~ Archive for Sustainable urban development ~

Echo chamber risk and the role of middle management in information flow

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I kept encountering the phrase “Echo Chamber” this week and even though I know what it stands for, I can’t help but to look up its meaning on Wikipedia. On Wiki, it defined Echo Chamber as,

Echo chamber (media) An echo chamber is “an environment where a person only encounters information or opinions that reflect and reinforce their own.” In discussions of news media, an echo chamber refers to situations in which beliefs are amplified or reinforced by communication and repetition inside a closed system and insulated from rebuttal …

 

Just think about it, recent history is replete with examples of leaders being entrenched in their own interpretations of truth, particularly when circumstances turn against the company. Instead of responding logically to the cautionary signals all around them, they dig further into their echo chamber, listening to the deputies that they’ve surrounded themselves with.

One of the most dangerous aspects of echo chambers is that they lead to a lack of creative ideas, similar viewpoints, and identical concepts. On an organisational level, I seriously think that this can limit our chances for progress and stifle constructive discussion.

Now, with the vast quantity of information available on the internet, I don’t really think that it is difficult to obtain “evidences” that support a committee’s viewpoint. The challenge, and very useful one indeed, is to discover dissident ideas and views that do not correspond to your own point of view and build these insights into our strategy, and this can only be achieved by deliberately seeking out people and groups that are not so similar and also maybe from other industries.

The risk is, deputies or middle management might tend to form committees that comprise people who more or less mirror the views of the head honcho. Importantly, these middle managers represent the company’s culture by encouraging and implementing appropriate beliefs and behavioral patterns throughout the organisation.

Fundamentally, the flow of information in an organisation is also controlled by middle management. They are privy to crucial information and gossips (important too!) and it is up to them to communicate (or not) the critical information to the appropriate supervisors or departments. Failure to surface critical information can sometimes lead to the fall of the leader or worse, the organisation.

Perhaps leaders could also consider to be more purposeful in surrounding themselves with advisers who are competent, logical, confident, and genuine in order to counteract this Echo Chamber risk, otherwise they risk slipping into this fatal communication gap.

One good example would be Nokia; its fall from being the world’s finest mobile phone firm to losing everything by 2013 has become a case study that professors and students in business management classes have examined. Not only did they formed an echo chamber, they also fostered a very toxic work environment. According to a study (Vuori & Huy 2016) with 76 Nokia top and middle managers, engineers and external experts, they discovered the following about Nokia:

  • Nokia was plagued by organisational anxiety at the time;
  • The anxiety in the organisation was rooted in a culture of toxic working environment filled with terrified middle managers;
  • Top executives frequently intimidated middle managers by accusing them of not being ambitious enough to achieve their objectives;
  • Middle management was afraid to reveal the truth for fear of getting sacked;
  • Middle management lied to top management because they believed stating the truth was pointless; top management lacked technical knowledge, which affected how they could judge technology limits during KPI formulation; in comparison, Apple’s top management were all engineers;
  • Middle management were hesitant to openly admit that Symbian, Nokia’s operating system, was inferior;
  • Top executives were terrified of losing investors, suppliers, and consumers if they admitted to Apple’s technological superiority;
  • They were aware that developing a superior operating system capable of competing with Apple’s iOS would take several years; and
  • Rather than committing resources to long-term aims such as building a new operating system, Nokia management chose to create new phone handsets to meet short-term market demands.

Nokia’s demise was precipitated by a series of poor decisions, yet none of the company’s errors were unavoidable. I think that there are several lessons to be drawn from the demise of this technological behemoth.

Reference(s):

Vuori, T. O., & Huy, Q. N. (2016). Distributed Attention and Shared Emotions in the Innovation Process: How Nokia Lost the Smartphone Battle. Administrative Science Quarterly61(1), 9–51.

 

Turning a crisis into an opportunity: Crippling effects of increased level of carbon dioxide and global temperature on hydroelectric power plants in tropics and subtropics regions

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Photo by Quang Nguyen Vinh

 

Written by Zeng Han Jun

A recent survey showed that there is a slight shift in people’s interest in favor of renewable energy. According to this survey, governments should consider exerting more influence in raising environmental consciousness and bridging the gap between people’s desires and realistic energy alternatives (Zhang, Abbas,Iqbal, 2021). Popular renewable and clean energy options include hydroelectric, geothermal energy, wind energy, solar energy, etc.

 

By bridging the gap between people’s desires and realistic energy alternatives, the government could realise people’s expectation and also reduce the burden on our environmental ecosystem, but it is also important to note that operationalising, has its fair share of challenges. For example, in the United States, there is general consensus among some people that harnessing wind energy could be one of the solutions to alleviating the energy challenge. Among those who agreed, some have the Not-In-My-Backyard (NIMBY) mindset and do not want any of those power plants near their homes. 

 

Some cited personal health issues and environmental degradation, while others say that the construction will destroy the view from their houses and devalue the properties in the vicinity. All these concerns stand in the way of implementation and of course, I have to agree that these are indeed issues that should be addressed accordingly and dealt with properly. 

 

In the tropics and subtropics regions, we could be witnessing other increasingly challenging issues stemming from global temperature and carbon dioxide increase, its effect on the natural ecosystem and this might possibly disrupt the operations of hydroelectric power plants.  

 

Let me explain why.

 

As the global temperature and carbon dioxide increase, we might discover that it becomes more difficult to maintain biological control on the proliferation of aquatic weeds in many parts of the world (Baso, Coetzee, Ripley, Hill, 2021), more so in the tropics and subtropics. The tropics and subtropics region are located in parts of the world in which the sun is directly overhead at least one day of the year and is found within a band on either side of the equator from 23.5°N, and 23.5°S. These aquatic weeds can grow rapidly to cover the entire surface of lakes and rivers, some even setting deep roots and form strong lateral connections to each other as well. 

 

As mentioned earlier, these growing aquatic weeds might cause operational difficulties for hydroelectric power plants. It could lead to reduced throughput and eventually cause severe blockages. Hydroelectric power plants that are situated in Southeast Asia, would be at the greatest risk. Southeast Asian governments must anticipate these types of obvious problems and develop an integrated and multi-phased roadmap to tackle the upcoming challenges.  

 

So, do not naively assume all types of green are good. Some types of green when left unchecked, can contribute to severe environmental and commercial consequences. 

 

One of the problematic aquatic weeds is the water hyacinth species. This species grows very fast and some even flower under the right conditions. Many in fact think that it is very beautiful.  It  has a rapid growth rate in warm temperatures (Mitan, 2019) and can potentially cover the entire lake if left unchecked. This prevents sunlight from reaching the bottom of the lake and disrupts the lake ecosystem. In other parts of the world, local communities have tried to use pesticides to control aquatic weeds. Some tried to introduce insects such as weevils to feed on the water hyacinth to slow its growth but such methods also have its consequences.

