Below is the transcript of a panel discussion with Sunny Verghese, Co-founder and CEO, Olam International; Nanette Medved-Po, Founder, Generation Hope and Friends of Hope; Delman Lee, President and CTO, TAL Group. The interview will play out in CNBC's latest episode of Managing Asia on 5 April 2019, 5.30PM SG/HK (in APAC) and 11.00PM BST time (in EMEA). If you choose to use anything, please attribute to CNBC and Christine Tan.
Christine Tan: Welcome everyone, to Managing Asia's special event on sustainable entrepreneurship. We have a great line up for you this evening. On stage with me, three very special individuals who are all leading their own companies and making decisions on a daily basis, all trying to make a sustainable impact in their own way. Every journey has to start somewhere. Sunny, let me start with you first. How did you begin Olam on a sustainable journey?
Sunny Verghese: Thank you Christine, it's a pleasure to be here this evening. To answer your question, I'll begin with a confession. I'm 59 years old and until the age of 45, 15 years ago, I had absolutely no clue about what sustainability, what nature and what the environment meant to our lives. My 'road to Damascus' moment was through my children. Fortunately my wife has environmental intelligence, and our children took after her, so they also have some environmental intelligence. So my children told me that you have operations in roughly 70 countries, 74,000 employees, dealing with 4.8 million farmers. What is the purpose of all this overwhelming effort if you can't use that influence and reach to leave this world a better place?
C: Your children told you that?
S: My children told me that.
C: What did you say to them?
S: And it got me thinking, investing and learning what all these meant. The second trigger for me was that we acquired significant almond orchard plantations in Australia and in the US. These are very capital intensive projects with long gestation periods – it takes seven years for an almond tree to get to full maturity and it has about a 30-year useful life. Meanwhile, pistachios have a useful life of 50, 60 years and takes about 10 years to get to full maturity. I discovered that all of this capital investment that we have made is hinging on that tiny bee, because almond trees have to be cross-pollinated. Whoever thought that bees would issue us an invoice? For every acre of almond, we need about three beehives. So I buy between 4.8 and six billion bees annually and spend between 13 and 18 million dollars to buy these bees. Then I discovered that bees are very finicky creatures, they will only fly in from 10 a.m. to 2 p.m., and I cannot give them overtime to incentivize them to fly more.
C: You cannot make them work harder.
S: They will not fly if the wind speeds are about 25 kilometres an hour. They will not fly if the temperatures are below 15 degrees centigrade. And all of my investments are hinging on this tiny creature. I then began to imagine, that every tiny thing in this universe has a role to play. In the last 70 years, we have lost 60 percent of the world's wildlife population and that has impacted the balance in the ecosystem, and led to some of the climate change impacts that you see. And when these bee populations were getting decimated by mysterious illnesses, I began to wonder how all of this fits in together. That's how my company and I started on this journey of taking this seriously and saying that, we as the agricultural sector, accounts for 25 percent of the world's greenhouse gas emissions, 71 percent of all the consumption of freshwater in the world and 70 percent of the world's biodiversity loss. So there is no way we can feed the growing population of 9.5 billion or 10 billion that the (Malaysian) minister referred to, if we're not going to produce the food, feed and fiber that we need on a sustainable basis.
C: So it's time to make a difference.
S: It's time to make a difference.
C: Delman, let me bring this to you now. You're leading the sustainability efforts of the company your grandfather founded 71 years ago. How do you weave sustainability into the family's garment manufacturing business? Where did it all start?
