Speech by Minister Lawrence Wong at the 5th Responsible Business Forum on Sustainable Development

Nov 23, 2016

A very good morning. I am very happy to join you this morning for the 5th Responsible Business Forum. To all our guests who are here from abroad, welcome to Singapore. 

We are approaching the end of the year and I think it would be an understatement to say that 2016 has been a year of surprises and upheavals. At the start of the year, few would have predicted that UK (or Britain) will be out of the EU, or that Mr Donald Trump will be President of America. Today these are the realities before us.

I would like to highlight that there is a common theme underpinning these events and also the theme of the Forum on “responsible business”. When I talk about sustainability and responsibility, I mean it in the broader sense and not just confined to climate change and the environment. I say that there is a common theme because if you look around the world, for the last eight years since the Global Financial Crisis, growth around the world has been slow and sluggish. We all can feel the effects. 

Central banks have tried to ease monetary policies, but they have not been able to stimulate demand. In some ways, the flush of global liquidity has made things worse, because they have distorted asset valuations; they have contributed to asset bubbles and unsustainable capital flows.

At the same time, we are seeing rapid technological change which has impacted entire industries and threatened the livelihoods of many, who feel helplessly caught up in the process of change.   

Not surprisingly, countries everywhere are facing job losses and higher unemployment. The broad middle (class) do not feel that their lives have improved, or that their children will have a better chance of a brighter future.  Their incomes are stagnating, while top incomes are zooming ahead.  The gaps and perceived gaps between the haves and have-nots are worsening.

All this is fuelling deep discontent with globalization, and provoking nationalistic and protectionist sentiments around the world. It is reflected in the rise of anti-globalization politics – not just in Britain and America, but  across the developed world. I am sure we will see more of that in the elections coming up in Europe. It is reflected not just in sentiments, but also in economic outcomes. 
 
If you look at global trade, it is at its weakest level in quite a number of years. Capital mobility has been declining. These are very worrying trends.

For decades after the Second World War, the world has benefited from an open globalised system. It is a system that facilitates the free movement of capital and goods, and promotes economic interdependence between countries.

The system is far from perfect, but it has brought benefits to many developing countries, certainly in Asia. In this part of the world in Asia-Pacific, many developing countries have benefited from globalisation including Singapore, and it has lifted hundreds of millions out of poverty.

The question now is whether we can manage the stresses associated with globalization, and work at improving the system and spreading the benefits of globalisation widely among the population at large.

If we fail to do so, then 2016 may well mark the start of a generational shift. It could be the beginning of the unwinding of globalisation, with the world falling apart into fragmented trading blocs, with more protectionist barriers, and higher geo-political risks everywhere.

If you think this is a bit of make-believe, the fact is that this has happened before. Before World War I, the decade was considered a glorious one – wonderful openess, global movement of people and goods. People at that time thought it would continue for a long time to come. Sentiments shifted very quickly. We had Smoot-Hawley, trade tariffs imposed on imports in America, retaliation from other countries. It plunged countries into a trade war, into depression and set the conditions for global conflict. 

This has happened before in history. I am not saying the conditions are the same, but the point is that globalisation is not irreversible. The economic environment is very volatile and can change very quickly. This will be the big question of our time and the major uncertainty that all of us will have to confront in the coming years.

Governments will have to act. Governments will have to address the anxieties of workers about their jobs and livelihoods. But they will also have to be honest about the challenges and what practical state intervention can or cannot do. 

It is going to be very easy to sell populist measures that sound good but in the end, these may cause more harm, or worse may stir up xenophobic sentiments and cultural divisions within our societies.

Governments will have to do their part, but my appeal before this forum is that businesses also have to do their part. If you are candid about the matter, we should acknowledge that the business community can do much better. 

Over the years, all of us would have read the news about these major business scandals around the world – they are part of the problem that contributes to the erosion of confidence and trust in institutions.