 

Apart from meeting the issue head on, central and local governments could also try to mitigate the risk by transforming/ retrofitting the affected hydroelectric power plants to harness other forms of renewable and clean energy. It is more cost-effective to install alternative renewable energy devices on infrastructures that can already receive, store, transform and transmit electricity. 

 

Also, it is worthwhile to explore tapping on the creativity of the private sector to transform the issue into revenue-generating ideas such as collecting aquatic weeds, processing it and mixing the by-products with polymers to create fabrics that can be used for weaving garments thereby paving way for sustainable fashion. Or, the aquatic weeds could be harvested, processed and strengthened with chemicals to produce furniture thereby giving birth to sustainable furniture. Additionally, the private sector could also explore processing the aquatic weeds into edible food for humans, animal feeds and fertilisers, and export the final products to other countries (Oa, & Cf, 2015).

 

By including additional later stages such as breaking down these final products with pyro technology then harvesting the by-product as fertilisers (Ramirez, Pérez, Flórez, Acelas, 2021), the government, with the help of the private sector would be able to close the loop and further develop the entire idea into a circular economy. This can help to create new jobs, improve the economy and certainly goes well with the media.  

 

There are many ways to tackle the issue. The main enabler is to have a properly designed, integrated and multi-phased roadmap to guide the entire transition. 

 

References

Baso, N. C., Coetzee, J. A., Ripley, B. S., & Hill, M. P. (2021). The effects of elevated atmospheric CO2 concentration on the biological control of invasive aquatic weeds. Aquatic Botany, 170, 103348. doi:10.1016/j.aquabot.2020.103348

Oa, S., & Cf, O. (2015). Utilization of Treated Duckweed Meal (Lemna pausicostata) as Plant Protein Supplement in African Mud Catfish (Clarias gariepinus) Juvenile Diets. Fisheries and Aquaculture Journal, 06(04). doi:10.4172/2150-3508.1000141

Ramirez, A., Pérez, S., Flórez, E., & Acelas, N. (2021). Utilization of water hyacinth (Eichhornia crassipes) rejects as phosphate-rich fertilizer. Journal of Environmental Chemical Engineering, 9(1), 104776. doi:10.1016/j.jece.2020.104776

Zhang, Y., Abbas, M., & Iqbal, W. (2021). Perceptions of GHG emissions and renewable energy sources in Europe, Australia and the USA. Environmental Science and Pollution Research. doi:10.1007/s11356-021-15935-7

20 runs – 0.6 rate – 2030

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20 runs of simulation to Year 2030

Average temperature change: 2.535000 Degree Celsius

Observation: Simulation run 16 presented an anomaly scenario. The temperature change in 2030 for that run showed 1.7843573490387437 Degree Celsius with Air Carbon Dioxide concentration at 27 (The second highest record among the 20 runs) and Ocean Carbon Dioxide concentration at 0 (Lowest among 20 runs) and yet there was significant recovery of the Arctic ice.

Stepping up to prepare for possible power outages when our environment becomes colder or hotter with work-from-home arrangements

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Photo by Pixal Bay

 

Written by Zeng Han Jun

As the climate continues to change, some parts of the world will become hotter and other regions will become colder. Combined with an increasing reliance on electronic devices to carry out our work and express our lives, our energy demands can only continue to grow and it will increasingly burden our existing electric grid system. 

 

Compounded with Work-from-home (WFH) arrangements, the matter might become worse, especially during winter/ summer. We have already been through one summer and one winter during this Covid 19 pandemic and already witnessed how it played a role in causing power outages in several regions around the world. Moving forward, we could expect to witness more power outages throughout various parts of the world.  

 

Office and industrial buildings are often located on the most capacious sections of a metropolitan electrical grid.  However, most residential area’s electrical grid system is generally built to support heavy consumption in the early mornings and nights, with hours to cool off throughout the day. Can residential area’s electrical grid system support WFH arrangements and perform at the same level as the electrical grid systems that are located in office areas?

 

Consumption patterns in cities such as New York and California have already shifted as a result of the Covid 19 epidemic, with demand peaking throughout the day. Overall use is already increasing by an average of 7% in New York City apartments (Meinrenken, 2020).

 

 graph of electricity consumption before and during covid-19 pandemic

Source: Columbia University

 

There is no reason to believe that the changes we are seeing in New York City are not happening elsewhere. Where energy loads are predominantly residential and there is no proportionate drop in non-residential load, we should expect overall energy demands to continue to rise, with a higher risk of disruptions to current energy supply and distribution systems.

 

The danger of failure in aging transformers, cables, and other equipment grows when the summer heat and winter cold continue to hit new highs/ lows while heaters or air conditioners remain on throughout the day.

 

There are three things that household should be encouraged to do: 

  1. Do an energy stock take of all the electrical appliances within the household; 
  2. With the new found understanding of the energy consumption patterns, further identify the essential energy usage so that households can quickly make backup plans for those services during times of emergency; and 
  3. Obtain alternative energy sources to tide over the emergency. Renewable energy sources and battery storage  must be able to provide sufficient energy for essential usages. 

 

Even if governments provide temporary reliefs during power outages in face of increasing/ decreasing temperature events , many companies that rely on remote workers in these regions will be affected by the reduced productivity.

 

As WFH arrangements continue, the oldest and most exhausted transformers and transmission equipment may be affected. Reduced commercial demand would jeopardise power companies’ revenues and, as a result, their capacity to replace outdated components in the long run, perhaps leading to widespread breakdowns in the future.

 

Governments must keep anticipating and prepare for possible future events and step in to work with power companies to audit the current electrical grid system. 

 

References

Meinrenken, C. J. (2020, April 24). New Data Suggest COVID-19 Is Shifting the Burden of Energy Costs to Households. Retrieved from  -->

15 runs – 0.6 rate – 2030

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15 climate model simulation runs for Year 2030.

Average temp = 2.438667 Degree Celsius

Rethinking our electrical grid system and explore alternative sustainable energy sources to complement photovoltaic energy

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Photo by Maegan White

 

Written by Zeng Han Jun

There was a recent debate in South Korea about how solar panels are responsible for deforestation and possibly even linked to forest fires. It is not new. This argument has been going on for more than a decade but the stakes are much higher now. Investments in solar panels have been increasing steadily as energy providers try to diversify their business. Some of the oil companies are throwing significant investments into the solar business. That South Korea government unit acknowledged the report but neither agreed nor disagreed with the findings. However, the unit did share some best practices in solar panel installation, which is mainly about how the solar panels should be sloped during installation. 

 

To be honest, solar energy production in cities is clearly one of the many ways to reduce our reliance on fossil fuels and could be a good way to mitigate global warming by lowering Greenhouse Gas (GHG) emissions. Although photovoltaic (PV) renewable energy production has increased, questions remain about whether PV panels and PV power plants cause a “photovoltaic heat island” (PVHI) effect, similar to how an increase in ambient temperatures relative to wildlands causes an Urban Heat Island (UHI) effect in cities (Barron-Gafford, Minor, Allen, Cronin, Brooks, Pavao-Zuckerman, 2016). 