Delman Lee: A bit of a personal journey as well. I'm actually an electrical engineer by training, so after university, I spent about 10 years in research in technology, so you could call me a 'technological nerd' at that time. But soon after that, I came back to join the family business and thankfully, my father and my uncle had already planted the right seed in the company. At that time, the word was not 'sustainability' but 'CSR', and working conditions for workers were the top priority. But very soon after I started to work in the company, it sort of hit me very quickly that this is a family business and we can more or less do what we want. But actually, trying to find meaning in the work that we do came very naturally. So at that point, I turned from a technological nerd and became a sustainability nerd for the past 19 years. Then I began to learn all the issues about how apparel affects the world – someone said we're the second most polluting industry in the world. As everybody knows, in recent years because of fast fashion, revenue or production has gone up, but the use of garments has actually gone down as well. So, actually, it's not a sustainable way to clothe oneself. And that is sort of how I started the journey. And in the early days, we began to set targets – greenhouse gas and water intensity targets. But very soon, we found that the problem was bigger than what we could do on our own to address it. At that time, the Sustainable Apparel Coalition was beginning to form and we were lucky to be invited as part of the founding circle to start that industry-wide initiative to solve the issue of sustainability in the apparel industry.
C: So, you're trying to make an impact in your own way. Let me turn this to Nanette. Now, in the Philippines, you're an award-winning actress turned social entrepreneur. At what point in your life did you realize you could make a difference?
Nanette Medved-Po: I played a character called Darna in the Philippines, which is our version of Wonder Woman. I realized that I had a platform, I had a voice, and I really didn't want to be a waste of space and use that for something frivolous. So, I looked at what I felt was important and it happened to be education, so I focused on that. I didn't fall into sustainability in the sense that we're talking about today. I really thought I'm going to try and use this platform I have to promote education and then, eventually, as the issues became more urgent around packaging and all of the things we're going to talk about shortly, it kind of evolved into doing things outside of public schools, and into the environment and things like that.
C: How did you stumble upon the idea of selling bottled water to build classrooms? How did it happen?
N: Well, in the U.S., this isn't a novel idea. In the U.S., they're very accustomed to social projects. So I was in the U.S. and I stumbled across the Product Red launched back then, and was very impressed. I had done some work with non-profits and we spend an inordinate amount of time fundraising but not as much as we would like on impact. So I thought, well that's nifty, I'm going to try and bring that to the Philippines. In the Philippines, it was very novel. I did not come from a background of consumer goods so I did not expect to do this myself. So I tried to convince existing consumer goods companies to do it, but they were very attached to their profits. Nobody wanted to part with their bottom line to do a social project. So it happened really more out of anger, I was very frustrated and thought...
C: You wanted to prove a point.
N: Yeah, I'm going to show them, you know, somebody with no background in consumer goods. So, I enlisted the help of somebody who had spent their entire career in consumer goods and had just retired and I said, I've got this crazy idea, would you like to help me see if we could make this work? He helped me put together the people I would need to make this happen and then I just started making cold calls. I wasn't in the sales business but I went to people like Starbucks and the big Shangri-Las...
C: What did you say to them?
N: Well, I think in the beginning most of them were just curious if I was going to come to their office and do a song and dance or something because I certainly wasn't known to be on the corporate side. So, I think a lot of them granted me an audience out of curiosity. But when I showed up, I made this odd pitch. Since I was pitching to leadership who thought this was cute, they decided to give it a try and I was very fortunate because the very first companies I approached happened to be leaders within their respective segments, and we did very well. And so, the rest is history.
C: We know that making transformation is never easy. Sunny, as CEO of Olam, (it's) listed, was it easy trying to convince the board and shareholders to do good? How did you build up a compelling case that sustainability was actually good for the company's long term value?
