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How business can drive sustainability in volatile political landscapes
In this episode of the Sustainability Matters podcast, host Bruno Sarda discusses the importance of private-public collaboration to drive sustainability.
In this episode of the Sustainability Matters podcast hosted by Bruno Sarda, the discussion centers around the vital collaboration between public and private sectors in advancing sustainability efforts. Bruno welcomes Ruth Ahchow, EY Global Government and Public Sector Leader for Climate Change and Sustainability Services, who elaborates on the importance of public-private partnerships (PPPs) as essential mechanisms for sustainable development, showcasing successful examples from around the world and the Asia-Pacific region.
Bruno and Ruth discuss how recent political shifts in regions, such as the US and Europe, influence sustainability initiatives. Ruth also provides actionable insights, urging governments to actively participate in sustainable procurement and create stable policies that encourage green investments, while companies are encouraged to integrate long-term sustainability into their core strategies.
Key takeaways:
Public-private partnerships (PPPs) are essential for achieving tangible sustainability outcomes, leveraging private sector efficiencies while sharing risks.
Aligning expectations and establishing common success metrics between governments and businesses is crucial for effective collaboration in sustainability efforts.
For your convenience, full text transcript of this podcast is also available.
Teaser
It's such an interesting time that we're going through. Those political shifts do signal that broader trend of economic and energy security that's taking center stage over those aggressive climate policies. But I don't think sustainability will disappear.
Bruno Sarda
Hello and welcome to the EY Sustainability Matters podcast, our regular look at ESG and sustainability topics and how they impact businesses around the globe. I'm Bruno Sada, EY America's Climate Change And Sustainability Services Leader, and your host for this series. Thanks for tuning in to our podcast.
So today, with recent changes to sustainability- and climate-related regulations across the European Union and in North America, among others, we wanted to explore the vital intersection of public and private sectors in driving sustainable development. Why is it important to keep the collaboration going between the two sides, with fundamentally different missions and measures of success?
What do successful collaborations look like between national or subnational governments and private enterprises? And what can recent political shifts tell us about the state of these partnerships? So, to discuss these and many other pressing questions on the topic, I'm delighted to be joined here today by my colleague Ruth Ahchow, the Global Government and Public Sector Leader for EY Climate Change And Sustainability Services.
Ruth has extensive experience working both in and with government structures. She's based in Melbourne, Australia, so she'll also focus some of her comments on best practices she's seeing in regard to public-private partnerships in the Asia-Pacific (APAC) region. Ruth, welcome.
Ruth Ahchow
Thanks, Bruno. Good to be here today.
Sarda
So, maybe let's start from the top. Can you talk about your experience working in government and the public policy field that you've witnessed the evolution of the sustainability agenda in the sector throughout your time of work? And what do you see as the major regulatory trends emerging in response?
Ahchow
Yeah, sure, Bruno. So, I started my career almost 20, or actually more than 20 years ago in Australian state government as a graduate in the early 2000. I worked in the infrastructure department and among other pieces of work, like defining the transport cost benefit guidelines and researching traffic congestion policies was a piece of work that I had to consider the climate risk on infrastructure projects.
So, of course, because the infrastructure department was building road, rail and energy projects, they're expected to last 30 to 50 years. And therefore that change in climate was needed to be considered when they're thinking about the resilience of these projects over their project life. So, I must admit that, 20 years ago, changing climate was still an emerging agenda item. And within the department, those risks were not really fully understood. And so, over time, I've definitely seen that remarkable evolution in how sustainability is approached.
The adoption of the Kyoto Protocol in 1997 and the Paris Agreement in 2015 marked significant milestones, pushing governments worldwide to commit to reducing greenhouse gas emissions and transitioning to renewable energy sources. But, early on, of course, sustainability was viewed as more of a nice to have and something that was added on more as an afterthought rather than that central focus.