 

Cities are fundamentally concretised urban landscapes and the most significant impact of cities on local weather is the UHI effect. Heat islands are urbanised areas with higher temperatures than surrounding areas. Buildings, roads, and other infrastructure absorb and re-emit more heat from the sun than natural landscapes such as forests and bodies of water. Urban areas, where these structures are densely packed and greenery is scarce, become hotspots for outlying areas.

 

Some studies have pointed out that PV panels and PV plants change the structure of the landscape, in how incoming energy is reflected back to the atmosphere or absorbed, stored, and reradiated. Energy absorbed by vegetation and surface soils can be released as latent heat in the transition of liquid water to water vapour to the atmosphere through a process known as evapotranspiration (Masson, Bonhomme, Salagnac, Briottet, Lemonsu, 2001). PV kind of disturbs that process. So, a PVHI effect might be caused by a measurable increase in atmospheric warming as a result of a change in the balance of incoming and outgoing energy fluxes caused by the transformation of the landscape.

 

Research on PVHI is still ongoing while more investments are pouring into this domain. On the other spectrum, there are people who are very optimistic about this technology and even suggested using PV panels to pave roads and open space car parks. Their research has shown that PV pavement decreases surface temperature by 3 to 5 °C in summer and generates 11 to 12% less heat output at various climate conditions, all while generating electricity at the same time (Xie, Wang, 2021). 

 

PV technology is very important because we have an abundance of sunlight in most places but still we should not rely too much on a single energy source. It never makes sense to put all eggs into the same basket. Very cliché but I think that there is a lot of sense in that sentence. 

 

Given the current climate change condition, the scientific community still cannot collectively conclude how our environment will turn out in the future. Nobody dares to put a finger to it, especially when it has been discovered that climate models deviates a fair bit from real world conditions. To be fair, it is not easy to build a climate model because the climatic conditions are so complex, our mathematical models are good but there is the possibility that the math might not perform as expected when more factors come into play.  

 

Apart from using mathematics to forecast possible scenarios, people have also turned to observation of weather conditions on nearby planets as an indication of how Earth might turn out to be in the future. A lot of studies were performed on planet Venus in the 70s and 80s? Now, the people’s attention has shifted somewhat to the planet Mars but the scientific community are still onto the planet Venus though. Many within the scientific community agree that the study of the planet Venus could be one of the keys to understanding planet Earth’s possible future. 

 

First thing first, planet Venus looks beautiful from a distance but it is hellish within the planet’s  atmosphere, with surface temperatures in excess of 400 °C. Space probes sent to scout the planet, melted in an hour or two upon entering into its atmosphere. All the water had disappeared. An explanation stated that the water has broken down and the hydrogen escaped into space. Carbon dioxide and sulphuric acid are in excess throughout the planet. Quite literally a burning hell in our part of the universe. 

 

Some postulated that Venus used to be like Earth but later experienced a greenhouse effect. It then escalated into a runaway greenhouse effect. A runaway greenhouse effect, simply explained, is when there are too much greenhouse gases (usually water vapour) in the atmosphere which results in an increasing amount of heat trapped within the planet. The runaway greenhouse effect is most often associated with water vapour as the condensable GHG. In our case, the water vapour could reach the upper space limit of our planet Earth and escapes into space, resulting in a dried-up planet. This may have happened in the early history of Venus.

 

In the meantime, sea level will still continue to rise, for centuries to come. Many studies have shown that even if human-caused carbon dioxide emissions were to completely stop, the associated atmospheric warming and sea-level rise would continue for more than 1,000 years. These effects are caused in part by the residence time of carbon dioxide. The greenhouse gas can continue to stay in the atmosphere for a long time after it is emitted by industrial processes (NASA, 2017).

 

Flooding will continue to plague low-lying or coastal cities therefore there is a strong need to rethink urban planning and the grid system. Places with underground utility cables must reimagine how they deliver energy to houses and workplaces. Rising temperature might affect the insulation covers of the utility cables, exposing electrical wires to potential flood situations thereby causing danger to nearby humans/ animals and also pose obstacles to delivering energy to places beyond the power plant. 

 

We could explore siting power plants on top of individual buildings with cables delivering energy from the rooftop to respective units below. PV panels can continue to work at lower efficiency when clouds become denser and when the humidity increases. Still, we must be prepared to obtain energy from alternative sustainable energy sources, to augment the reduced output of PV power plants. 

 

Cities without alternative energy options will be at the greatest risk. Some of these cities are unable to harness renewable energy options like wind and hydro energy. As such, these cities must quickly pay more attention to less popular but emerging energy possibilities like hygroelectricity (converting humidity to electricity), piezoelectricity (obtaining electricity from crystals, dry bones or similar materials), etc. 

 

Last month, a Japanese team managed to successfully carry out an hygroelectricity experiment to power a very small motor (Komazaki, Kanazawa, Nobeshima, Hirama, Watanabe, Suemori, Uemura, 2021). I feel very encouraged by the results of their experiment. Even though the electricity output is very small compared to what PV panels can achieve, I feel that there is a lot of potential in scaling up this technology. The hygroelectricity generator could be constructed into a panel but mounted on external walls of buildings. Of course, there are still a lot of challenges ahead for this technology but I see some potential too. 

 

In fact, we must actively think out of the box (Very cliché, I know. We should really just do away with the box) and explore different alternative energy sources. There are significant advances in harnessing energy from sound (vibrations), heat (not geothermal), radioactivity, etc and we should reimagine how different energy sources could be wired up to a single battery station that delivers electricity to a localised building so that services could sustain even in the event of an intense and persistent flood. Of course, this is just a suggestion and there are many other ways to go about it too but first, we need to spark more conversations on this issue. 

 

References

(n.d.). Retrieved from https://www.epa.gov/heatislands

 

6 Causes of Urban Heat Islands and 4 Ways to Offset Them. (n.d.). Retrieved from https://www.buildings.com/articles/27532…

 

Aggarwal, V. (2021, May 28). How Much Energy Does A Solar Panel Produce?: EnergySage. Retrieved from https://news.energysage.com/what-is-the-…

 

Average monthly humidity in Singapore, Singapore. (1970, July 30). Retrieved from https://weather-and-climate.com/average-…

 

Barron-Gafford, G. A., Minor, R. L., Allen, N. A., Cronin, A. D., Brooks, A. E., & Pavao-Zuckerman, M. A. (2016, October 13). The Photovoltaic Heat Island Effect: Larger solar power plants increase local temperatures. Retrieved from https://www.nature.com/articles/srep3507…

 

Evaluation of Electric Energy Generation from Sound Energy Using Piezoelectric Actuator. (2016). International Journal of Science and Research (IJSR), 5(1), 218-225. doi:10.21275/v5i1.nov152677

 

First Real Images Of Venus – What Have We Discovered? (2020, December 12). Retrieved from https://www.youtube.com/watch?v=Fbdojp9L…

 

Hygroelectricity. (2020, June 03). Retrieved from https://en.wikipedia.org/wiki/Hygroelect…

 

Komazaki, Y., Kanazawa, K., Nobeshima, T., Hirama, H., Watanabe, Y., Suemori, K., & Uemura, S. (2021). Energy harvesting by ambient humidity variation with continuous milliampere current output and energy storage. Sustainable Energy & Fuels, 5(14), 3570-3577. doi:10.1039/d1se00562f

 

Masson, V., Bonhomme, M., Salagnac, J., Briottet, X., & Lemonsu, A. (0001, January 01). Solar panels reduce both global warming and urban heat island. Retrieved from https://www.frontiersin.org/articles/10….