S: So I think we're a young company, we've been around for 30 years. It was very difficult in the early days, given what our shareholding then was. We had lots of institutional shareholders from all over the world who owned Olam. And most NGOs and civil society friends told me, you don't need to make a business case for sustainability, because sustainability is the right and the good thing to do. Your companies, your boards, your investors, your shareholders and your capital providers should see that. But I think that doesn't get us very far in the business context. In particular as you referred to, we are a listed company with obligations to the capital providers, shareholders and creditors. For us, we need to show that by being sustainable. Otherwise all that they would see is that we are spending 30, 40, 50 million dollars on sustainability initiatives and programs, and that is going to come off our P&L. But they don't realize that those investments on sustainability is creating some strategic asset for us – in terms of creating natural capital, social capital or human capital – that is going to drive the long term value of the company. Secondly, investors and capital providers are telling us that if you're more sustainable, we're willing to reduce your cost of capital. So you saw what happened to Facebook last year, when about 140 billion dollars evaporated from the market cap, which is almost a third of the market cap. This was because consumers and regulators lost confidence in their ability to protect data and they had to confront some scandals last year. So now investors are saying that, if you're a low ESG-oriented company and therefore you have a high ESG risk, then we should increase your cost of capital. So for instance, there are two companies in the same industry with the same potential future cash flows. One, because it's a higher ESG-oriented company, has a lower cost of capital and therefore for the same dollar of future cash flows, that value is magnified compared to the other company which is a lower ESG-oriented company. And I was telling Christine that last year, Olam raised a 500 million dollar sustainability loan, and the conditions of that loan are 40 sustainability indicators. They will see what progress we are making year on year, and as we make progress on those 40 sustainability indicators, they automatically reduce our spreads or cost of borrowing. This is a great example to explain to our investors and capital providers that doing good also means doing well and there's a direct correlation. So I think now it is becoming more and more apparent. Fortunately I actually have shareholders who are in the front and center of asking their investing companies to put sustainability at the heart of the business. But we have to speak the language of the investors.
C: What language do you speak? What do you tell them? How do you say it to them?
S: That if you're sustainable, in the long term we will create more enduring, sustainable value. But we have to be able to capture and measure all of these investments that we are doing to build natural capital, social capital, human capital, and start factoring them in. So we now use the natural capital accounting protocol to measure natural capital and the social capital accounting protocol to measure social capital. All the investments that we're making to get our employees engaged, inspired, motivated and to reduce our attrition is actually creating a strategic asset. We cannot see all these investments in people as an expense. So we are trying to measure what is the value of this.
C: A different accounting system.
S: Yes, a different accounting system. So today, we're only focused on measuring financial and economic capital, but what drives financial and economic capital is human capital, natural capital, social capital, intangible capital and intellectual capital. Ocean Tomo is a research company that does research on the S&P 500 companies. They've been doing the research since 1975 and every 10 years, they do this work. So they looked at the S&P 500 companies in 1975 and 13 percent of the companies' value was ascribed to intangible capital while 87 percent was ascribed to tangible capital. In their 2015 survey, they found just the opposite – only 14 percent of a companies' value was accounted for by tangible assets and 85 percent of the S&P 500 companies' value was explained by the intangible assets. So how can we not measure them, if that is what is contributing to long term enduring, sustainable value?
C: Let's talk about shareholders because you have a very well-known sovereign wealth fund as one of your shareholders among some big institutional investors as well. Who of these shareholders were the toughest you've had to deal with when it comes to pushing the sustainability agenda? Can you be honest with us?
S: Yes. So, we get the politicians we deserve, we also get the shareholders we deserve. So if you want to be building value for the long term, and building a sustainable, enduring company, you have to find shareholders who are aligned to that mission. So today, fortunately for me, both Temasek who is a 53 percent shareholder in Olam and Mitsubishi Corporation which is almost an 18 percent shareholder in Olam, put sustainability at the center of their philosophy and invest in companies which are building as stewards for the long term. But that was not the case several years ago. I had shareholders from all over the world who were telling me consistently, if you're feeling some kind of guilt because your children have told you that you are not doing the right thing and you want to use the company's assets to redeem yourself, we won't allow you to do. Your business is to create value for us as shareholders. So that is changing and therefore you have to go and find those investors. It's difficult to find those investors, and you have to go and de-market your company to other investors. So I told my Investor Relations team, your job is to go and frighten the living daylights of investors who are not tuned in to this philosophy. So if they're going to be holding a stock for five or six months at a time and our strategy on an average takes seven years to mature, you have a huge dissonance. So you have to go and tell them, please don't invest in Olam because if you do, you'll be sorely disappointed. I said, I don't need thousands and millions of shareholders. I need 50 shareholders who believe in the prospects of the agri-sector, who believe that we have developed a winning strategy, who believe in our integrity and who believe in our capacity to execute the strategy. So they said, even those 50 people are not available in this world. (Audience laughs)
C: Delman, are you glad you're not listed?
