Geopolitics, climate crisis and state meddling

We are living in a new era. It’s obviously not a post-pandemic era – or even one near to it. The era we’ve rather unknowingly just entered is one marked by the post-COP26 rush for climate action, growing statism or state meddling, and tumultuous geopolitics amid the rise of China.

The confluence of these factors will have a major impact on how we do business in Asia.

Not everyone might agree that the COP26 Summit in Glasgow marked a distinct before and after moment in our world history. The actions of the politicians in Glasgow certainly didn’t inspire huge confidence. But there was something new that was abroad in Glasgow that had not stalked the corridors of the previous 25 COP events.

And that was fear – the politicians’ fear of backlash from their electorates, their stakeholders, and their business communities if they don’t now do something genuinely proactive about this climate emergency. The politicos sense they are being called to account. 

Watch out for ‘easy wins’

World leaders are now looking for ‘easy wins’. ‘Easy Win’ is a political euphemism for pushing their challenges onto others.

We in Asia are about to be sling-shotted through profound change in the post COP26 rush for climate action. Don’t be deceived by the Extinction Rebellion activists being in Paris rather than Jakarta. The need for climate action by business is going to surge through global supply chains faster now than most of us can imagine.

It’s a money thing as well as a conviction thing. Investors are leaving Asian polluting assets ‘stranded’ like ships in the dried-up Aral Sea. NGOs are hunting for dubious green accounting, misleading carbon investments and plain fraud. And where the NGOs roam now, regulators are going to follow – not just worthy bureaucrats from Stockholm and Ottawa, but regulators from here as well. 

Asian businesses have probably no more than 36 months to get with the ‘programme’. That programme, unfortunately, lacks global coherence, has inconsistent metrics, and ranges wildly between a focus on carbon markets, the false panacea of offsets, and the massive technical challenges of nett emissions reductions.

If businesses want to stay ahead of this, they have to build their Environment, Social and Governance (ESG) strategy to deal with year three of this story rather than focusing on a ‘good enough’ approach that keeps their heads above water in year one. 

Post COP26, here in Asia we are going to see the bar rise more rapidly than any other region in the world.

Other pandemic slingshots

The pandemic has also invited the state into our lives in unforeseen ways. It has fed a growing tendency of states to become far more directly involved in the management of their economies and societies. 

This kind of statism has had a very good pandemic. Governments have been hyperactive in the realm of public health policy during the pandemic – applaud them for that. However, this statism has spread like a dose of Omicron into other realms, and its instincts are strengthening.

In Asia cyber space for example, there has been a slew of laws and regulations pushed through during the pandemic (think Vietnam, Thailand, and India here – although China has set the gold standard). Another example is onshoring.

Governments as far apart as New Delhi and Canberra have been busying themselves identifying ‘strategic sectors’ that need to be brought home after the pandemic apparently showed them the vulnerabilities of sourcing offshore – from micro-chips to food production.

The supply shock felt most acutely right now in the West is in part a manifestation of statism – both there and in Asia. And the levers used to advance statism are moving away from the more liberal end of the spectrum in our region.

In Myanmar, this is happening through the barrel of a gun, in Thailand increasingly through the Monarch’s business agenda, in India through the prism of sectarianism, and in Hong Kong through – well – Beijing. All of this adds up to a more complex operating environment in the year ahead. 

Navigating China’s superiority complex

But that brings us to China. The third pandemic sling shot effect is this: China has made a leap  from thinking it is a rising superpower, to the notion that it is a risen one.

It believes it has beaten COVID-19 even as the Australians, New Zealanders and the Vietnamese withdraw from the zero-tolerance field. And yet, its international relations are, to paraphrase former Japanese Prime Minister Abe Shinzo, like Germany on the eve of The First World War.

Not, it should be emphasised, because Beijing is plotting a conflict like WWI, but because China exhibits the traits of a world power arriviste akin to Wihelmine Germany: boiling indignation should others question its right to be a superpower, and a complete perplexity as to why the rest of world doesn’t love it more, even as Chinese President Xi Jinping has called for China to project a more ‘lovable image’. 

Marry that to a US with a self-generated declining power syndrome, and you have the odd sight of the world’s two most powerful countries coming at each other from a position of deep insecurity. All these elements are coming together to create an ever longer tightrope walk for those of us doing business in Asia.

As businesses, we now have to ask: will my reputation suffer if I sell my stuff to China and the US? If my stuff is remotely technical, will I be punished by Washington for selling it or even punished by Beijing for not selling it, and will the small(er) country I come from become the economic punch bag for these superpowers?

Notwithstanding US President Joe Biden and Xi’s cordial virtual chat in November, their respective domestic fights are pretty much done, and both will now return to their geopolitical rivalry with gusto in 2022. 

The change of administration in the US in late 2020 has dulled the sense of disruption from escalating US-China tensions, but this is only a relative respite and superficial stabilisation, with the underlying drivers and trajectory unchanged.

For international companies in Asia, double down on your strategy for keeping your head beneath the parapet because the best we can hope for are some agreed rules around the parameters of this feud.

Steve Wilford is a partner at Control Risks