Just in the past year alone, look at what we’ve had to deal with. In America, we have had Volkswagen cheating on emissions tests. Clean diesel was not as clean as we thought it would be. In Asia, we have had companies like Toshiba and Lotte all mired in financial and accounting scandals. After the Financial Crisis, when we thought we have seen the worst in banking, Wells Fargo was recently found to have opened up to 2 million bank and credit card accounts without authorisation from its customers. 

These may be few and far between, but these major scandals do erode the people’s trust in institutions and they do give rise to the sentiments that a few are benefiting at the expense of the majority of ordinary people. 

Some have called for tighter regulations over businesses. More effective regulations may indeed be part of the solution. But it is also easy to swing to the other extreme and over-regulate.

Governments should be very mindful that all regulations start with good intentions, but they can have unintended consequences. For every new rule that is created, companies will change their behaviours to optimise around the new regulations. This can lead to perverse effects. 

Just look at financial regulation. Many years ago, we had the first international agreement to regulate banks and prevent financial crisis. This was the Basel Accord of 1988 or Basel 1. The capital rules under Basel 1 were felt to be too crude and too basic. They did not account for the fact that different banks take on different risks. So Basel II was developed based on the concept of risk-weighting; Basel I was 30 pages long; Basel II was more than 350 pages long – more than 10 times.

It was supposedly a wonderful set of rules that will prevent financial crisis. But it led to more complex financial engineering; with banks all trying to produce what looked like safe investments created on the back of highly risky subprime mortgage lending, and we  know  the outcome of that.  Now post-crisis, Basel III is twice as long as Basel II, and Dodd-Frank in America is tens of thousands of pages long. I do not know if this will make the system safer, but this is what regulations can become.  

So there is a need to have more balance.  It’s not just about more regulation or more complex regulation – that may simply lead to the rules being gamed in more complex and unpredictable ways. Governments will need to think about how to have smarter regulations – rules that are effective; that mitigate market failures; and at the same time do not stifle genuine business innovation.  

It is not just the responsibility of governments because  businesses must also do their part – individuals in businesses have the moral obligation to ensure that our society and economy continues to grow in a responsible way.  

It is not just about doing CSR by donating millions to charity or having solar panels on the rooftops of buildings. These are good things to do, but it is not just about tokenism. It is about how you align your business outcomes with broader sustainable development goals; it is fundamentally about how you make your money as a responsible member of our global community. 

There are some basic questions that all businesses should ask: 

a) Did you treat your employees fairly? 
b) Did you exploit the vulnerable and less fortunate? 
c) Did you harm the environment? 
d) Did you compromise on consumer safety and welfare when you sold your goods and services?  

These are simple questions, but the answers may be difficult to deal with. We have to deal with these questions squarely, to restore and strengthen trust in the global marketplace.  

I am glad that more and more businesses recognise the importance of upholding their global responsibility and are indeed embracing the sustainability agenda. That is why forums like these are very important, because they bring companies like all of you together, business individuals, business leaders, captains of the industries, to embrace sustainability goals and to affirm the importance of these goals in your business plans. We are seeing good progress in this regard. For example, here in Singapore, one of our real estate developers, City Developments Limited (CDL), has set ambitious voluntary targets – these are beyond the government’s sustainability blueprint targets – to green all of their existing buildings, and reduce significantly greenhouse gas emissions from each one of them. This is just one example and I am sure many of you will have your own examples to cite within your own companies.  
  
I think that many companies are also seeing that these moves make sense because consumers are starting to pay more attention to responsible and sustainable operations. This has become a consideration that customers use when making purchasing decisions.

A study of the top 100 sustainable global companies showed that these top 100 companies experienced higher sales growth and profits than their competitors who were less sustainable. So a socially responsible and sustainable business model is a smart business decision.

Ultimately, we all need to work together.  Governments need to set rules that are balanced and fair.  Businesses need to act responsibly, and move towards long-term sustainability.  Consumers also need to make the right choices to encourage the right practices.  

If we can all do this together, through innovation as well as collaboration, then we can have globalisation that works for the benefit of all, and we can ensure a more sustainable and better future for humanity. Thank you very much.