 

Runaway greenhouse effect. (2021, July 31). Retrieved from https://en.wikipedia.org/wiki/Runaway_gr…

 

Short-lived greenhouse gases cause centuries of sea-level rise – Climate Change: Vital Signs of the Planet. (2017, January 13). Retrieved from https://climate.nasa.gov/news/2533/short…

 

Xie, P., & Wang, H. (2021). Potential benefit of photovoltaic pavement for mitigation of urban heat island effect. Applied Thermal Engineering, 191, 116883. doi:10.1016/j.applthermaleng.2021.116883

Carbon dioxide, methane, nitrous oxide and fluorinated gases but what about water vapour?

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Photo by Guilherme Rossi

Written by Zeng Han Jun

 

I hesitated to write this… for about three weeks or so. In fact, there are always a lot of issues throughout the week for me to write about, but I usually let those issues seep in my brain for a while before I carefully pick one topic to write.  I almost dropped this topic but after weighing it, I decided to go ahead and write briefly about Greenhouse Gases (GHG) emission. I believe that we can bring about greater awareness on this topic if more people decides to step forward and share more information with one’s sphere of influence. 

 

So, you might think that it’s not a big deal to write about GHG emission. You know, the usual stuff like carbon emission that is covered under Scope 1, 2 and 3, other GHG emissions and ozone depleting substances. That is what most of the people have been harping on for quite some time but I want to go just a little bit further.

 

As you might already be aware, the race towards securing the next big idea of reducing carbon emission or extracting carbon content from the atmosphere, is very real. Big personalities are starting to showcase or have already showcased themselves, their organisations, their visions, their network in an attempt to attract the most pioneering ideas and the best talents. 

 

I imagine that some are howling at their staff over the phone or across the table and sending them to all corners of the globe to search for the next big idea or maybe also expecting them to squeeze their network dry. Like really dry, but somehow the same few ideas keep surfacing… from the same few groups of networks. Nah, it’s just my imagination. No one howls at anybody for such things right?

 

Right?

 

Anyway, a lot of companies have dead-locked their firing sights on carbon emission. I noted that a few companies have ventured to explore other ideas such as capturing methane and using the captured methane as fertilisers or fuel. 

 

Ok, before you yell at your staff over the phone to look for investments in methane capture technology. Please place your hand over your heart, take a few deep breaths, calm down and read about what I have to say further. 

 

There are many types of Greenhouse Gases (GHG) and the typically known ones are: 

  1. Carbon Dioxide; 
  2. Methane; 
  3. Nitrous Oxide; and 
  4. Fluorinated Gases.

The first one and also the one that most industries are interested in reducing, is carbon dioxide. This gas accounted for roughly 80% of all human-caused GHG emissions in the United States in 2019. Some of the excess carbon dioxide will be quickly absorbed (for example, by the ocean surface), but some will remain in the atmosphere for thousands of years, owing to the very slow process by which carbon is transferred to ocean sediments (Climate change, 2007). 

 

Next is methane, which has a much shorter lifetime in the atmosphere than carbon dioxide, but methane is more efficient at trapping radiation than carbon dioxide. Over a hundred year period, the comparative impact of methane is 25 times greater than that of carbon dioxide and this is why some companies have departed from the red ocean of carbon capture market and ventured into the blue ocean of methane capture market (Climate change, 2007). 

 

The third one is nitrous oxide, which accounted for approximately 7% of all human-caused GHG emissions in the United States in 2019. Nitrous oxide molecules linger in the atmosphere for an average of 114 years before being removed by a sink or destroyed chemically. One pound of Nitrous oxide has nearly 300 times the warming effect of one pound of carbon dioxide (Climate change, 2007). 

 

Finally, last but definitely not the least, fluorinated gases. Unlike many other greenhouse gases, this group of gases have no natural sources and are only produced by human activity. They are emitted as a result of their use as ozone-depleting substitutes (e.g., refrigerants) and a variety of industrial processes such as aluminum and semiconductor manufacturing. Because many fluorinated gases have extremely high global warming potentials (GWPs) in comparison to other greenhouse gases, small atmospheric concentrations can have disproportionately large effects on global temperatures. They can also have long atmospheric lifetimes, lasting thousands of years in some cases. Fluorinated gases, in general, are the most potent and long-lasting type of greenhouse gas emitted.

 

Precisely because these gases are emitted by the industrial sectors, it actually makes emission control much easier. We can track the emissions to its industrial sources, monitor the outputs, from there we would be able to understand what contributes to the outputs and then devise various methods to reduce or capture GHG. Additionally, regulators could make companies pay for the pollutive emissions and this encourages companies to invest and install emission control mechanisms to treat any industrial waste or air pollution before releasing these by-products into the ecosystem.

 

Companies should be willing to invest in these technologies as long as the total investment for the emission control mechanisms is less than what they need to fork out for any penalties or for as long as it makes financial sense. 

 

Ok, so that is all for carbon dioxide, methane, nitrous oxide and fluorinated gases. 

 

Now, I am going to talk about water. To be more precise, I am going to talk about water vapour. 

 

Water vapour is the most important gaseous source of infrared opacity in the atmosphere and an increasing number of works are showing that it is the dominant greenhouse gas. 

 

Water vapour concentrations are not directly influenced by human activities and vary regionally. However, human activities could increase global temperatures and water vapour formation indirectly, amplifying the warming in a process known as water vapour feedback (Soden, Jackson, Ramaswamy, Schwarzkopf, Huang, 2005).

 

Water vapour feedback can in turn amplify the warming effect of other greenhouse gases, such that the warming brought about by increased carbon dioxide allows more water vapour to enter the atmosphere. As the concentrations of other greenhouse gases, particularly carbon dioxide, rise due to human activity, it is critical to forecast how the water vapour distribution will change. 

 

The contribution of water vapour to the greenhouse effect in the Earth’s atmosphere far exceeds that from other gases, such as carbon dioxide, methane, etc. Calculations estimate that water vapour and clouds are responsible for 49% and 25%, respectively, for heat absorption (longwave absorption to be more precise but I will elaborate on this later). Carbon dioxide is responsible for about 20% of the heat absorption. Please note that the percentages of the greenhouse gases in our environment is not fixed and varies daily, seasonally, and annually (Schmidt, Ruedy, Miller, Lacis, 2010).

