ESG Interviews with Hong Kong Listed Companies - 2
Climate Change and Sustainability - Environmental, Social and Governance (ESG) Best Practices from the Boardroom
Part 2 (of 5) Multinational Conglomerate – CK Hutchison Holdings Limited (CK Hutchison), interview with Ms Edith Shih FCG(CS, CGP) HKFCG(CS, CGP)(PE), Executive Director and Company Secretary, and Member of the Sustainability Committee. CK Hutchison, and Past International President, The Chartered Governance Institute and Past President, The Hong Kong Chartered Governance Institute.
It was a clear and sunny Monday morning when I entered Cheung Kong Center for my 11 a.m. meeting with Edith, the most senior female executive of the 300,000-strong CK Hutchison group, and a member of its seven-person executive board, chaired by Mr Li Tzar Kuoi, Victor.
I realised I was inside the command-and-control centre of a diversified multinational conglomerate with four core businesses (Ports and Related Services, Retail, Infrastructure, Telecommunications) and operations across 50 countries. This was an ideal opportunity to get the inside scoop on how the CK Hutchison board formulates, executes and tracks the progress of its sustainability strategy while navigating an increasingly complex stakeholder environment with investors, policymakers and regulators, strategic partners, suppliers, and of course its talent, to meet its dynamic stakeholder expectations.
The very first thing I noticed when Edith entered the board meeting room, with her graceful presence, was that she brought in a thick pile of printed materials (double-sided of course) under her right arm with colourful stickers protruding out of them.
This turned out to be the draft of the CK Hutchison 2021 Sustainability Report with her hand-written edits all over the document. She told me that ‘this will see the light of day on Tuesday 31 May’ which was the following day. It was clear to me that I sat in front of a person who is no stranger to dotting the i's and crossing the t's. After all, Edith was CK Hutchison’s former Head Group General Counsel.
Today’s interview is part of a series of in-depth and in-person ESG interviews with leading Hong Kong listed companies with the objectives 1) to identify best practices in Hong Kong and internationally, and 2) to gather thoughts for the design of an upcoming HKCGI ESG survey to assess the current state of ESG expertise, processes, technologies and data capabilities of listed companies in Hong Kong, and the real-life challenges and opportunities they face in dealing with climate change and sustainability requirements expected of them from their diverse stakeholder constituents.
They include Bank of China (Hong Kong) Limited (financial sector), CLP Power Hong Kong Limited (energy), MTR Corporation Limited (transportation), and New World Development Company Limited (real estate development) covering all five industry sectors which the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) provided industry-specific supplemental guidance.
1. How does a complex and diversified multinational conglomerate like CK Hutchison decide on which sustainability goals to focus on?
“Let me step back and make an important observation up front. To be successful, everyone in the company, senior and junior alike, has to have ownership of sustainability. This is a key issue and it is the job of ours, as management, to ensure that this is firmly instilled into our culture,” says Edith.
“Returning to your question, it is indeed a challenge to create a set of sustainability goals and make them work for our organisation, considering the breadth and depth of our four core businesses, and geographical reach in over 50 countries,” and she goes on to say “though it is an easier task today to get buy-in, capital investment and dedicated resources compared to ten years ago when the topic of sustainability was not at the top of the mind of many.”
“At CK Hutchison, we leverage an iterative top-down and bottom-up process with the purpose to engage and foster early buy-in from internal stakeholders, taking into consideration both material risks but also opportunities at the group and business unit level. In 2021 and 2022, we are focusing on four priority sustainability goals at the group level.”
|Take action on climate change which includes setting short-term Science Based Targets initiatives (SBTi), assessing a pathway to net-zero, calculating scope 3 emissions, and reporting on progress using the TCFD framework,
|Offer customers sustainable products and invest in and embrace innovation to achieving transformational impacts,
|Create great places to work through developing diversity, equity, and inclusion (DE&I) goals, tracking key performance indicators (KPIs) to measure progress, with employee engagement action plans, aside from other factors which feed into creating great workplaces where employees feel they can develop, and be supported and engaged,
|Focused pandemic response to keep employees safe and to provide them with the tools and support to successfully work from home where necessary, and protect the health and wellbeing of customers, with a focus on the needs of the local communities where we operate.
