Economies in Asia regressing on trade sustainability
Issue us rising in importance for multinationals deciding about FDI and sourcing
The Hinrich Foundation commissioned the Economist Intelligence Unit to build an index that measures the readiness of 19 economies in Asia and the U.S. to trade sustainably. The Sustainable Trade Index measures their ability to participate in global trade in a way that creates sustainable growth, encourages foreign direct investment, and attracts support from multilateral development agencies.
The index was created for the purpose of stimulating meaningful discussion of the full range of considerations for policy makers, business and civil society when engaging in international trade. The 2018 index results show an alarming trend of countries in Asia, especially the richer ones, broadly regressing in their trade sustainability, with improvements in the economic pillar more than
offset by significant declines in the social and environmental pillars.
According to Merle A. Hinrich, Founder and Chairman of the Hinrich Foundation, “The index serves as a proxy for each country’s progress in meeting the UN’s Sustainable Development Goals. Although trade is an indispensable ingredient in economic development, it cannot be sustainably pursued without responsible environmental stewardship and a commitment to fully developing social capital”.
In the 2018 index, Hong Kong performs the best in sustainable trade, topping the environmental pillar and placing second in the economic pillar. Many of Asia’s wealthier economies, including South Korea, Singapore, Japan and Taiwan, though atop the overall rankings, saw their scores decline from 2016. Japan, for example, performs poorly on indicators ranging from exchange-rate volatility and export market concentration to inequality, and transfer emissions. Singapore’s score is hurt by a steep fall in the environmental pillar, while Taiwan’s score is lower in both the economic and environmental pillars.
Several emerging economies in the index show that it’s not only wealthier nations that are able and willing to engage in sustainable trade. Sri Lanka, in particular, ranks seventh overall, making it the highest placed among the middle-income group of economies. Vietnam, too, performs relatively well in the social pillar, coming in eighth, higher than economies such as Malaysia (18th) and Thailand (17th).
Another positive finding shows that sustainability is an increasingly important determinant of FDI and vendor selection in choosing supply-chain partners for multinational companies. Today, rather than a corporate social responsibility initiative, sustainability is a source of competitive advantage. Companies are also improving the sustainability of their supply chains by broadening relationships with competitors and vendors and imposing stronger environmental and social performance requirements on supply chain partners.
Chris Clague, editor of the paper, says, “Governments are still the driving force behind sustainable trade and the results of the 2018 index clearly show that many in Asia-Pacific need to be doing more. But it is encouraging to see that that the private sector has come to see sustainability—and not just environmental sustainability—as a vital component of corporate strategy.”
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