 

It is important to note that the difference between tropical and polar latitudes, for example, is determined not only by the difference in air temperature, but also by the difference in atmospheric water vapour (Chesnokova, Firsov, Razmolov, 2019). This goes to highlight the impact that water vapour has on the entire Earth’s atmospheric condition. 

 

Let me just briefly explain about the scientific model that is generally accepted by most of the scientific community at the moment.  

 

Electromagnetic radiation is emitted by everything that has a temperature. Shortwave radiation contains more energy, while longwave radiation contains less. For example, the sun emits shortwave radiation because it is extremely hot and has a lot of energy to give. The radiation that is emitted by Earth, on the other hand, is longwave because it is much cooler, but it still emits radiation.

 

FIGURE 1

Simplified scheme showing greenhouse gasses (GHG) and their effects on plants. GHG (H2O vapour, clouds, CO2, CH4, N2O, and NO) have both natural and human origin, contributing to the greenhouse effect. Short-term effects of GHG increase is mainly CO2 rise, which activates photosynthesis (PS) and inhibits stomatal opening (SO). Long-term effects of GHG increase are extreme climate changes such as floods, droughts, and heat. All of them induce the generation of reactive oxygen species (ROS) and oxidative stress in plants. Nitric oxide (NO) could alleviate oxidative stress by scavenging ROS and/or regulating the antioxidant system (AS). GHG and volatile organic compounds (VOC) react in presence of sunlight (E#) to give tropospheric O3. Although tropospheric O3 is prejudicial for life, stratospheric O3 is beneficial, because it filters harmful UV-B radiation. The size of arrows are representative of the GHG concentration.

 

Clouds and the Earth’s surface absorb solar energy once it enters the atmosphere. The ground heats up and re-emits energy in the form of infrared rays and this is known as longwave radiation. Simply put, the Earth is cooler than the sun and has less energy to give off, it emits longwave radiation.

 

The radiation balance and atmospheric circulation are determined by the fluxes and inflows of shortwave and longwave radiation within the Earth’s atmosphere. Radiative processes, such as cooling or heating of the Earth’s atmosphere and surface, are actually heavily influenced by cloud parameters. 

 

A growing body of studies are pointing to the link between the formation of cirrus clouds and its potential impact on climate change. Cirrus clouds condense and nucleate on very specific mineral and metal particles high in the atmosphere. Although it is known that only a small percentage of atmospheric aerosols are efficient ice nuclei, the critical ingredients that make those aerosols so effective have yet to be established (Cziczo, Froyd, Hoose, Jensen, Diao, Zondlo, Murphy, 2013).

 

For us, we just have to note that several observations are showing that these clouds can roughly cover up to about 20% to 30% of the Earth’s atmosphere at any given time. Depending on their location in the atmosphere, they can either help cool the Earth or warm it up. Unlike liquid water clouds, which generally cool the Earth by reflecting sunlight, ice clouds might help warm it up by absorbing reflected heat (LiveScience, 2009). The contribution of cirrus clouds to the downward flux at the surface level is small, and the flux is determined by the emission of the gas components of the atmosphere, whereas the contribution of cirrus clouds is decisive at the top of the atmosphere. 

 

Cirrus clouds with small optical thickness enhance the greenhouse effect. Current research showed that the crystal particles within the cirrus clouds can emit more energy than water vapour, in that they cool the atmosphere by absorbing and scattering shortwave solar radiation while increasing longwave radiation. Water vapour, carbon dioxide, and other greenhouse gases absorb and trap this longwave radiation, causing the Earth’s surface and lower atmosphere to warm naturally. It is critical to understand that greenhouse gases do not trap incoming shortwave radiation, but rather longwave radiation emitted by the Earth’s surface and other mediums (Pacific Islander Council on Climate Change). 

 

Water vapour will increasingly play a significant role in the coming centuries. Climate models, backed up by satellite data, predict that as temperatures rise, the amount of water vapour in the upper troposphere (about 5 to 10 kilometres up) will double by the end of the century (Soden, Jackson, Ramaswamy, Schwarzkopf, Huang, 2005).

 

This will produce roughly twice the amount of warming as if water vapour remained constant. Cloud changes could amplify or reduce warming but there is a lot of uncertainty about this. Currently, we still cannot directly control the amount of water vapour in the atmosphere because water is found everywhere on our planet. It covers roughly about 70% of the Earth’s surface. To control the amount of water vapour in the atmosphere and the temperature of the Earth, we can only limit the greenhouse gases that we can actually control at the moment.

 

Anyway, when things become more stable, I would like to go back to Dubai again and try those new water dispensing machines that are placed outside their shopping malls. These new water dispending machines distill water directly from air and is safe to drink on the spot!

 

References

(n.d.). Retrieved from Account, S. (2013, June 03). The origins of cirrus: Earth’s highest clouds have dusty core. Retrieved from Cassia, R., Nocioni, M., Correa-Aragunde, N., & Lamattina, L. (2018, March 01). Climate Change and the Impact of Greenhouse Gasses: CO2 and NO, Friends and Foes of Plant Oxidative Stress. Retrieved from Climate and Water Resource Case Study. (n.d.). Retrieved from http://www.soest.hawaii.edu/mguidry/Unna… 2/Chapter2B2.html

Climate change 2007: The physical science basis. (2007). Cambridge University Press.

Contribution of the water vapor continuum absorption to radiative balance of the atmosphere with cirrus clouds. (2018). Оптика атмосферы и океана, (9). doi:10.15372/aoo20180908

Cziczo, D. J., Froyd, K. D., Hoose, C., Jensen, E. J., Diao, M., Zondlo, M. A., . . . Murphy, D. M. (2013). Clarifying the Dominant Sources and Mechanisms of Cirrus Cloud Formation. Science, 340(6138), 1320-1324. doi:10.1126/science.1234145

Ingram, W. J. (2012). Water vapor feedback in a small ensemble of GCMs: Two approaches. Journal of Geophysical Research: Atmospheres, 117(D12). doi:10.1029/2011jd017221

Main, D. (2013, May 09). How Cirrus Clouds Form – And Why It Matters. Retrieved from Schmidt, G. A., Ruedy, R. A., Miller, R. L., & Lacis, A. A. (2010). Attribution of the present-day total greenhouse effect. Journal of Geophysical Research, 115(D20). doi:10.1029/2010jd014287

Soden, B. J., Jackson, D. L., Ramaswamy, V., Schwarzkopf, M. D., & Huang, X. (2005). The Radiative Signature of Upper Tropospheric Moistening. Science, 310(5749), 841-844. doi:10.1126/science.1115602

Soden, B. J., Jackson, D. L., Ramaswamy, V., Schwarzkopf, M. D., & Huang, X. (2005). The Radiative Signature of Upper Tropospheric Moistening. Science, 310(5749), 841-844. doi:10.1126/science.1115602

 

Social issues caused by loan sharks and how it could be combated by cooperatives supported by technology, in addition to an Environmental, Social and Governance (ESG)-focused supplier management programme

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Photo by Tima Miroshnichenko

 

Written by Zeng Han Jun

The pandemic has left many people without proper means of survival in many countries. Several countries have turned to borrowings so that they could extend handouts to businesses and people. Some countries have begun to study the possibility of tendering out large construction projects to create new infrastructures and jobs. Massive reorganisations are taking place at the international and domestic levels. 