So, we've definitely seen, over the years, that shift to a much stronger emphasis on climate action, green finance and long-term resilience as well. So, we've seen governments become more proactive in setting their carbon-reduction targets, investing in renewable energy and then driving that eco-friendly development as well. And technological advances have helped, especially in renewable energy, such as solar and wind power. And that's made it more accessible and affordable for us to be able to do this.
So, governments supporting these advancements through subsidies and incentives has certainly driven that change. Another regulatory trend that I've observed is that growing emphasis on integrated cross-sector policies, like carbon markets or green bonds. And they're really important to be able to unlock that private investment in sustainable infrastructure.
So, we've seen countries tighten their regulations also, and more recently around corporate sustainability disclosures, which we can talk about a bit later and demanding that greater transparency around environmental, social and governance or ESG performance. So, the focus now is no longer just about reducing emissions, but making sure that we're building the systems that are resilient and circular and adaptable to those future challenges that we're bound to see.
Sarda
What a terrific overview and I think that evolution of how some of these topics have prioritized. But I think some of the things that haven't changed, right. This idea of how do you spend money wisely for the long term, and how do you create this idea around, sustained access to vital services and this concept of resiliency, for sure, is not new.
So, maybe before we dive into some of what you've been seeing specifically in the Asia-Pacific region, as I mentioned earlier, you are a Global Leader in Government and Public Policy for Climate Change and Sustainability Services group. So, can you maybe just more broadly elaborate on where you've seen public-private partnerships in the context of sustainability and how they stand in the world today?
Ahchow
So, perhaps it's helpful to begin with what we mean when we talk about public-private partnerships, although the title gives us a bit of a clue [LAUGHS]. Typically, government entities and the private sector engage in collaborative agreements to deliver public projects, services or infrastructure. And that means that they can leverage their expertise in innovation and efficiency of the private sector.
They can share the risks between the private and public sector, reducing the financial burden on government entities. And this can lead to cost savings through the implementation of best practice and innovative technologies that are typically employed by private sector firms. It also means that projects can be completed faster, so there's more flexibility and resources in the private sector that can lead to faster project completion times, and therefore, improved infrastructure.
So, by collaborating, both the private and public sectors can address those critical needs more rapidly. So, public-private partnerships, or PPPs, they've been around for centuries. And a more structured model has been developed more around the end of the 20th century. And I can certainly say when I started my professional career, they were starting to become more popular.
So, while the benefits that I've mentioned typically focus on that risk mitigation that instigation of PPPs by the public sector usually means there's a broader public purpose goal in the project as well. So, they've got a focus on making sure that there's a public outcome from the service or project or infrastructure that's being delivered. So, in relation to sustainability, we've seen that evolution in PPPs to be able to generate more resilience and regenerative PPPs to meet those social and environmental standards as well.
So, we've seen them evolving from more traditional infrastructure financing models to dynamic, multi-stakeholder ecosystems that are driving that systematic climate action as well. And so, today, governments and corporations are collaborating in unprecedented ways. So, for example, EY has been participating in a PPP since 2017. It's an initiative called TRANSFORM in capital letters. And it's a collaboration between Unilever, the UK's Department of International Development. And it supports impact entrepreneurs to improve their lives of low-income households.
So, what happens is the impact entrepreneurs use new technologies and create business models to meet the needs of underserved communities. And that has meant that TRANSFORM supported numerous projects, like encouraging recycling behaviors in the global south, and funding start-ups in Kenya and Bangladesh to address their social and environmental issues. There're lots of examples across the globe, around PPPs, like in the UAE: Etihad Seven mobilizes private capital to deliver renewable energy to over 100 million people across Africa.
So again, that's delivering that social and economic development through providing access to clean electricity. In Europe, the Danish Climate Investment Fund also focuses on developing countries in growth markets in Asia and Africa and Latin America and parts of Europe. And this fund blends the public and private financing to de-risk green projects in emerging markets.
