Making Sustainability the Core of Taiwan’s Economic Future

Taiwan has a unique opportunity to reinvent itself as a leader in sustainable transformation. But it will take the enlightened involvement and cooperation of business, government, academia, and society to ensure that such a shift benefits all relevant stakeholders.

Over the past few years, sustainability and ESG (Environmental, Social, and Governance) investing have become hot topics in Taiwanese media, and terminology such as carbon footprint, carbon neutrality, climate change, and supply chain greening is now common in discussions among Taiwan’s business community.

The Tsai administration’s 5+2 Innovative Industries plan, introduced at the outset of its first term in 2016, set out to advance and upgrade Taiwan’s industry and created a blueprint for the island’s industrial transformation. The Six Core Strategic Industries initiative launched last year adds to that momentum, targeting areas as diverse as cybersecurity and precision medicine. Both programs directly and indirectly emphasize sustainable development as a key driver that will shape the future of Taiwan’s economy. However, it is not clear whether those involved in this push really understand the core concepts underpinning it and what kind of action is needed for its effective implementation.

An ever-changing world

Over the past half-century, the world has experienced three major paradigm shifts that have had a profound impact on human lives: first, from mainframes to personal computers (PCs); second, from PCs to the Internet; and, most recently, from the Internet to sustainability. The third of these shifts promises to be even more drastic and far-reaching than the first two, as it will redefine how humans work and live for generations.

The first paradigm shift is characterized by the PC revolution that began in the mid-1970s, gained steam in 1981 with IBM’s introduction of the IBM Personal Computer, and peaked in the mid-1990s. As PCs became commonplace, many previously tedious tasks became easier and worker productivity increased. Taiwan became a major contributor to this transformation, producing ever better components and PCs at lower prices. Unfortunately, Taiwanese companies became mired in a trap of decreasing margins, as members of the supply chain did the heavy lifting while big international brands like Intel and Microsoft saw their margins increase, taking some 80% of the industry’s profits.

In the mid- to late-1990s, the Internet began permeating business and society, a trend that culminated in the bursting of the dotcom bubble in 2000. Subsequently, companies such as Apple, Google, Salesforce, and Facebook initiated a second wave of advances in Internet technology that led to the introduction in 2007 of the iPhone, a product that married mobility with Internet connectivity. Next, mobile app-based companies, including Uber and Airbnb, cropped up after 2010. Their business models created the gig and sharing economies, which caught on rapidly and further increased the impact of the Internet era. That we can hardly function without a smartphone in our hands is indeed the best evidence of the fundamental change this transition has had on our lives.

Despite Taiwan’s prowess in computer hardware, not one Taiwanese software company played a major role in this second shift. While Hon Hai Precision Co. – also known internationally as Foxconn – became Apple’s main contract manufacturer for its iPhones, the company earned only 0.5% of the value created by those devices. And while it is true that a few companies such as TSMC, MediaTek, and Largan have done well, they are the rare exceptions and are all mainly focused on hardware. Given this lack of value capture by Taiwanese firms, wages earned by Taiwanese workers have been stagnant for over two decades.

The paradigm we now find ourselves in began with the United Nations’ (UN) adoption in 2015 of the 17 Sustainable Development Goals (SDGs) and the Paris Agreement, signed by nations around the world. However, it was not until 2020 that financial markets awoke to this new reality with the revelation that three of the top five performing U.S. exchange-traded funds (ETF) that year were ESG-based. 

Between 2015 and 2020, a number of significant events took place, including the awarding of the Nobel Prize in Economics to Yale professor William Nordhaus for his work on sustainability, Pope Francis’ second encyclical, “Laudato si’,” which focuses on environmental degradation and climate change, and the U.S. Business Roundtable’s revision of its statement on corporate purpose to call on companies to consider the interests of all stakeholders, not just shareholders.

What do these seemingly disparate concepts and events have to do with Taiwan? I believe that the sustainability paradigm poses the most serious challenge to the island’s economy. Taiwan can only overcome this challenge through the cooperation of businesses, policymakers, practitioners, researchers, students, and the public in making Taiwan a leader in sustainability as well as an economically robust democracy.