 

A few cities are focussing their efforts on international trade through online platforms and repositioning with a blue and green economy because their traditional means of livelihoods might be disrupted in the near future. A small number are readying some of their industries as if preparing to pounce on new opportunities. In short, it is dizzying to see so much action within such a short period, more so when the pandemic has exposed weaknesses of many personal decisions, sectors and governance systems. 

 

One particular issue stood out glaringly for me during the pandemic, i.e. Loan Sharks.  Loan sharks usually provide financing services to those from the lower-income group. These people usually do not have stable income and also do not have proper documentation to obtain loan from a traditional bank. This is where loan sharks will step in to value-add. 

 

Just to share a little about my undergrad experience; I worked as a part-time credit officer at Standard Chartered Bank throughout my university days and my work involved performing credit analysis for the consumer branch and later I helped out with the administrative work for the credit risk covering the industries. At the end of that stint, I found out that money lending is not really that easy because it is a challenge for the money lender to ensure that the borrower is able to pay up. 

 

To this, the credit officers might have to ensure that they have liens over some form of assets that are held by the business or individual. In case the business or individual is unable to cover the loan payments over a certain period (usually three months – we used to refer to it as three buckets), the bank will be able to exercise their rights to claim these assets and recover at least a part of the debt. Additionally, we were also instructed to pore over the cash flow records of the businesses or individuals and ensure that only borrowers with healthy cash flows are eligible for loans. Naturally, loan applicants who are working in certain stable professions, were the safe ones to endorse for lending. 

 

I used to think that credit officers are at the short end of the stick. Later I found out that somehow or rather everyone is at the short end of the stick because ultimately, private enterprises are not charities and every department has bottom lines to meet and positions to secure. Even charities have KPIs, returns and positions to secure! Some loan applications seem like “there’s more than meets the eyes” so we need to call up the frontline sales officer to explain about the situation and maybe get them to obtain more documents from the customers. 

 

We often get back an earful from those front-office lots, about how they are bringing in the business to the bank and sustaining the salaries of those like us.  And that we are just sitting by the phone, mouthing no to everything without a single idea of how the real world works. At the other end of the table, my supervisor will warn that if we let a bad apple in, our head will be on the chopping boards, not her fault and also not the front-line sales officer’s fault. I was just an undergrad part-timer! Luckily back in those days, we had vending machines that provided free drinks to cool us off from these ordeals. 

 

So the lesson from this experience (for myself) is that; getting a loan from a bank is not as easy as one might have expected, and this is even when the loan applicant already has the full set of proper records. A lot of effort is spent on verifying the sources of income, assets and existing debts, all of which depends first on having proper documents. 

 

So what about those without proper records or from lower-income groups?

 

Well, they mostly turn to loan sharks. 

 

When I was serving my national conscription as a law enforcement officer, I spent about one year as a uniformed patrol officer and later had to be transferred away to assist with the plainclothes operations for another year. We supported very deep operations against anti-vice activities, illegal immigrants, gambling activities and also, loan sharks activities. At that time, I already thought that loan sharks are a very troublesome group of people. 

 

Loan sharks.  

 

The fact is; these loan sharks provide financing service to those without proper cash flow records and usually to those who belong to the lower income group or maybe even illegal immigrants. They charge interest rates beyond what the banks offer because the risk that they undertake is very high. In some instances, borrowers often have nothing else to their names except their lives. Sometimes, the borrowers have to borrow even more money to pay off the interest incurred from the earlier debts and this might trap the borrower in the debt cycle forever. 

 

Depending on the situation, some borrowers might end up becoming labour for the loan sharks, as a means to pay off the debt. In others, a few borrowers end up committing suicide. For example, in some societies, farmers borrow money to buy seeds in hope that they can sell the produce for a profit later. However, the resulting crops might be paltry because of poor weather conditions, poor farming techniques, poor soil condition or maybe a mixture of these conditions. Unable to pay their debts and stuck in an infinite debt cycle, some hang themselves and sadly, a few turn to selling their children to finance a little of their debts in order to survive. 

 

It’s heart-breaking. 

 

Companies could unknowingly tap onto this pool of workforce or exacerbate this problem in some ways when they procure products and services, which is why it is very important to include responsible sourcing as part of a Environmental, Social and Governance (ESG) – focused supplier management programme. Responsible sourcing is a method of approaching sourcing and supply chains. It occurs when a company actively and consciously sources and procures products and services for its operations in an ethical, sustainable, and socially-conscious manner. This means that an organisation must ensure that its business practices – both within its own corporate walls and throughout its supply chain – have no negative impact on the environment AND the people. 

 

Working through the supplier management programme is one way to lessen the social effects from loan shark lending. 

 

Other than that, I am suggesting another approach, a more hands-on and albeit more difficult one. It’s more like a long-term Corporate Social Responsibility (CSR) project that underpins its approach with support from right-sized technology and the idea of setting up a cooperative ecosystem. 

 

As written on Wikipedia, it stated that cooperatives are:

A cooperative (also known as co-operative, co-op, or coop) is “an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned enterprise”. Cooperatives are democratically owned by their members, with each member having one vote in electing the board of directors. Cooperatives may include:

1. businesses owned and managed by the people who use their services (a consumer cooperative)

2. organizations managed by the people who work there (worker cooperatives)

3. multi-stakeholder or hybrid cooperatives that share ownership between different stakeholder groups. For example, care cooperatives where ownership is shared between both care-givers and receivers. Stakeholders might also include non-profits or investors.

4. second- and third-tier cooperatives whose members are other cooperatives

5. platform cooperatives that use a cooperatively owned and governed website, mobile app or a protocol to facilitate the sale of goods and services.

 

In the case of farming, a farming cooperative manages a number of interconnected activities such as production planning, growing and harvesting, grading, packing, transport, storage, food processing, distribution, and sale. This type of cooperative can also be formed to promote specific commodities such as various types of spices, vegetables or shrimps, etc. It is better to structure cooperatives according to the range of commodities that are being farmed within a region. This so that the farmers who are better at producing certain products, could share their best practices with the rest who may not be performing as well. 

 

When farmers band together like this, they also enjoy synergies such as having the ability to promote their product together which in turn improves their bargaining power and hopefully leads to better profits. Farming cooperatives can also be formed by small businesses to pool their savings and gain access to capital, acquire supplies and services, or market their products and services.

