It’s no surprise that Asia is home to some of the world’s fastest growing economies. On average, the Asian continent experienced a growth rate of 4.5% in 2013, or double the global average of 2.2%. Macau experienced the highest growth rate over the last year at 11.9%, according to the World Bank.
This high growth is partly explained by the eagerness of Asia’s developing countries to catch up on infrastructure and capacity building. Gross capital formation, which measures the value of additions to an economy’s fixed assets - including land improvements such as fences, ditches, and drains; plant, machinery and equipment purchases; and the construction of roads, railways, and buildings - averaged 30% of the GDP of Asia’s 10 largest economies last year.
In China, for instance, gross capital formation accounted for almost half of the Chinese economy in 2013. For comparison, the gross capital formation of the United Kingdom during the Industrial Revolution was around 12% of GDP.
Bhutan, a country of just over 750,000 inhabitants that are landlocked between India and China, had the largest gross capital formation last year at 69.3% of GDP. In fact, gross capital formation in Bhutan has averaged 52.7% over the 10 years between 2004 and 2013.
Such a rapid build-up, however, is too often achieved at the expense of the natural environment and society. A good example is the extreme conditions suffered in 2013 by the residents of Beijing when a sandstorm and smog hit the city. This was blamed on the massive deforestation that occurred from the 1950s when trees were felled to serve as fuel for the steel-producing furnaces.
So which Asian countries are balancing economic, social and environmental prosperity? The Corporate Knights’ Sustainable Asia Scorecard has assessed 50 countries in the region using 25 quantitative indicators covering economic, social and environmental performance. Of these indicators, 15 measure the size, quality and efficiency of inputs and 10 gauge the quality of outcomes to rank the 50 Asian countries on their sustainable development performance.
Singapore came out on top, with strong performance on most of the 25 equally weighted indicators, obtaining top marks on six categories - water productivity ($GDP per use of one cubic metre of water), rule of law, regulatory quality, preservation of natural resources, gender equality and transparency. Japan, South Korea, Hong Kong and Israel round up the top five. China closes the top 10 with strong performance on national savings but (not surprisingly) among the weakest on GHG Productivity ($GDP per tonne of GHG emitted).
While the scorecard is most useful to inform policymakers as to where areas of strengths and weaknesses lie, it can also be useful for investors with an opportunity to benchmark best practices. Bond investors, for instance, seeking exposure to Asian economies and who at the same time want to “green” their sovereign bond holdings, will pick sovereign bonds issued by countries that have achieved a balance between economic, social and environmental development. Likewise, equity investors concerned with sustainable development would want to invest predominantly in stocks of companies operating in the countries at the top of the scorecard.
The scorecard can also be of use to multinationals to identify areas of opportunities for business growth. For instance, a country with strength in the percentage of energy from renewable sources might be an interesting growth market to a clean technology company. With water becoming an increasingly limited natural resource generally, a country experiencing low water productivity would be a candidate for utilities management companies to set up shop. A healthcare company would be well advised to expand its presence in a country experiencing a low life expectancy and high urban air pollution score as these are leading indicators of chronic need for better health care services. A high rate of gross capital formation represents an opportunity for infrastructure companies to line up for projects in those countries. Yet another application will be in terms of a country’s performance on occupational injury and fatality, which act as an indication of a potential need for workplace safety consultancy services.
With many multinationals seeking to establish a presence in Asia, the Scorecard can also serve to inform a company’s decision for locating their offices. For example, with a high rate of education expenditure, rate of innovation and tertiary enrolment rates in Korea, this country could be a prime target for locating a company’s R&D facilities.
Most will argue that as a country goes through a phase of rapid industrialization, imbalances in economic, social and environmental development are unavoidable. However, as a country becomes wealthier, and its population aspires for higher standards of living, it can evolve towards a more balanced and sustainable growth. The developed world today went through such transformation and it is only a matter of time before Asia has its turn.
In fact, China’s CO2 emissions per US$ of GDP have already gone down from 1.72 kg in 2008 to 1.07 kg in 2012, a sign that economic activities in China are gradually becoming less carbon intensive. It’s a real indication that this transformation has begun. For this, business opportunities ranging from clean energy technologies, low-carbon intensive transportation to sustainability consultancy services are expected to grow significantly.