D: I'm very glad.
C: But, you have your own challenges as well because when it comes to shareholders and stakeholders, it's essentially you, yourself and your employees. How do you make that transformation within the company so that people are breathing and living sustainability in what they do every day?
D: It is actually very easy to win the hearts and minds of most of the staff.
C: How do you do it?
D: They have a natural affinity to work for someone that actually has a sustainable purpose. We do an engagement survey once in a while, and usually compensation and work-life balance- pops up as the critical factors. One year when we did it, sustainability popped up and we never thought that would before. But actually, one of the reasons why they're willing to stay and work in our group is because of our sustainability efforts.
C: Is it because the people who voted for sustainability are millennials that are working within the company? And they are the new driving force when it comes to sustainability?
D: Yes. But my tougher problem is probably with middle to upper management, where they have to deliver the bottom line.
N: Yes, that's right.
D: And that's where the business comes in. So you could say the heart is actually easily won, including that of the top management and people who are responsible for the metrics. But when it comes to the mind part and the P&L shows up, then we have to have a conversation about something that Sunny talked about.
C: Nanette, you once told me your business model hinges on the fact that you need to make money in order to build these classrooms. And let's be honest, the margins of selling bottled water aren't exactly great.
C: What is the biggest challenge you faced at the beginning trying to scale up the business? Trying to make money so you can build these classrooms?
N: I think that our biggest challenge wasn't so much convincing the customer. I think, to your point (gesturing at Delman) earlier that the customer is convinced, they want to do the right thing. But making our product available so that we could scale and be large enough for distribution was a big challenge in the beginning. I think that the bigger challenge for us though, was not so much making money on thin margins to build classrooms. We were able to do that even if we had to sell a million bottles to get a classroom. I think the bigger challenge came when we decided to go plastic neutral and because I wasn't passing on that cost to customers, that required me to give up a little bit of margin to not just build classrooms, but to earmark a portion for going plastic neutral. And not having necessarily mechanisms in place in the market for me to do that made it extremely challenging to be plastic neutral. I think that was a bigger challenge than selling the product to the customer to build classrooms.
C: Okay. So how much work did it take for you to get to plastic neutral? Who did you have to talk to, because it was more than just accounting it?
N: Right. So first, we needed to be creative because we were the first to do it – we're small, so it's easy to say that. But we had to be creative on the fact that there aren't necessarily, in the Philippines, good technologies around for recycling and great government initiatives in place to recover plastic packaging. My promise was to recover post-consumer plastic, so for whatever weight in packaging we sell in the marketplace, we made a commitment to recover the exact amount in weight of plastic, though that was non-specific. So, there isn't a great mechanism in the marketplace to recover post-consumer plastic and then there isn't a great mechanism to recycle it. So, we had to be creative and we wound up talking to our two partners right now. One builds ecobricks that we use to build our classrooms. So, they take post-consumer plastic, mix it with cement and come up with bricks that build our classrooms. The other one is a waste-to-energy company. That was a challenge because we wanted to make sure that they were also environmentally compliant, so there was a challenge looking for the right partners. It's not a perfect solution, but at Hope we try not to make good the enemy of great and at least start somewhere. That was the bigger challenge because there isn't a set path for companies that want to be sustainable. So you really have to carve out a path for yourself.
C: Sunny, on your end, you've actually scaled up your farming supply chain systems in a big way. And last year, you've launched a traceability sourcing system as well. What sort of progress have you made?