 

Members could contribute to the cooperative’s operations and growth by:

  1. Membership fees that are paid once or on an annual basis; 
  2. Service fees, for example, are member contributions with no individual ownership attached; 
  3. Capital contributed by members; 
  4. Individual members make deposits with the cooperative that can be used for business purposes; and
  5. Members can receive deferred payment for a portion or all of their produce delivered to the cooperative.

 

Cooperatives also frequently use external sources of funds to run their operations or finance investments, in addition to institutional and member capital. Non-member sources of funds could include other cooperatives or commercial banks, suppliers, government or donor agencies, and so on. External funding can be provided in a variety of ways, including grants, short-term loans, long-term loans or trade credit provided by a supplier. In fact, forming a cooperative and then using the pooled money to buy some assets, can improve its gearing ratio. This means that the cooperative might be able to borrow money at a lower interest than if one were to borrow directly from a bank.  

 

Once the cooperative is set up, they are in the best position to lend money because they understand the issues within the farming community. The members who are better at farming, could help to share best practices and also determine if a farming idea is viable for financing. Surely one would listen to those who have had more experience or performed better than oneself right?

 

Right?

 

On the technology front, I am not suggesting for even more advanced technology. On the contrary, I wished that technology companies could take a step back and cater to the rest who may not be able to catch up. I had the good fortune to visit a rural farming community in India before the pandemic started. From this experience, I learnt that the people who are living in the rural areas need simple 3G enabled phones, 3G internet network, software or online marketplaces that can be supported by 3G internet and a logistic ecosystem that would work with all these components. They need these systems in place so that they could communicate with the potential buyers who may be located out of town and receive payments for the service rendered. The technologies could be introduced through the cooperatives. 

 

Once they are able to receive money from new sources of buyers, they could again pool the money into the cooperatives. Cooperatives are also good training places to nurture the local people into administrative positions such as investment, finance, corporate development, marketing, and encourage the community to work together. All these work together to make the community a better supplier for most buyers. Also, buyers can also nurture new sources of supply through cooperative arrangements and mitigate any supply-side risks. 

 

With these options in place, people from the lower-income groups will have financing alternatives other than turning to loan sharks. To be honest, cooperatives are not new and have been used to extract lower-income communities and even public officials from the grasp of loan sharks in some societies. Together with technology, it could even uplift the lives of the vulnerable and help them to secure better livelihoods.   

 

References

Malay Mail. (2020, November 15). ‘Strangled by debt’: Coronavirus deepens Cambodia’s loan crisis: Malay Mail. Retrieved from Naheed Ataulla & Anand J / TNN / Updated: Jul 27, 2. (n.d.). How loan sharks pull poor farmers into a debt trap: India News – Times of India. Retrieved from Yasmina Hatem, L. D. (2021, January 07). India has a farmer suicide epidemic – and farmers are protesting new laws they fear will make things worse. Retrieved from  -->

Paying more attention to the governance aspect of the Environmental, Social and Governance (ESG) equation

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Photo by Alexander Suhorucov from Pexels

By Zeng Han Jun

Through market dynamism and awareness, some companies have already restructured their business operations with the aim to align with Environmental, Social and Governance (ESG) values. Other than that, some are doing it because they are concerned about their business sustainability in the next 5 to 10 years. 

Then again, I must acknowledge that charting a new direction can be very challenging to some and not all companies can stomach it. That is because true transformation goes beyond reporting and involves securing buy-ins, setting aside time, allocating sufficient resources, exerting strategic effort and importantly, instilling the discipline to stay on course and not drift. One cannot simply believe and hope for the best. 

By discipline, I mean to foster a system that is motivated to sustain itself, keeps itself in check and continually driven to value-add. That is why companies have to ensure that proper governance is in place to ensure that ESG policies, processes and procedures are continually updated at the strategic level and implemented at the operational level. It is easy to say this but difficult to achieve. 

First, strategy must be sufficiently rooted to the larger ecosystem in order for the ideas to be practical, yet it should not be overly-burdened with operations such that no real changes can take place. 

Second, operations are fundamentally the manifestation of policies. It involves processes and procedures that comprise multiple classes of assets, systems at different stages of growth and people with varying levels of training. Ideally, operations should be designed to be nimble and flexible enough to adapt to changes. In reality, action plans can deviate a fair bit from the plans and not easy to change once implemented. 

Clearly, there is a gap between the two domains and the challenge is to ensure that sufficient and fairly accurate insights flow seamlessly between the two domains, in order to facilitate  informed decisions and timely actions. 

You might already know that ESG is quite different from other traditional corporate functions like finance, technology, human resource, etc. Most traditional corporate functions can be organised under a single department. For example, the recruiting function will most definitely be a subset of the Human Resource (HR) department and not under any other departments.

ESG is a little bit different. It is pretty strategic in that its principals influence policies that impact the processes and procedures of other traditional corporate functions. It is not wrong to say that the ESG function has a stake in almost every other corporate function. 

It changes the way a company does its recruiting, investing, auditing, procuring, marketing, administrating, engineering, managing, etc.  On top of this, encouragement by international organisations, governments and exchanges seem to suggest that it is going to be very important in the future. It is important to be aware of these developments because it will affect organisational development. 

Recently, I also discovered that there are broadly five ways companies go about implementing ESG policies internally. 

First scenario – Company ensures that all work processes eventually go through the ESG office for endorsement. 

Second scenario – The ESG office supports every other function in the company. 

Third scenario – Company outsources the work to an external vendor. 

Fourth scenario – Every department will have an ESG champion to ensure ESG policies are implemented within the department. Depending on the seniority of the chosen ESG champions, they could be a part of the executive committee or part of a working level group. 

Fifth scenario – a hybrid of two or more of the above scenarios. 

Personally, I feel that the first scenario signals the strongest commitment to ESG values. If the board is really committed to business sustainability, they must ensure that their staff are sufficiently empowered to perform their duties, otherwise their legitimacy could be undermined by other departments that have more political clout. Without sufficient support, business focus will start to drift away from ESG values. The negative effects could also extend to staff retention and become an impediment to attracting the right talent.  

Attracting the right talent for ESG work is very tricky. The ESG umbrella concerns itself with many topics. It can include science, finance, engineering, research, politics, human rights, fair work practices, equal hiring opportunities and the list goes on. Putting out a job description for an ESG specialist and expecting the staff to handle such a wide range of domains, is fundamentally against the principles of ESG.   

Also, drifting could happen if companies do not have the right talents. They are the ones who are overseeing the governance of the ESG policies, processes and procedures. Apart from staff having useful attributes like qualifications, skills and experiences, most ESG standards additionally recommend for companies to include diversity and inclusivity as part of hiring practices and board composition. 

Companies can show commitment by kickstarting diversity hiring with the ESG office. In fact, many companies are already doing it. Workforce diversity is not a new topic. Numerous studies on the aging population, the trade economy, advanced technology and how these will impact the future of work started very long ago. Workforce diversity was then suggested as one of the many tools to improve productivity, reduce blindspots and gain competitive edge.  