So, that ensures that the sustainability initiatives are attracting that long-term capital that they need. It's also a prerequisite for investments that they're commercially sustainable and they employ known climate technology from that Danish fund. So, that ensures that there's a long-term capital that's associated with the things that the Danish Climate Fund invests in. And one that's not an example that's relating to investment in developing countries is in Canada, there's an infrastructure development in Enwave deep lake water cooling system.
So, this is a great example of where the partnership between the City of Toronto and Enwave Energy, where their deep water cooling system uses cold water from Lake Ontario to provide energy-efficient cooling in buildings in Toronto. So, this system ensures they're more energy-efficient cooling than traditional air conditioning methods.
So, in summary, I think while traditional PPP is based on service infrastructure or other public projects still exist, there's now typically including sustainability goals in those traditional ones, and then there're new ones, which actually specifically focus on those environmental and social outcomes.
Sarda
First of all, thank you for putting some definitional terms up front, so everybody's kind of on the same page in terms of what we mean by these public-private partnerships and what great examples from around the world. So, actually I would assume that, regional or even national or even local practices and cultures and norms matter.
So, what are some of the best practices you've observed in kind of your part of the world, in the southern hemisphere, in terms of successful collaborations between public entities, private enterprises, really centered around sustainability and in the Asia-Pacific region, or different way to say that is: So, what is good collaboration look like and where can it be seen?
Ahchow
Yeah. There're so many examples from the region that I'm in — in the Asia-Pacific. In that successful public-private collaboration for sustainability often hinges around that mutual trust having clear goals and again, sharing that long-term vision. So, one of the examples that I'm aware of is Singapore's Green Building Council. And so, this is where governments work alongside private real estate developers to create energy-efficient and eco-friendly buildings.
So, the partnership includes financial incentives, like tax breaks and grants for companies that meet sustainability standards. So, a great example of how that direct collaboration and sharing of those common learnings to incorporate environmental goals in the building infrastructure that's being developed within Singapore.
Another example is in Japan, where partnerships between government and automakers have led to breakthroughs in electric vehicle infrastructure. And so, public investment in charging networks is paired with that private innovation in electric vehicle technology. So, the government in Japan is funding projects in this regard, but also ensuring that there's the improved battery storage and technology and parts and materials that really improves that industry within Japan as well.
More closer to home, there's a strong collaboration in Australia's renewable energy sector, where the government and private enterprises have funded or cofunded large-scale solar and wind power projects. And they also ensure that long-term financial sustainability by having long-term power purchase agreements in place as well for developers. So, this has been in place for over a decade.
There's an agency called the Australian Renewable Energy Agency or ARENA, and they've supported that transition through to net zero through providing this financial assistance and as well as in the same way that Japan has created that understanding around new technologies. They've also shared technologies within that private sector. I guess, across all of these examples, the thing that, in terms of good collaboration, that stands out is that emphasis on that shared responsibility and clear regulatory frameworks, as well as those incentives for innovation.
So, both sectors can bring that complementary strength to the table so governments can provide that stability and policy backing, and private enterprises can provide that innovation and expertise as well as capital. You can see the examples that we're seeing at the moment for public-private partnerships. There're numerous ones to meet those sustainability goals.
Sarda
Thanks for sharing those examples. I was thinking about, again, kind of how so many of these are really hinge on long-term planning, long-term success, long-term kind of value delivered. And yet we're still seeing quite a bit of short-term shifts in how some decisions are made. You know, recently, of course, recent political shifts in leadership around the world.
Certainly, the new administration in the US or even some parts of Europe where more conservative administrations have been gaining momentum, maybe changing course on some policies or regulations relative to sustainable development. Do you think these changes signal a broader global trend, or how do you think they might impact sustainability efforts and specifically this opportunity for public-private collaboration?
Ahchow
Yeah, it's such an interesting time that we're going through. So, those political shifts, especially the rise of those conservative leaders in the US and parts of Europe, do signal that broader trend of economic and energy security that's taking center stage over those aggressive climate policies. I don't think or I hope I don't see that this will necessarily mean that their sustainability efforts will stop, but it may see a shift in focus.