S: Yes. So I think the answer to finding scale is firstly, through innovation. So I'll give you two quick examples and I'll talk about the AtSource traceability program as well. So in our onion farming and processing operations in California, we have four dehydration facilities. We grow the onions, dehydrate them and supply them to people at McDonald's, for example. And over a 10-year period, we have bred an onion variety that has moved its solid content from roughly 12% to about 26.5% now. In the bargain, we have saved 65 million cubic meters of water. We have reduced the land under cultivation for those onions by about 7,600 hectares and we have saved the company $100 million. In our almond plantations, we are now attaching IOT sensors and dendrometers on the tree trunks, which measure the moisture stress in the trees. So if there's moisture stress, that tree trunk will shrink. If there's enough moisture, it'll expand. But it moves in infinitesimal proportions, not visible to the naked eye. But these sensors can pick it up. So, we've improved our water usage efficiency by between 15 and 20 percent. So what your employees and your colleagues are looking at is whether your sustainability philosophy, objectives or vision is rhetoric, or if it is really lived out in the company in terms of real, practical examples of things that you do. So in April of 2018, we launched what you were referring to as Olam AtSource, which is for all the raw materials and ingredients that we supply to our customers. We give them information on 90 sustainability indicators and this would include environmental indicators like the carbon footprint, waste footprint, water footprint, like Delman was just referring to, in this supply chain as well. But we also have social indicators – how many farmers there are, and through geotagging, where they are located, how many family members there are in that household, how many women farmers there are, gender diversity, whether they are educated, their schooling…
C: Sounds like a huge and costly exercise.
S: It is a complex exercise. And it requires significant enablement by technology. So, this is not a product innovation, this is not a technological innovation – this is a business model innovation. So now we get pricing power because the consumers of our customers – say Nestlé as a customer of ours – the consumer to whom Nestlé sells these chocolates are all moving towards consuming products that are right for them, good for them, right for the planet, good for the planet, right for the producer and right for the people. As a result, our customers are asking us as supply chain managers for them, to provide all of it. So we are just catalyzing and galvanizing the supply chain through pressure from customers, investors and employees. No millennial wants to join Olam because they feel excited about the prospect of selling more cocoa or coffee. They're saying, very hard work is required to succeed in Olam, and all of that overwhelming effort has to mean something. So, at the end of the day, if this is not going to change anybody's lives or mean something, they don't have a cause to fight for. They want a problem to solve, they want to cause to fight for, they want to be fired up about something and that can only come from purpose. So, a starting point for all this is to embed purpose in the company. And our purpose today is to reimagine global agriculture and food systems which means, how do we produce more food, feed and fiber with far less resources to feed the 10 million people that are going to be on this planet by 2050.
C: But capturing all these information across all your supply chains is going to be costly. How much are you going to have to spend on this?
S: So between the last three years that we've been developing this, we've spent about 28, 30 million dollars.
C: How do you account for something like that?
S: So, all that everybody sees today is that it is a P&L item and my P&L has been reduced by that. But I believe there is a huge strategic asset and we are deriving three benefits. One, we are deriving the benefit of getting some pricing power over the customer. I'm selling commodity, so it is whether he buys the cocoa beans or coffee beans from me or my competitor, and we all sell the same product, with no differentiating attributes. So in that context, by providing these solutions of traceability and supply chain provenance and everything else, you're getting some pricing power. We're getting a larger share of his wallet. So, if he was buying cocoa from 10 suppliers and we've got a 10 percent share of his wallet, now he's willing to give us 30 percent of his business, because he's not getting this from anybody else. So, we're getting loyalty and customer stickiness as a result. My employees are walking on the balls of the feet and as a result of my employees getting inspired, productivity shoots up to 250 percent, I don't need to really supervise them. But I cannot capture this today in my P&L, on my balance sheet or my cash flow statement. But I know that this is an incredibly valuable strategic asset that is going to drive long term value and really transform the company.
