven’t been living in Hong Kong the whole time, but I’ve visited Hong Kong very frequently because my family is there.

Basically, from 1997 until now you actually have a very, very—it’s a vibrant civil society. The thing is, I guess at least 10 to 20 times a year I would say that there’s marches through Hong Kong. This is like thousands of people marching through Hong Kong for various causes: residency for Filipino maids; minimum wage, I mean the rise of the minimum wage; housing; suffrage, universal suffrage in that the people in Hong Kong wanna vote for who’s gonna become the chief executive; national education in that the government wanted to impose a new curriculum in primary schools which said that—which was a very Mainland oriented curriculum, so they omitted some things and included some new things. It’s basically a curriculum that was very different from what had been known in Hong Kong as historical fact. So you have vigils about Tiananmen, the Tiananmen incident in 1989.

The thing is, in Hong Kong we actually have a growth of civil society which means that actually society is changing. Society is demanding new things. For a government, that actually has to deal with environmental issues, business issues. We also have to deal with social issues. What we’re trying to do is actually get the—present a vision for Hong Kong which actually integrates all of those elements together. Because if you deal with any of these issues as a single issue on a single issue basis, with the usual kind of silo mentality which governments are known for, in that every department basically does its own thing without actually listening to others, then actually you will fail because the society is too complex and technology is too pervasive that actually if you change one element in a system you’re gonna actually affect the whole system.

When you think of solutions, we need to think of things in a holistic, integrated manner. I would guess that that’s important for any government, any system, but I would say that it’s actually more important for developing countries simply because you actually have more impact because you’re trying to do physical things like building infrastructure or like setting up your social security system. Those are major, major moves. We’re not actually tinkering at the fringes; we’re actually building a center. If you don’t do that in an integrated way, if you don’t set up your system in an integrated and holistic manner, you’re gonna actually have unintended consequences that are gonna cause you more problems later on. Hong Kong has a lot of challenges, too, so we are actually sometime this spring we’ll be coming out with a sustainable development plan for Hong Kong which actually takes a lot of that into account.

Sustainable supply chains, I’ve talked about before, is that actually you have changing amount of value provided by each part of the supply chain. This is a typical smile in which the low part, low value things are actually manufacturing and assembly. We’re thinking that actually that’s gonna change because—partly because of sustainability. Sustainable consumption, how do you get—how you answer consumers’ desires for more sustainable and more socially responsible products? This is just a survey of—from the MIT—you know MIT has a management publication, Sloan Management Review. They have a sustainability series, so they do a survey in which they ask companies what is driving your sustainability agenda? Actually, consumers are first. This survey was a global survey, but I think most of the respondents were still in the more wealthy countries. It’s basically consumers actually have a lot of power.

It comes down to designing better products. How do you get products to be more sustainable? You actually have to design them differently. A lot of companies are doing work on this. Marks and Spencer, they actually take old refrigerators and break them down and actually create new products, so that’s a total closed loop. This is actually the Holy Grail. If we could actually do total closed loop for everything, that would actually be a great impact for landfill and waste. Levi’s—probably you guys have seen this—is they design jeans which actually require less water to wash because they found out that in the life cycle of jeans, most of the water was used in the washing phase when people were washing their jeans too often or with too much water. So they design jeans differently.

Educating suppliers and manufacturers. I mean, this is programs we’re running for factories in online, in person. We have toolkits for factories. We actually have digital videos going out to factories, teach workers about fire safety, about overtime, about energy issues, about water issues. We need to actually reach every bit of the supply chain. We need to work on the consumers, we need to work on the designers, and we need to work on the people who are actually producing the products. We can’t forget that actually those are real people. We need to focus on people first, so good working conditions, healthy working conditions, and safe.