Over the decades, the diversity concept has expanded to include BIPOC and extended to people of other sexual orientations too. Other companies are going further, venturing into the return-to-work concept and helping individuals who have been away from corporate life, to return to the workforce. In a good way, diversity promotes new perspectives and reduces blindspots during discussions, sparks new insights and solutions that could be essential to companies’ long-term survivability (Kirchmeyer & Mclellan, 2009). 

What are blind spots?

Blind spots are mental habits that our brains use to process information quickly and studies have shown that people with the same background tend to think alike/ have the same types of blind spots.   This is why removing these blind spots is extremely important for effective strategic decision making and governance of ESG policies. 

Policies, processes and procedures can change over time, depending on the environment and to a certain extent, the people who are overseeing and managing it. That is why, in addition to ESG policies, processes and procedures, companies also need to have the diversity to keep itself in check, oversee the execution, monitor variances and see if there is a need to tweak the policies. If that is not possible, at least have a mechanism to allow a diverse group of people to review the policies periodically. 

Honestly, diversity might cause some people to be uncomfortable. Issues that were once considered taboo, are now being discussed frankly. People of different backgrounds, who seldom interact much in daily lives, are interacting much more in a diversified work environment. Then again, differences in perspectives supported by open-minded communication, really can help teams to overcome blind spots and are integral to developing a risk-aware approach to business decisions.

Commitment to ESG values without proper strategy can result in a lot of inefficiencies and miscommunication with departments. It is expensive and becomes increasingly difficult to rectify when informal work processes entrench in traditional work functions. The complexity of reengineering multiplies manifold when exchanges start to regulate ESG reporting. 

The key is to first create a proper governance structure that is supported by the right talents. It may not be perfect the first time but we can always improve on the system along the way. 

Maybe there will be an increase in operational cost due to more hiring or increased workload due to extra duties imposed on staff. Can we benchmark the increased operational cost to the long-term benefits/ returns? Maybe the cost/ benefit ratio does work out? Can we streamline the outdated work processes and explore redesigning existing staff work. Maybe there are opportunities to improve efficiencies within pockets in the organisation? 

Apart from these options, companies can also consider organising periodic focus groups for a diverse audience and use the findings to refine their ESG corporate roadmap. Or appoint independent directors to shake things up a little bit? 

Anyway, many companies are just beginning to jump on the bandwagon and are still trying to figure things out along the way too.

The question is; how are you going to do it?

References

Kirchmeyer, C., & Mclellan, J. (2009). Capitalizing on Ethnic Diversity: An Approach to Managing the Diverse Workgroups of the 1990s. Canadian Journal of Administrative Sciences / Revue Canadienne Des Sciences De L’Administration, 8(2), 72-79. doi:10.1111/j.1936-4490.1991.tb00546.x

The Development of Environment, Social and Governance (ESG) Criteria and What This Means for Businesses in the Future?

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By Zeng Han Jun

 

Development of ESG criteria

Governments are increasingly incorporating Environment, Social and Governance (ESG) criteria into mandatory financial disclosures as part of their efforts to achieve net zero carbon and contribute to the United Nations’ Sustainable Development Goals (SDGs). What does this mean for businesses, though?

Over 20 years ago, ESG principles were established, primarily to support selective investment and as criteria for reporting sustainability credentials. ESG disclosures were previously voluntary. Companies used them to differentiate themselves and add value to their businesses for investors and the general public.

Following the Paris Agreement (2015), governments have implemented policies to reduce carbon emissions and contribute to the SDGs. Among these regulations is the requirement for companies to make ESG disclosures.

ESG policy to drive the nett zero transition

For example, the European Commission has published or revised regulations aimed at incorporating sustainability into its financial policy framework. Regulation 2019/2088 on sustainability related disclosures requires banks and its financial advisers to disclose ESG information to their customers, and Regulation 2019/2089 (also known as the Low Carbon Benchmarks Regulation) aims to improve transparency and consistency in low carbon indicators.

The EU Taxonomy Regulation, enacted in 2020, contributed to the establishment of an EU classification system for sustainable activities. Furthermore, Directive 2014/95 requires large public interest companies to publish reports on their environmental protection, social responsibility and employee treatment, respect for human rights, poor corporate governance and diversity on company boards.

In 2017, the Task Force on Climate-related Financial Disclosures (TCFD) issued its final recommendations on reporting on climate impacts and action. It established a framework for businesses to create more effective climate-related financial disclosures using existing reporting processes, allowing for more reliable cross-market comparison.

New Zealand was one of the first countries in 2020, to commit to mandatory climate risk disclosures that are aligned with the TCFD recommendations for publicly traded companies, large insurers, banks, and investment managers.

The 2019 Streamlined Energy and Carbon Reporting Regulation (SECR) in the United Kingdom also introduced mandatory disclosures related to energy consumption, greenhouse gas (GHG) emissions, and energy efficiency actions for selected companies as part of their annual reporting.

Singapore also published its sustainability reporting framework in 2021, with climate disclosures playing an important role in transforming finance for a greener future. Singapore has been building the green bond market for years, including under a “Sustainable Bond Grant Scheme” from 2017 that has propelled the issuance of almost USD$8.3 billion in green, social, and sustainability bonds. That included a $1.1 billion set of green bonds issued in 2020 by Star Energy Geothermal Group, used in part to finance geothermal energy generation facilities in West Java, Indonesia.

The impact of mandatory ESG disclosures on businesses

Companies will face increased scrutiny regarding the sustainability of their activities in the future, as well as due diligence, with ESG criteria serving as a key requirement for investment decisions. Companies must measure and manage their environmental and social impacts, as well as have in place a governance structure to support this, in order to comply with mandatory ESG disclosures.

Although this may be overwhelming for some businesses that have not yet embarked on the sustainability journey, focusing on these aspects now can help businesses mitigate future compliance and climate risks. Companies should view incorporating ESG criteria as an opportunity to improve their businesses, create positive impacts in their value chains, and improve investor relations, not just any desktop exercise.

Companies should evaluate their businesses and create a roadmap for incorporating ESG criteria into their operations. While this will almost certainly necessitate short-term investments, it would almost certainly provide long-term value. Some research have showed that companies that have incorporated ESG into their operations consistently outperform their peers and may even benefit from lower-cost financing. Investors, for example, are becoming more aware of the risks that climate change can impose on traditional financial assets, and they may be willing to accept a lower return on investments linked to more sustainable activities.

What comes next?

Businesses should begin to think how they should embark on their ESG journey and gradually adapt and prepare for the more stringent disclosure regulations. They must also anticipate the higher level of rigor that investors and financiers will emphasis during due diligence. Integrating sustainability into corporate practices and reporting today would ultimately increase business value and allow businesses to contribute to a more sustainable future.