C: Really fascinating stuff. Delman, on your end, the Higg Index. You're a member of the founding circle for the Sustainable Apparel Coalition, which launched the Higg Index six years ago to try to measure footprint in the apparel industry. It's still at trial stage, are you disappointed it's not making much headway? Should more be done?
D: What Sunny said is all music to my ears, (laughs) he can actually distinguish his company's goods from other suppliers' goods. The truth in the apparel is that currently, we are not there yet. The brands and retailers hear what we do in our sustainability efforts, but when it comes to pricing, sustainability is rarely a part of it.
C: Why is that?
D: For me, it's because of the consumer. The consumers once again believe that they want to buy sustainable clothing. But if we were to go out today or tomorrow to buy a shirt, we don't know where to find sustainable brands and what the practices are behind them. So, traceability to the whole supply chain apparel is actually one of the aims of the Sustainable Apparel Coalition. The Higg Index is to set a common language for all apparel goods to measure the sustainability impact all the way from the farm, to spinning and weaving, to garment manufacturers such as ourselves, to the retail stores as well as to the brand practices as well. Our medium term goal is that one day hopefully, when you buy your clothes, you will actually see a sign which has a Higg goal. I think once the consumer has access to such information, he will put the dollar where the heart is.
C: What do you think needs to happen for this Higg Index to take off in a big way, in the apparel industry?
D: To get other people to sit down and agree on what the language is.
C: When you say 'people', who are these people? The apparel makers, the retailers or the consumers?
D: The brands and apparel makers and the upstream – everyone in that supply chain. So another inconvenient truth is that, for example, on social and labor compliance, there are quite a few standards out there. But it is hard for people to agree that this standard is actually equivalent to another one and they debate forever on the minor details. Actually, we haven't agreed on the standard and we're still harmonizing, so the Higg Index currently doesn't have a social module yet.
C: Will it happen one day?
D: Yes it would. We're a part of that social and labor convergence group, to really converge on a single language.
C: This apparel coalition that you're part of, which includes people like Nike, Adidas and Inditex – they're the people behind Zara—represents only about 34 percent, if I'm correct, of the entire apparel industry. But do you think this group is enough to make a difference? Enough to lead a change?
D: Yeah. When I mentioned 34 percent, I thought, that was a big number. And Christine is like, 34 is actually the other way round, it's not enough. (Laughs) Half full, half empty. For me, it represents quite a significant number of international players – some of the names that you mentioned, everybody knows. I think as soon as this gets traction, the rest would follow. And actually, as soon as this Higg Index begins to go out and the consumer begins to vote with where they buy, it's just going to take over.
C: Nanette, you have the advantage of being a small company. And unlike these two guys, you see the reward immediately when you build the classrooms. I've been with you on these trips, I can see the smiles on the children that are there – they have a new classroom to study in. You have that instant reward and that emotional gratification immediately.
N: Yeah, but I think that although that's nice to have, as I was saying to you before, that's all fine and well and we're feeling all warm and fuzzy about it. But the truth is I'm small. And the nice thing about being small is you're quick, you can have proof of concept. But we should kind of be the complement to the large companies like Sunny's group and your (gesturing to Delman) entire coalition, to show that what we're doing can work. So back to Sunny's point - part of the reason why or the only reason why Hope is successful to the extent that it is, is because we can cut through the noise. That's our differentiator. I'm also selling a commodity. It's water, it's not rocket science. But customers come and buy from us because we are the only one who provides that sort of a value proposition. That's what differentiates us from the 800 pound gorillas in the market. So people come to us and we get a larger share of wallet because of that. Now, eventually if the 800 pound gorillas decide to come up with their own social causes and put us out of business, that's totally fine. Because the impact that they create will be much larger than I can create as a small company. But as a small company, the nice thing that we can do is test ideas and see if they work. The whole warm and fuzzy thing works in a small company because we are on the ground and everybody has a chance to feel the impact. In large companies, that's hard to do, right. (To Sunny) You have what 40?
