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Business trends

UN goals spur Asian companies to alter buying habits

Development targets push many groups to more eco-friendly procurement

Japanese cedars in Iwate Prefecture: Making wood flooring from cedars grown in forests certified by the Forest Stewardship Council is one path to sustainable procurement. (Photo by Ken Kobayashi)

TOKYO -- United Nations targets are changing the way Asian companies procure their raw materials, forcing them to consider the costs, and benefits, of creating a sustainable world.

The organization's Sustainable Development Goals are a 17-point global call to action aimed at addressing problems that have been neglected in the pursuit of profits, including deforestation, child labor and exploitation of fishery resources.

How companies procure agricultural and livestock products as well as materials can greatly affect the world's climate and biodiversity. While many still believe that adopting new practices can put a squeeze on earnings, some companies are viewing the UN goals as an opportunity to retain clients and investors, and create future value.

Global corporations such as Walmart, McDonald's and Nestle have already signed up, promising to source only cage-free eggs by 2025, while a Singapore hospitality company has pledged to use cage-free eggs exclusively by 2020.

"Cage-free eggs will cost about 50 yen (47 cents) each compared to the current price of 20 yen," said Mariko Kawaguchi, chief researcher at Japan's Daiwa Institute of Research. "Very few Japanese companies are aware that they have been procuring products at unreasonably low prices."

UN Sustainable Development Goals

Minoru Matsubara, chief manager of the Asset Management Division at Resona Bank, said practices are changing around the world.

India's Tata Steel group has taken notice, launching a responsible procurement policy as far back as 2011. CK Infrastructure Holdings, a subsidiary of Hong Kong's CK Hutchison Holdings, also stated that its business units have "incorporated environmental and social responsibilities into their procurement processes," according to a 2016 group report.

In Thailand, Charoen Pokphand Foods has aligned its sustainability policy with the UN's. The company "is determined to operate [its] business in a socially responsible way," said Wuthichai Sithipreedanant, senior vice president for Corporate Responsibility and Sustainable Development.

Malaysia's United Plantations agreed to set up a joint venture in November with Fuji Oil Asia, a unit of Japan's Fuji Oil Holdings. The new company will make products from sustainable palm oil, spending 4 billion yen to build one of the world's largest plants for eco-friendly goods. The plant is scheduled to start operating in June, with its products shipped to big food companies in Europe.

Mikio Sakai, chief strategy officer of Fuji Oil Holdings, stressed that the move is being guided with an eye to the future. Producing eco-friendly goods under fair labor conditions is costly. But according to Sakai, "more food companies are willing to pay premiums for such products."

Many companies once believed that they could not pass rising procurement costs onto consumers, fearing losing out to competitors. But this is beginning to change, as shown by rising investments into businesses or projects that meet certain environment, social and governance criteria. Known as ESG investments, their outstanding amount topped $65 trillion as of April 2017.

Japanese homebuilder Sekisui House has adopted a so-called FairWood procurement method, sourcing wood in a sustainable and socially acceptable manner. The company conducts background checks on about 50 suppliers for the more than 300,000 cubic meters of wood it procures annually worldwide.

"ESG investment will help mitigate concerns about rising costs and encourage exploring other procurement channels," said Masaaki Sasaki, senior manager of the Environment Improving Department at Sekisui.

Fuji Oil Asia and Malaysia's United Plantations agreed to set up a joint venture in Malaysia to produce palm oil products made from sustainable palm oil. (Photo by Keiichiro Asahara)

 

Consumer awareness is changing, too. Maruhon, a Japanese distributor of imported floor materials, procures only certified wood -- a practice the company began in November 2016.

Replacing wood made from regular cedars and cypresses with wood from certified forests "has pushed up procurement costs by 7% to 8%," said President Taku Kato. It also means higher transportation outlays and costs associated with selecting materials. But Kato sees benefits in the approach. "Builders and housing companies are looking for materials with a pedigree, a point that appeals to some consumers," he said. "Those consumers are willing to pay more if they know the background of the wood."

"By 2030, millennials, who are sensitive about sustainability, will become decision-makers at companies," said Shunsuke Tanahashi, head of the Japanese office of Swiss investment manager Partners Group.

Companies that persist in old ways of procurement in the advent of a new corporate ethic do so at their peril, said one observer.

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