The role of companies

In my previous two articles for TOPICS, I made a number of concrete recommendations. I noted that the environment may be ripe for Taiwan to quickly “green” its existing ICT industry. This is especially so as more attention is paid to national security – one of the main pillars of the Six Core Strategic Industries initiative – and cost is no longer the major consideration. Taiwan-based companies should use the opening created by the more skeptical approach many countries are taking toward China to green their entire supply chain. The robust earnings that some Taiwan companies have enjoyed this past year demonstrate the benefits of the shift away from China. But these companies must act quickly and not miss this once-in-a-lifetime window of opportunity.

In addition to world-leading ICT companies, Taiwan has relatively complete industry infrastructure, assets, and skills in a broad range of sectors, including steel, shipbuilding, advanced carbon fiber, machinery, and petrochemicals. With these resources, Taiwan could become a leader in the sustainable transformation of its economy more rapidly and more easily than many other countries. Further, Taiwan possesses all six major forms of capital – financial, manufactured, intellectual, human, social, and natural – some in abundance (even natural capital, thanks to the emergence of a renewable energy industry on the island).

Taiwanese companies must now act to dispel the myth of shareholder primacy – that companies exist to benefit only their shareholders – and practice what ESG really stands for. They must understand and embrace the idea that while private corporations create wealth and financial capital, this should be balanced with upholding Taiwan society’s environmental, human, and social values. Companies must whole-heartedly embrace not only the vague notion, but the underlying spirit, of ESG.

A good place to start is by paying employees globally competitive wages. An even more important focus is board governance, as it is central to achieving ESG goals. A recent cover story in the Chinese-language publication BusinessToday exposes the weaknesses in Taiwan’s corporate governance laws and highlights the need to improve corporate culture in many publicly traded companies.

Taiwanese companies can learn from multinationals such as Ørsted and Unilever, which have succeeded in green transformation as they have demonstrated willingness to look beyond quarterly results. While Unilever’s ex-CEO Paul Polman has become an international celebrity for leading the conversion of Unilever into a leading green company, Ørsted (formerly known as DONG Energy) was even more remarkable in successfully morphing within a decade from a fossil fuel-burning utility into a world leader in offshore wind energy and the world’s most sustainable company.

But Taiwanese companies do not have to look far for inspiration. Delta Electronics has steadily and quietly developed itself as an ESG trailblazer in Taiwan and is likely to play an even greater role in almost all things electric – from PC power supplies to electric car power modules. The company’s Honorable Chairman Bruce Cheng is an early advocate of energy efficiency and sustainable business practices. Through his leadership and promotion of environmentalism and good board governance, he has made Delta a globally recognized leader in sustainability.

Getting government involved

For seven decades, gross domestic product (GDP) has been the go-to metric for determining the strength of an economy, and Taiwan is no exception in buying into this myth. Fast growth, as measured by GDP, has been considered a mark of success, no matter how the benefits of that growth are invested or shared. If something must be sacrificed to grow the economy, whether it be clean air and water, public services, or equality of opportunity, so be it.

Taiwan will need to embrace the growing international recognition that GDP is an inadequate measure of a nation’s welfare. This view has been championed by Nobel Laureates Joseph Stiglitz and Amartya Sen, as well as many others. And the U.S. Bureau of Economic Analysis recently embarked on a new initiative – “GDP and Beyond” – that broadens the concept of economic well-being to include everything from income distribution to healthcare and macroeconomic sustainability. COVID-19 should serve as a wake-up call that GDP growth alone does not equal national success.

The sooner the government can end its fixation on GDP, embrace a more holistic view of economic well-being, set enlightened policies, implement efficient and effective laws and regulations, and provide proper economic incentives for sustainable growth and development, the more likely Taiwan will succeed in meeting the challenges brought on by this paradigm shift.

Taiwan can also learn from others that have excelled in energy efficiency, environmental protection, and renewable energy. For example, the EU has paved the way to becoming the world’s first economic bloc to reach net zero by using three big policy levers: tougher regulation and emissions standards for industry, carbon pricing and taxes on polluters, and rules to promote investment in low-emissions technology. It hopes these policy levers can reduce average emissions by 55% by 2030, falling to net zero by 2050.