So, instead of those top-down regulations and big government spending on green initiatives, we may see that need for a stronger push for market-driven solutions and energy independence and private sector-led innovation. So, we might see that shift away from those aggressive climate policies. But what we won't see is that movement of incorporation of risks into capital market decisions.
So, I don't see the boards of both public and private sector organizations will pull back from genuine drivers of risk. And climate is a huge one. So, in regions where public financing for sustainability may be scaled back, companies might need to self-regulate and invest in that climate action to stay competitive in global markets and to manage that overall risk.
So, investments in sustainability that focus on cost efficiency, like reduce waste, they'll still continue. And companies that invest in sustainability will benefit from that enhanced reputation and attract the best talent and also build that increased resilience. So, I think that the biggest challenge is the policy uncertainty. So, if regulations keep on changing, investors may hesitate to fund those long-term sustainability projects. But the key takeaway: I don't think sustainability will disappear. And so, it may evolve to be more of a business friendly or a less government heavy model in certain regions.
Sarda
Yeah, thanks for those insights. And of course, in government as in business, ultimately I think there's the old adage: What gets measured gets managed. And ultimately, especially when we talk about things that get that get financed and how we measure what matters. I think you mentioned earlier in your comments sustainability reporting frameworks and standards.
So maybe let's, let's come back to that and this idea of how do those factor in this domain of public-private collaboration for sustainability. For example, here at EY, our recent release of our EY Climate Action Barometer shows that many countries, including in the APAC region have very high readiness scores when it comes to voluntary reporting under the framework introduced by the International Sustainability Standards Board or ISSB, maybe reflecting both the speed and decisiveness of those jurisdictions in relation to reporting. And so, to what extent do you feel that these new kind of standards around sustainability actually help drive positive relationships between the public and private sector?
Ahchow
The EY Climate Action Barometer shows that despite some improvements, most companies are still not adequately reflecting their climate risks in their financial statements or disclosing them in their transition plans. So, it highlights that the levels of disclosure quality were recorded in countries, like South Korea and Japan. And these have been driven by those regulatory developments. So, the new sustainability standards, particularly those introduced by the ISSB, they're playing that critical role in strengthening the relationship between public and private sectors, and especially in the APAC region, where we've seen huge adoption in relation to those standards.
So, there're plans to adopt or there has been adoption in China, in Indonesia, Malaysia, Singapore, Sri Lanka, Thailand, Japan, South Korea, Hong Kong, Taiwan, Philippines, New Zealand, and my home country, Australia. So, it’s really important that these standards because they provide that clear globally recognized framework to foster the transparency and consistency and accountability in sustainability reporting.
So, this not only helps companies better manage and disclose their environmental, social and governance impacts, but also allows governments to hold businesses accountable to those higher environmental standards. And we found where businesses are transparent about their sustainability practices, governments can be more effective in crafting their supportive policies to align with those disclosures.
So, it creates that positive feedback loop between governments and the private sector. The uniformity in that ISSB framework provides that level playing field. It ensures that all players that are operating in that same set of guidelines. And it makes it easier for those public and private partnerships to form and thrive as well. Ultimately, I think these standards help to build that trust between both sectors. They establish that clear language and they allow both the public and the private sector to discuss and achieve those sustainability goals, but also offer businesses the clarity of where they need to align with those national and global climate targets as well.
Sarda
Yeah, for sure. And in fact, something some of our listeners may not know is one of the things that's really interesting about the ISSB is that it's actually housed under the IFRS Foundation, the International Financial Reporting Standards body. And that the IFRS has actually done a lot of good work trying to align the ISSB, the sustainability standards with the IASB, the accounting standards. And for example, really aligning the financial materiality within those two standards around things, like impact on cash flows or access to finance or cost of capital.