Then employees, that’s basically us, which is because we’re the people who are actually orchestrating the whole thing. We have a lot of educational programs going out to companies, and then also educating consumers in that whether they really need to replace their phones every two years, whether they—what they’re gonna do with their clothes after they don’t like them anymore. The thing is, we’ve lived so long in thinking that more consumption is actually good. It’s true. For companies, more consumption means more revenue, which means more profit, but if consumers are starting to consider a different set of attributes when they buy things, then companies need to respond. Now there’s a big chicken and egg debate of companies say well, we’re waiting for consumers to change, and consumers are saying well give me something more sustainable or give me something better. So I actually don’t think that it’s a chicken or egg; it’s one whole cycle. Our process is gonna be iterative.

Okay, and then educating the public and the markets. Stock exchanges are now getting in on the act. A lot of Asian stock exchanges have begun to tell companies you have to actually disclose a wider set of information than just your finances. That actually—this is for Hong Kong, a list of companies in Hong Kong. Actually, we have a new set of ESG guidelines, so it’s a recommended guideline with—that is going to become a code practice. Code practice means that every listed company has to follow it or you have to explain why you don’t. Basically, it’s a requirement. It’s gonna become a code practice in like 2014. It basically serves as a warning to companies that you better get ready. They have very specific reporting guidelines like the amount of turnover in your—of workers in your supply chain; the gender balance of management and employees; where your supply chain workers are located. A lot of details about companies’ supply chains which are actually things that they don’t own. Just think about the mindset of companies which has always been I’ll just do what’s within my domain and not really sort of be concerned about what I don’t own. Today, actually the whole conception of business is the value chain. You have to be responsible for everything that you touch.

All right, so just a few conclusions. I guess Asia, we have a great potential to grow and we have a great potential to create a lot of wealth in society, but we have also a very severe set of challenges given that people want different things from society. If we are relying on our old models for growing, the fast industrialization model, we’re going to fail. We need to actually find out a better way to do things. It’s gonna touch multiple—everyone in society from consumers to business people to policy makers to scientists and academics. Then actually, the search for solutions is actually going to rely more heavily on learning by doing. We have new technologies and we have ways to collaborate, but actually, a lot of it is iterative.

If you think about 20 years ago, did anyone who predicted what is the internet going to do to our lives, were any of those predictions correct? Probably not. We were so wrong [laughter] on getting what the impact of the internet would be. Same thing with sustainability. We’re at the beginning. We’re at the infant stages of sustainability. The thing is, we don’t know what the grand design looks like, but we have to have confidence that by making changes that we know are correct in the short-term, that actually that will open up more bridges to enabling us to know more so that we can actually meet the challenges that are facing us. The thing is, don’t wait for tomorrow. [Laughter] Don’t wait before you act. Don’t wait for the grand design because we don’t have it. What we have to do is actually just learn by doing, okay? Learn how the technology is going to impact us by starting to use it today.

Then the thing is, for Asia, because of the scale of Asia and because of the way we’re growing, if Asia actually gets sustainable development right, we’re gonna have a new global paradigm. A new global paradigm of how countries can industrialize from a low basis of development to a middle income society and then even into the advanced income levels which is where the OECD is at today. We have basically in this world one growth model which is the consumer-based consumption, capitalist model, which is the one that most of Europe and the US are following. Now everybody knows the so-called Soviet model is discredited, or so the smart people in the room would have us believe.

What China’s trying to do is actually say that consumer-driven model may not be totally suited for us, so let’s try to do something where we actually grow a bit differently because we know we have different social and environmental needs. That’s the challenge, and that’s the paradigm that China’s working on. If China can actually get it right, China and India and most of Asia, then actually that’s gonna move global markets. The amount of technology that’s gonna involve, the amount of design ingenuity that’s gonna be generated, and the amount of consumers which are actually gonna be moving in a slightly different direction than the ones in the advanced west. That’s—I mean, for me, as someone living in Asia and as someone who has an Asian heritage, that’s actually very, very exciting because it means you’re actually figuring out a different—a better way for the world to operate. That’s the potential, and thanks for joining.

[Applause]