Edith shared that these group-level goals were subsequently translated into core business (Ports, Retail, Infrastructure, Telecommunications) goals and priorities, with sustainability reporting tracking the progress of each of these. The overarching goals were also supplemented with wider strategies that were specific to the material impacts of their industries and driven by their dedicated sustainability teams. To engage employees, the group also developed a group-wide sustainability engagement plan, enabling and identifying cross-business synergies, and encouraging employee buy-in as sustainability champions under a ‘Global Sustainability Champions Network’.
2. Almost everyone in Hong Kong is a customer of 180-year-old A.S. Watson Group. Can you share what the sustainability focus areas are in the consumer-facing Retail division?
“Firstly, while companies and the media tend to focus more on creating awareness of and managing the material risks arising from dynamic and ever-increasing stakeholder expectations on ESG issues, there is a significant USD 12 trillion potential economic opportunity (from revenues and savings) out there for sustainable business models and innovations to meaningfully address the UN 2030 Sustainable Development Goals (SDGs),” Edith shared. This, therefore, means A.S. Watson's sustainability strategy is focused not only on managing its impacts but also on using sustainability as a lens to develop and grow new business opportunities and attract more customers. A.S. Watson Group has its sights on six goals.
|Taking action against climate change (e.g., it has committed to reducing scope 1 and 2 emissions by 50% versus a 2018 baseline and it has recently completed an expansive scope 3 footprint exercise with third-party carbon experts to understand how it can reduce the emissions of its upstream and downstream value chain),
|Creating a great place to work (e.g. Superdrug has been recognised for three years running in the Financial Times’ Diversity Leaders index for its leadership in creating inclusive workplaces through its ‘Everyone Matters’ strategy),
|Promoting a circular economy (e.g. A.S. Watson became the first health and beauty retailer to be a signatory to the Ellen MacArthur Foundation–led New Plastics Economy Global Commitment and to date it has achieved 46.6% of its target to have 100% reusable, recyclable, or compostable plastic packaging – for its ‘Own Brand’ products by 2025),
|Offering sustainable products and services (e.g., launched more than 1,600 products as part of its Sustainable Choice campaign in collaboration with global brand partners with a focus on clean beauty, refill, better ingredients, and better packaging),
|Ensuring a responsible supply chain,
|Investing in developing thriving and resilient communities.
“A.S. Watson’s 2030 Sustainability Vision focuses for example on offering sustainable products and services (one of six key sustainability goals at the Retail division) to meet the consumer trend of purchasing purpose-driven brands that advocate sustainability.”
Yet, there appears to be an intention versus action gap that needs to be closed, where two-thirds of consumers say they would like to buy from purpose-driven brands, but only one in four do so due to barriers such as the perception of higher pricing and lack of convenience. This was according to a 2019 Harvard Business Review survey.
In 2020, A.S. Watson’s pharmacy and its drugstore chain ‘Kruidvat’ in the Netherlands, where I was born and lived for more than 30 years, launched the concept ‘Natuurlijk & Voordelig’ (Natural and Affordable) to change the perception that sustainable products come at a premium price, excluding many that want but cannot afford them.
3. How do you leverage CK Hutchison’s significant influence to foster sustainability in the ecosystems and supply chains you operate in?
Responsible sourcing approach
“Customers have increasingly high expectations of the products and services they purchase. Not only do they expect affordable pricing and quality, but also high standards of sustainability in sourcing, manufacturing and packaging, among other areas.”
A cornerstone of the due diligence assessment is A. S. Watsons’ membership in amfori’s Business Social Compliance Initiative (BSCI), an organisation dedicated to improving working conditions and environmental management in global supply chains. An important feature of this membership is that it allows members with common suppliers to share audit results to avoid duplication in effort and cost.
“A.S. Watson is targeting that by 2030, 100% of ‘Own Brand’ purchase value from countries identified as high-risk will be assessed for social and environmental performance through amfori BSCI’s audit and assessment process.”
In 2021, A.S. Watson enhanced its Know Your Supplier (KYS) due diligence assessment process to widen the assessment of compliance processes, operational and ethical business practices, adverse publicity and prior regulatory offences or misconduct.
In 2021, 584 factories were audited under A. S. Watson’s sustainable supply chain programme. Where non-compliances are identified, factories are required to prepare and submit a remediation plan and re-audited within 2-12 months of the last audit depending on their audit score, instead of immediate termination of the business relationship, which would not help solve the underlying issues identified. Based on the factory competency, additional training will be offered either face-to-face or online with assistance from external independent third parties.