California has long led the U.S. in terms of enlightened sustainability policies and has the results to prove it. Beginning in the 1960s, California imposed increasingly tough automobile emissions standards despite strong industry opposition. This led to a dramatic decrease in air pollution. Since the mid-1970s, the California Energy Commission has halted growth in the state’s per-capita electricity use with tough mandates. More recently, California has been replacing natural gas plants with solar-plus-storage options that emit no carbon dioxide. With strong government policies promoting reliable power without the use of coal or new natural gas plants, California could feasibly scale up its renewables to achieve 90% clean energy, according to a report from the University of California, Berkeley. Such a move would reduce the impact on human health and the environment and increase energy-sector employment.

In addition, the Tsai Ing-wen government must undergird the Six Core Strategic Industries policy with concepts of sustainability, circular economy, energy efficiency, renewable energy, and waste reduction. While chipmaking is paramount to Taiwan’s industrial transformation, it must not be forgotten that chipmaking is an energy-intensive and highly polluting manufacturing business. Thus, it is not enough to make green and renewable energy one of the six core strategic industries.

Under the Six Core Strategic Industries plan, Taiwan’s government has said that it will seek to build a renewable energy industrial zone and R&D base, strengthen the cybersecurity of renewable energy certificate transactions, and create an offshore wind power national team. It will also attempt to gain a crucial role in the Asia-Pacific wind power supply chain, enabling local wind power products to be exported to other countries. These are admirable goals, but Taiwan needs an overarching vision of positioning itself as a global leader in the current sustainability paradigm. In a recent conversation I had with the Minister of Science and Technology, Dr. Wu Tsung-tsong, he shared with me his view of how a similar vision was important in Ørsted’s construction of its Greater Changhua offshore wind project.

Finally, the Taiwan government must embrace, practice, and articulate the essence of ESG and enunciate a clear and simple narrative: that Taiwan can achieve a sustainable future that will be good for both business and the public.

Where universities come in

Public universities play a major role in creating and disseminating knowledge and the results of their R&D to benefit society. Taiwan has a relatively strong national university system, and this is a key reason why Taiwan is a global technology leader. Without the likes of National Taiwan University (NTU), National Tsing Hua University, National Chiao Tung University, and National Cheng Kung University (NCKU), it is doubtful that the Taiwan electronics industry, especially the chipmaking industry, would be the powerhouse it is today.

Similarly, California’s vaunted position in the U.S. is due in no small part to its great university system. The University of California (UC), which consists of 10 campuses, is arguably the best public university in the world. A little-known fact about the university’s legacy: UC Irvine Professor F. Sherwood Rowland and a colleague from UC San Diego literally saved life on earth through their research and activism to stop the use of chlorofluorocarbons (CFC), which they found were creating holes in Earth’s ozone. They jointly received a Nobel Prize for their contribution to humanity and earth.

Universities in Taiwan have embraced the UN’s SDGs as their core values. Leading universities such as NCKU and NTU must now play an instrumental role in both sharing the knowledge they have acquired and implementing these goals, rather than merely pursue high rankings. One key function is to motivate students to become sustainability activists and live according to SDG principles.

With the involvement of industry, government, and academia, Taiwan as an economy based mostly on electronics manufacturing now has the potential to become a world-leading, sustainability-driven economy. It cannot afford to look in the rearview mirror to shape its future. It must be bold enough to tackle the biggest issue of our time – climate change – not only for the well-being of its citizens, its future generations, and the Earth, but also for the future of its economy. By focusing on sustainability and doing the right things, Taiwan can turn green into gold!

— N. Mark Lam is an ESG, sustainability, and innovation expert. A former CEO of a Silicon Valley startup and U.S. Presidential Elector, he is also a California attorney and venture capitalist. Currently, he is a Visiting Expert at the National Cheng Kung University (NCKU). Lam earned a Master of Environmental Management from Yale and a J.D. and MBA from the University of California.