N: 74, I've got it backwards, 74,000 employees. T hose folks won't always be hands-on and feel the impact of the work that you're doing. But the nice thing is, as Sunny said, you have incredible communication within the group and people feel very connected to their mission. Young people nowadays, and we were talking about this earlier, we're not necessarily millennials, but we...
D: But we think like millennials.
N: (Laughs) We're prosumers. But the Generation X and Y feel incredibly passionate about the fact that they want their work to be meaningful and to create impact. So we're lucky in that sense because we have an inspired workforce. But the challenge is, to your (gesturing to Sunny) point on investors and the management above, you need to be able to convince people that there is more than just money on the bottom line.
C: Which brings me nicely to my next point, and that's about leadership which is what my show is about. Sustainability is more than just metrics, methodology, buying processes and systems. It's all about leadership from people like you, running real businesses, trying to make a difference. It's the ability to win hearts and minds and the will to continue to change and make an impact. How would you describe the sort of leadership that is needed to make meaningful change? Sunny, let's start with you first. You're running a company with 74,000 employees in 70 countries. What sort of leadership is needed in a company like yours to drive meaningful change in sustainability?
S: I just want to jump in and take one point that Nanette was referring to. You referred to smiles of the children that you witnessed in Nanette's operation. And for me, how do you value that? And what is the strategic asset those smiles are generating? Because what Nanette has succeeded brilliantly in doing is develop a product brand. But she's also developed an activity brand. People who care for education of underprivileged children and providing classrooms for them are getting involved in that experience that she's providing, and therefore, there is an activity brand which also can be valued. And those are the two strategic assets that she's building that we are overlooking because there's no clear way of measuring that. Coming back to the question of leadership, I think it has to start with the company's purpose, which is a big 'p' as I referred to. But there's also finding an instrumentality of relationship between the individual employee's small 'p' with that big 'p'. People who self-select into your company feel that there is some connection between their purpose in life and the company's purpose, and if they see that instrumentality in the relationship, they will want to be part of that journey. The second thing that we did is to reimagine global agriculture, which means producing more for food, feed and fiber with very less resources, or resource intensity being much lower. We did a reimagining exercise set up across the company and 15,000 people participated, all volunteers, I didn't appoint them. They wanted to be part of this journey and contribute ideas. They've given us 800 ideas. It is clear that there's so much energy and buzz in the organization and these are people in the company who are lawyers, engineers, scientists, had PHDs and might also be somebody working at our reception. But they all see some idea that they feel will match with our purpose of reimagining ways to reduce carbon footprint, et cetera. We are now struggling with how to choose from these ideas.
C: It's a good problem to have.
S: It's a fantastic problem to have, but you have to create something in the company that keeps that energy going, to get everybody to come on the journey.
C: So, that's a new set of challenges for you. As CEO, have you had to turn down a business project, say no to a business proposal, simply because you believed it was not right, it was not sustainable, even though it was financially lucrative?
S: So we have deprioritized four businesses in the strategic plan that we have announced. We do a strategic plan every six years, so we have developed and are now supplying for 2019 to 2024. One of the businesses that we deprioritized was the sugar business. Because if you look at the EAT-Lancet Report, they believe that sugar consumption has to come down by 50 percent. If you have to provide a diet that is healthy and nutritive, but at the same time sustainable in terms of the environmental and other footprints required to produce them. So we feel that long term, although we have a very profitable and successful sugar business, about 14 countries have already introduced a sugar tax. Malaysia is not introducing a sugar tax right, but Japan has a 'metabo' law, which says that if you're obese or overweight in Japan, you have to go for compulsory dieting and exercise classes because the government is saying that we cannot afford the healthcare bill because of your lifestyle, when you become diabetic, get high blood pressure or develop a heart condition.
C: So it was a conscious decision on your part.
S: It was a conscious decision on our part.
C: Was it painful though, because it was so profitable?
