Indonesia should reshape its industrial strategy to become more closely integrated into global production networks and enjoy the long-term benefits of growing global trade, says a new study from the Asian Development Bank (ADB) and the Islamic Development Bank (IsDB).
The study, The Evolution of Indonesia’s Participation in Global Value Chains, notes that Indonesia’s participation in global value chains declined between 2000 and 2017. Forward linkages, where the country’s intermediate products are exported for use in the production of final goods elsewhere, declined from 21.5% of total exports to 12.9%, while backward linkages, or the share of foreign value-added in Indonesia’s exports, dropped from 16.9% to 10.1%.
“Indonesia’s limited participation in global value chains means it doesn’t benefit from global trade growth to the same extent as its Asian neighbors and isn’t benefiting from trade redirection resulting from trade tensions between the United States and the People’s Republic of China,” said ADB Vice-President for Knowledge Management and Sustainable Development Mr. Bambang Susantono at the launch of the study. “Globalization of production helps economies and workers overall. It also raises awareness of the environment and climate change, contributing to the achievement of the Sustainable Development Goals.”
“Value chains have facilitated the participation of developing countries in advanced production processes without having the necessity to develop entire production ecosystems,” said IsDB President Mr. Hajjar. “Value chains have also entered the digital space, creating opportunities and challenges for individuals, firms, and nations. Such participation in global value chains has increased income and spurred economic progress in many developing countries which is why the IsDB prioritizes assisting its member countries enter specific global networks.”
The study makes four recommendations to support Indonesia’s participation in global value chains.
Forging stronger links among domestic industries would help firms to innovate, expand, and offer greater value to companies overseas. This can be done through coordinating industrial policies and addressing governance bottlenecks to help firms thrive.
Infrastructure investment is critical in an archipelagic nation like Indonesia to ensure efficient transportation of goods and people and fast transmission of information. Reliable energy is also needed, particularly for capital-intensive manufacturing firms. Good infrastructure can also attract investment in global value chain-related firms.
To manage the impact of technological change, Indonesia should consider labor policies that encourage agricultural workers to shift to other sectors and to ensure workers can upgrade their skills to remain relevant to industry needs.
Finally, Indonesia should seek to develop its innovation capacity by attracting foreign direct investment in non-extractive and research and development industries, notably those that are closely linked to other sectors within the domestic economy.
As Businesses Embrace Sustainability, a Pathway to Economic Reset Emerges
In the midst of a deep recession brought on by the COVID-19 pandemic, there is a growing consensus that the global economy is due for a reset. Business leaders are optimistic that rather than slide back into normality, as the leading economies did after the 2008-2009 financial crisis, the major social, political and climatological ruptures of recent years have driven a growing awareness that as the world emerges from the pandemic, it will not be business as usual.
The urgent need for far-reaching change, however, is matched by the enormity of the challenges. “What this pandemic has done so far is not really change the future yet, but it has very much revealed the present,” said Achim Steiner, Administrator, United Nations Development Programme (UNDP).
“Our main measures of success remain solely financial,” said Alan Jope, Chief Executive Officer of Unilever. “It’s bizarre and it’s outdated.” He called for “21st-century tools for a 21st-century environment”, noting that: “The definition of success for a country, which is usually GDP, and all our traditional financial metrics are built on environmental degradation and growing inequality.”
Along with mandating non-financial reporting, Jope called for four other changes to the way business is done. “It’s really believing that operating to the benefit of multiple stakeholders works,” he said. “Serving customers properly, looking after employees, being fair with suppliers, and making a positive contribution to society and the health of the planet will lead to better financial returns.”
Anne Finucane, Vice-Chairman of Bank of America, echoed the assertion that companies can do well by doing good. “In recent years, there’s a fair amount of data that’s been put forward to demonstrate that if ESG is calculated into the behaviour of a company that the company itself does better – less bankruptcy, higher satisfaction with its clients and customers, and even sometimes higher multiples.”
“We are hearing our shareholders. We are hearing our stakeholders. They are broader than just economic. They are looking for us to be citizens of the world,” she said.
Noting that one of the changes likely to endure after the pandemic is the acceleration of reliance on digital technology, Bradley Smith, President of Microsoft, argued that while business will clearly continue to have an important role to play in upskilling and reskilling workers, governments have an important role to play in facilitating advanced training in technology. “If you look back at the last 20 years, after an upsurge in employer investments in employing skilling in the late 1990s we’ve seen 20 years of decline and stagnation by employers investing in the skilling of their employees,” Smith said. “We need to have a recovery that is led in part by small business. We’re going to need to help small businesses onboard new employees. We’re going to need to help small businesses invest in skilling of their employees, and this is a huge opportunity I think for governments to think anew about tax credits and other incentives they can provide.”
One of the biggest obstacles, participants agreed, is to dispel the idea that there is an either-or choice between delivering profits and growth, on the one hand, and on the other, giving primacy to the interests of stakeholders – employees, customers, communities, and the environment. Jope challenged that assumption. “We have to break that paradigm. We have to build the evidence that offering sustainable solutions to consumers, that conducting yourself with decency makes you an attractive employee, that treating suppliers well, that reducing your environmental footprint actually lowers costs – and all these things drive better financial performance,” he said. “Then there will be less suspicion that there will always be a tradeoff between the [sustainable goals] and better financial performance.”