Sustainable raw materials
“With regard to using more sustainable raw materials, A.S. Watson is taking steps to improve the environmental and social impact of key raw materials such as wood pulp used in tissues, toilet rolls, sanitary products, nappies and wet wipes, as well as across packaging.”
A.S. Watson targets that by 2030, all of its Own Brand paper products will be made with pulp and paper from sustainable sources (i.e., recycled content or certified as being from responsibly-managed forests). Watson's Health & Beauty Retail has already reached this goal, while PARKnSHOP, Superdrug and Kruidvat aim to reach it by 2025. Across A.S. Watson, progress stands at 68%.
4. As a role model for many in and outside the CK Hutchison group, can you share with us your career journey and how we can improve diversity, equity, and inclusion?
“I followed my passion for education and obtained a Master of Education degree from Columbia University in New York, after which I studied law and qualified as a solicitor in the UK.
When I returned to Hong Kong in 1984, I joined Johnson Stokes and Masters (now Mayer Brown) as an assistant solicitor. In 1989, I start to work with the Cheung Kong group, first as Executive Director in its investment banking arm CEF Capital, then at Hutchison Whampoa in 1991 where I became the Head Group General Counsel in 1993, before joining the Board of CK Hutchison in 2017. During that period, I witnessed a fundamental change in society, which accelerated in the last ten years, as stakeholders expect companies to focus more and take a stance on ESG and DE&I related issues.”
Edith joined the Board Sustainability Committee as a vocal advocate for DE&I issues in 2020. Her other lesser-known passion is music which she practises as a pianist, organist and soprano and soloist of the Hong Kong Oratorio Society.
“From a gender diversity perspective at the Board level, we have now five female directors out of eighteen Board members or 28% based on the expertise, perspective, and skillsets they bring to the table. What I would like to see is female directors enter the Boardroom not only as independent Non-executive Directors but also as Executive Directors.”
“To achieve this, we need to proactively and systematically build a pipeline of more diverse (not just based on gender) next-generation leaders and equip them with the mindset, perspective and skills to take on the top spots based on merit. While we see growing female representation in leadership positions at one or two levels under the Board, where female leaders tend to have stronger representation in areas such as human resources, public relations, and insurance, they are not typically within Board level portfolios.”
“Bringing more women into the Board and C-suite is not just a matter of equality of opportunity, it’s a matter of companies fully optimising all the talents at their disposal and enhancing their business performance.”
5. Not all companies have the resources at their disposal as CK Hutchison does. What would be one piece of advice for companies that are hiring a chief sustainability officer (CSO) or setting up their sustainability function for the very first time?
“I suggest, beginning with looking at companies they perceive as within their peer group, and then assessing where they are on the spectrum from best-in-class leaders, followers or laggards, decide where they want to be, and communicate that effectively to their key stakeholder constituents.”
“Not all companies require a dedicated head of ESG or CSO from the start. You can very well invite an existing senior individual or individuals with the right (hard and soft) skills and expertise and ideally passion to wear a double-hat assigning clear additional responsibilities and KPIs. Take it one step at a time, and seek external expertise to augment the management team, if required.”
6. Talking about double-hatting, I am interested in what the role of tech is to help address ESG data and reporting challenges in my role as FinTech Association Board Member?
“Technology plays an important role in an organisation like ours where all four of our core businesses need to source and report ESG data at the business unit level for escalation to group decision-making. We selected a group-wide sustainability data management system, FigBytes, which started with our Ports business. This will be launched for our Retail, Infrastructure and Telecommunications businesses in 2022. We have come a long way from just using Microsoft Excel.”
Edith, it was my pleasure to exchange thoughts with you today and I look forward to seeing leading conglomerates like CK Hutchison being pioneers and role models in the sustainability journey to help balance people, planet and profit.
By Prof Lapman Lee, Professor of Practice (ESG, FinTech, Governance), Hong Kong Polytechnic University
Managing Director, Triniton Advisors, specialised in climate change and sustainability Boardroom strategic advice and training, governance and risk, investor relations and strategic communications.
 Business and Sustainable Development Commission,
 Harvard Business Review, The green elusive consumer, 2019
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