S: It was. A few months ago I was speaking to a couple of banks, to the boards and their executive committees. Some of these banks are taking the position they won't finance coal and some of them have taken the position that they won't finance energy. This is huge cost to bear on the sustainable leader, based on how they want to reposition and reset their companies.
C: So you're sticking to your guts and keeping to your decision?
S: Yeah, yeah.
C: Can I get three of you to talk about what's next on your sustainability journey? Sunny, what's next? You've accomplished AtSource, you've built this massive supply chain on this large scale, what's next?
S: Really, a system change. So firstly we have to change individually. If you believe this is the change that we want to see in others, we have to do it first ourselves. Today, I don't brush my teeth with my tap running or shave with my tap running. So, that's my individual action to make change. Our companies have to change. If you change individually, but your company is not changed, you're not going to change the system. Our sectors have to change and this is what Delman is talking about. How do you bring about a big competitive coalition of partners? In our industry, we are just cutthroat competition. We hate each other's guts and we will never come together on anything unless the world is literally melting down. And I'm telling everybody, the world is literally melting down and we need to come together to bring all our configuration of assets and capabilities to bear, to deal with these intractable problems. The full thing is that NGOs and civil society treat businesses as evil. And businesses believe that in NGOs are out to get them. So, they are always fighting with each other and in confrontation.
C: We need to come together.
S: We need to come together. Governments and policymakers have to come to the party. The minister very eloquently described all the initiatives the Malaysian government is taking in terms of policy framework. So the solution to Delman's problem is that the governments have to say that all companies in the apparel industry have to disclose their carbon footprint, their water footprint and whether they're paying a living wage to their employees. When everybody is forced to do it, everybody will average up the game in terms of what is required to be done. And finally, we need academics and scientists to come up with innovations to help us solve these problems. So, we have to achieve system change. We cannot change and tinker with one bit of this. And so that's my focus, how we're going to do that.
C: Delman? You think you're going to get any help from the governments?
D: Yes. (Laughs) The government definitely should put boundaries to push us to where the world should go. But the world runs on businesses. So businesses, the private sector have to make that change.
C: So what's next in TAL's sustainability journey? What are you working on?
D: We are working on finding and helping everyone in the apparel world that wants to be on the journey, whether they want to start small, doing something small on sustainability, or large, we want to be their partners. It's not a journey - people say journeys take too long; it's the mission that we are on.
C: Very simple and very honest. Nanette, what's next on your sustainability journey?
N: Yeah, I think that this is unchartered territory for everybody. We're all kind of learning, so it's difficult to say what's next. I think it's hard to add to all the things that were already mentioned that I absolutely agree with. But I'd just like to reinforce the point that it takes time for governments to react and businesses can really be part of the solution. That's testament to the three people sitting here on stage. I think that if businesses can come together and really try and blaze that trail, things will happen much more quickly. If we make it part of not CSR, but really part of creating shared value within our businesses, things will happen much more quickly.
C: And finally, let me get you to give your advice to the CEOs of companies out there wanting to build great, successful companies in a sustainable and responsible way. What advice would you give?
S: So, most companies have a business strategy and a sustainability strategy. And that's a big mistake. There's only one strategy – business strategy and sustainability strategy have to be integrated as one strategy. There are no two strategies. That would be my advice.
N: I completely agree and although I don't think I'll be giving advice to any CEOs of large companies out there, I highly encourage you, even if you're a large company to try to be entrepreneurial in the way you think about your solutions. Think about the long term investments rather than going for your short term quarterly results because at the end of the day, this really is a burning issue that should unite us all.
D: Not so much advice, just a challenge to all the CEOs that want a challenge: crack this code, basically. Crack the sustainability code.
C: And get things done.
C: Get things going.
C: Great conversation. Thank you so much. Sunny, Nanette, Delman, thank you so much for being part of Managing Asia's special event on sustainable entrepreneurship.
S: Thank you Christine.
N: Thank you.
D: Thank you Christine.
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