By Benjamin Soh
With increasing regulations and evolving market demands, Southeast Asia has a unique opportunity to lead in sustainable practices, especially within the manufacturing supply chains that drive their economies.
As countries pivot away from their reliance on non-renewable energy resources and with recent initiatives and roadmaps aimed at hitting carbon net-zero targets, businesses are beginning to scrutinise their corporate sustainability efforts to be more ESG compliant while remaining operationally efficient.
ASEAN countries have long been recognised for their robust economic growth, driven by strategic macroeconomic policies, open trade, and investment policies.
The manufacturing industry, a key driver in these economies, has seen significant growth with exports from its member states averaging five per cent annual growth between 2015 and 2019, outpacing the global average.
However, the global shift towards sustainability presents both challenges and opportunities for these economies.
For example, the introduction of stringent ESG regulations globally, especially by major trading partners like the European Union, necessitates that these businesses adopt sustainable practices to remain competitive.
The EU’s Carbon Border Adjustment Mechanism, set to impose carbon taxes on imports based on their emissions from 2026, further exemplifies this shift.
We expect that the new regulation will directly impact ASEAN exporters and their supply chains, compelling them to demonstrate their commitment to sustainability.
The Rise of ESG Regulations
The global regulatory landscape for sustainability reporting is rapidly evolving with the International Financial Reporting Standards’ inaugural ISSB standards, released in June 2023, having already amplified focus on the region’s ESG regulatory framework.
ASEAN governments, too, are progressively adopting these global standards, with mandatory reporting of Scope 3 emissions set to commence by 2025.
This shift extends beyond publicly listed companies to include non-listed and SMEs, broadening the scope of ESG compliance.
In this region, where SMEs dominate (constituting 98 per cent of businesses), the challenge of sustainability reporting is pronounced.
Specifically, collecting and managing extensive data from diverse sources across supply chains is labour-intensive and complex; SMEs often lack the digital tools, resources, and expertise required for efficient sustainability reporting, creating a gap between regulatory demands and actual capabilities.
Leveraging Digital Solutions for Sustainability
To bridge this gap, digital solutions are indispensable, especially for the SMEs that are impacted by public and private market sustainability shifts.
Technologies like STACS’ ESGpedia facilitate streamlined and robust self-serve reporting, allowing companies to navigate complex ESG regulatory landscapes effectively.
Such platforms digitise country-specific and international reporting frameworks, simplifying the process for businesses, particularly those with limited resources and sustainability expertise.
Moreover, digital solutions also enable third-party assurance and certification, adding credibility to sustainability claims and mitigating the risk of greenwashing (i.e. ISO14064 aligned reports validate and recognise a company’s commitment to GHG emissions reporting according to international standards).
This credibility is crucial for businesses in Southeast Asia to prove their green credentials to global MNCs and stakeholders in an environment where transparent supply chains are fundamental to green manufacturing.
As global corporations adopt sustainable procurement practices, regional manufacturers must demonstrate their sustainability to secure business and investment opportunities by establishing Scope 3 GHG metrics with full value chain calculations.
Although this process is complex and time-consuming, involving extensive manual data collection and expertise, digital tools can simplify it by streamlining data collection and mapping value chains and product life cycles.
Leveraging these technologies allow businesses to accurately calculate their Scope 3 emissions and engage suppliers in compliance efforts, ensuring adherence to regulations across the supply chain.
This approach not only facilitates regulatory compliance but also enhances the overall sustainability of the manufacturing sector.
Government Support and Cross-Border Collaboration
For ASEAN to capitalise on the potential of green manufacturing, government support is crucial, specifically in the form of policies that incentivise digital adoption and sustainability to drive the green transition.
Singapore’s Budget 2024, for instance, emphasised financial support for businesses on their digitalisation roadmap, focusing on AI and other digital technologies. Such initiatives can serve as models for other countries in the region.
Additionally, governments can introduce standardised ESG disclosure guidelines to prepare companies for mandatory sustainability reporting.
Examples from the region include Malaysia’s Simplified ESG Disclosure Guide (SEDG) Adopter Programme and the Philippines’ Sustainability Reporting Form (SuRe Form).
These initiatives provide a framework for businesses to align with upcoming regulations, fostering a more sustainable business environment – just at a time when sustainability is no longer simply a regulatory requirement but an economic imperative.
Our view is that embracing green manufacturing and robust sustainability reporting can drive long-term profitability and global competitiveness.
Digital solutions, enhanced supply chain transparency, and robust government support will all contribute to the region’s ability to position itself as a leader in sustainable manufacturing.
This strategic shift will not only ensure compliance with global regulations out of the US and EU, but also unlock significant business opportunities in the burgeoning new green economy.
Benjamin Soh is founder & managing director, STACS ESGpedia