So, those even within the private sector, between the capital markets and the corporations, for example, that helps I think further what you what you were just saying around a shared set of guidelines and common language. So, that sounds great, but we know all this stuff is hard. So, what are some of the common challenges that you've seen as we look at public-private partnerships across the globe? And how do both sides usually work to overcome those challenges?
Ahchow
Yeah. I think I sort of alluded to this a little bit earlier that one of those biggest challenges in public and private partnerships globally is that mismatch of expectations between governments and private companies. So, governments focus on long-term social impact, while businesses, typically driven by profitability in short-term returns. And this can lead to that tension over different priorities.
And in addition to that, the complex regulatory environments and the changing political landscapes create that uncertainty for investors, and therefore making it harder for them to commit to the long-term projects. So, I think to overcome these hurdles, both sides need to invest time up front and make sure that they align goals clearly and define success metrics. So, governments could offer financial incentives, risk-sharing mechanisms and ensure that stable regulatory environment to attract private sector investment, while private sector companies need to embrace those long-term sustainability goals and contribute their expertise in innovation and technologies.
So, as we're discussing today, where PPP start with that sustainability goal in mind, that alignment of that shared public and private sector objectives begins from that start of that PPP relationship. And then ongoing transparent communication and shared accountability and flexibility in the agreements allow for the adjustments as a project evolves, and a key to ensuring that both sides are on the same page throughout that collaboration.
Sarda
Well, that sounds super sensible. So, thanks for sharing that. So maybe even more practically. So, in terms of specific action steps, what do you think both governments and companies can do today to start better working together around climate change and sustainability?
Ahchow
So, to tackle both climate change and drive the sustainability, I think both governments and companies need to start by building that strong collaborative frameworks today. Governments don't just have a role as a regulator, but also a policymaker. And they're also significant purchasers and service providers in each of their respective economies.
So, this means that they have a role to play in the delivery of goods and services in their sustainable procurement and ensuring that they're incorporating those broader environmental and social criteria into those processes to drive their change through their purchasing power. Many governments are creating their own transparency and accountability through setting their own sustainability goals and tracking and reporting through that metrics and targets as well.
And from the interaction with the private sector, governments can create those clear and stable policies that incentivize those green investments and foster innovation through research and development funding or incentives. Companies, on the other hand, they need to commit to those long-term sustainability goals, not just for social license, but as a core part of their business strategy.
This means investing in clean technologies, implementing transparent sustainability practices and then working hand in hand with governments to shape those policies that are practical and forward-thinking. So, both sides need to be open and flexible to partnerships, where knowledge and capital and risk can be shared so that solutions are scalable, inclusive and impactful.
So, I think if governments and businesses unite around that common purpose, and they've got clear communication and shared accountability, then they can drive that real progress and fight against climate change and make those long-term sustainable decisions as well.
Sarda
Well, Ruth, thanks so much for these insightful comments. Certainly a timely conversation. I think it's clear that none of this happens without the combined strength of each side on the public and private side. And I think, as you mentioned, that stability, predictability, and to some extent, feasibility of how these things are designed, structured and financed will make all the difference.
So, thank you again for sharing your expertise with us. Well, as I said at the beginning of the episode, this is the Sustainability Matters podcast and you can find all our past episodes of the show on ey.com or wherever you get your podcasts. Thanks for listening. If you enjoyed this episode of Sustainability Matters, we'd love for you to subscribe. Also, ratings, reviews and comments are very welcome.
And we invite you to listen to previous episodes like the episode where we discuss how professionals across all functions in an organization can implement sustainability practices in their daily jobs, or actually one of our most recent ones where we explore sustainability in the music industry.
So, please visit ey.com, also where you can find a wide range of related and interesting articles and reports that put these bigger topics in the context of your business priorities. I look forward to welcoming you on the next episode of Sustainability Matters. My name is Bruno Sarda. You can find me on LinkedIn and feel free to connect with me there. Thanks so much for listening.