How environmental policy can drive gender equality
Environmental degradation has gendered impacts which need to be properly assessed and monitored to understand and adopt gender-responsive strategies and policies. While designing these, it is essential that measures targeting gender equality and women’s empowerment are adequately formulated and mainstreamed.
To facilitate experience sharing and learning from good practices, on the 9th of September, the UNECE hosted a webinar on Gender Mainstreaming in Environmental Policies and Strategies. Ms. Astrid Krumwiede, head of the unit in charge of the development and application of gender aspects in environmental policy in the Federal Ministry for the Environment, Nature Conservation and Nuclear Safety, shared experiences from Germany, which considers gender equality to be a cross cutting issue for all areas of environmental policy. On the national level, the Ministry for the Environment has sought to integrate gender equality in various ways, such as through dialogues, meetings, guidelines, education and policies. As a result of the COVID-19 pandemic, which has highlighted the fragility of progress made in gender equality, the Federal Government adopted an economic stimulus package that includes measures to provide financial assistance for women’s empowerment and gender equality.
Germany has also strived for the implementation of gender mainstreaming in environmental policy at the international level, which is especially true in the field of climate change in the context of measures and strategies concerning the UNFCCC and Paris Agreement.
Despite progress made, there are still some long-standing barriers to implementing gender mainstreaming. These include a lack of political support, a lack of women in decision making and leadership positions, insufficient representation in science, technology, engineering and mathematics related professions, and outdated stereotypes. Moving forward, capacity building and equality impact assessment trainings need to be gender responsive so that suitable incentives are provided which enable women to participate. Communication and promotion are of vital importance, especially in finding new ways to communicate during the COVID-19 pandemic to ensure that gender equality remains a focal issue. Incorporating an intersectional approach to gender equality in environmental policy is also essential, since ignoring this in policymaking can create a system that creates and reinforces different forms of discrimination.
Looking to the future, in the words of Ms. Astrid Krumwiede, “it is time for tailor made environmental policies which reflect different needs and requirements for different people”.
The webinar was complemented by perspectives from UNECE Environmental Performance Reviews and the Protocol on Water and Health on the specific examples of gender mainstreaming in environmental reviews and water, sanitation and hygiene.
Business World Now Able to ‘Walk the Talk’ on Stakeholder Capitalism
The World Economic Forum today launched a set of metrics to measure stakeholder capitalism at the Sustainable Development Impact Summit. Calling on all companies to adopt the metrics to demonstrate their progress against environmental, social and governance (ESG) indicators Klaus Schwab, Founder and Executive Chairman of the World Economic Forum, said: ‘With these metrics, the business world will finally be able to walk the talk on their commitment to ESG performance and the stakeholder capitalism principle.”
The set of 21 core and 34 expanded metrics is presented in a new report published today by the Forum, Measuring Stakeholder Capitalism: Towards Common Metrics and Consistent Reporting of Sustainable Value Creation. The work is the culmination of a year of unprecedented collaboration between the world’s four largest accounting firms – Deloitte, EY, KPMG and PwC – under the leadership of the World Economic Forum.
The initiative goes beyond the traditional remit of ESG and aligns its indicators with the SDGs by embracing metrics across four pillars: Principles of Governance, Planet, People and Prosperity. The Forum’s International Business Council (IBC) sees this as not only good for society and the planet but also good for business. “It is proven that businesses that focus on all stakeholders and the planet over the long term do better,” said Punit Renjen, Global Chief Executive Officer of Deloitte at the livestreamed session today.
The project deliberately selected existing metrics from among the plethora of overlapping ESG standards and frameworks that currently exist – the “alphabet soup” of standards, as the session moderator Gillian Tett of the Financial Times put it. ‘We’re not trying to replace anything out there. We’re just trying to come up with a common set of metrics that companies can sign up to,” said Carmine Di Sibio, EY Global Chairman and Chief Executive Officer. These metrics will allow stakeholders to understand a company’s long-term value rather than the short-term view many current financial metrics show. “This is incredibly important for investors,” Di Sibio said.
According to Bill Thomas, Global Chairman and Chief Executive Officer of KPMG International, companies also have a more direct self-interest in adopting the metrics. “One of the biggest reasons to do it is… [for] attracting and retaining the very best people today,” he said. “They want to work for an organization that has a purpose beyond simply profits; they know that business has to play a role to build a better, more sustainable society.”
The Forum’s IBC sees this moment as an opportunity to take the lead in shaping the future development of non-financial reporting. “We’re trying to influence the regulators, the standard-setters, the rating agencies around the world and say, ‘these are the ones we truly believe as a business community are the right measures to start with.’ We’re not looking for perfection, we’re looking for progress. And we’d like some consistency to demonstrate both that progress and that comparability,” said Bob Moritz, Global Chairman of PwC.
He likened the IBC’s aspiration to the process that led to the acceptance of global accounting standards, saying: “The generally accepted [indicators] and those that are practiced influence the rules, the regulations, and then we can cascade and scale those rules and regulations for more alignment, more consistency and better comparability on a worldwide basis.”
At the session to launch the report, Brian Moynihan, Chairman and Chief Executive Officer of Bank of America, and Chair of the IBC, said the metrics go some way to answering the following questions: “How do you align capitalism with the goals of society and how do you measure that in a way that can consolidate all these measurement systems into one set of metrics that the Big Four accounting firms can endorse and help companies publish, so that people can judge whether they’re making progress?”
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