Accounting for sustainability, the Asian way

Companies in Singapore can now join a new network for their finance departments to integrate sustainability into business decision-making. The Singapore Circle of Practice could lead the way for green debt financing in Asia.

Commerce with a conscience can pay off.

Agri-business group Olam International proved this when it received a sustainability-linked club loan of US$500 million in the first such deal of its kind in Asia in March. Under the loan’s conditions, its interest rate will be reduced if it meets pre-set sustainability targets.

“This is a good example of how sustainable companies can become more successful and of how we can ‘do good’ and ‘do well’ at the same time,” said Olam co-founder and group chief executive officer Sunny Verghese in a press release at the time. “We also believe that this will serve as a catalyst in further developing sustainability-linked financing in the region.”

In recent years, more companies have woken up to the threat that environmental risks can pose to their businesses, and to the benefits of embracing sustainability. In 2017, for example, firms committed US$23.4 billion to more than 1,000 projects worldwide to tackle water risks, according to the latest 2017 Global Water Report by non-profit CDP.

Now, companies in Singapore can learn sustainability best practices from one another and from experts through a new informal network for their finance departments called a Circle of Practice. Such networks have been established in various parts of the world by Accounting for Sustainability (A4S), an initiative by Britain’s Prince of Wales to promote sustainability in finance processes and decision-making. 

In Asia, sustainability investing is set to gain more traction as its value becomes clearer.

Andrew Lim, group chief financial officer, CapitaLand

The Singapore circle, which will be run with support from Olam, is the first in Asia. It was launched in April 2018 with nine founding members: Olam, CapitaLand, DBS, SATS, Jadestone Energy, Japfa, Sysmex Asia Pacific, Wipro Consumer Care and the Norbreeze Group. 

Verghese said: “Platforms like this can be a key catalyst to bringing the private sector together to drive change at scale and re-imagine what sustainable business can be.”

Developing Asia-centric tools for sustainability 

Olam’s global head of corporate finance Rishi Kalra said that the Singapore circle is open to chief financial officers and finance teams from firms in Singapore. The group will meet every quarter to discuss sustainability trends, share their experiences, practices and progress and use A4S’s global work to develop Asia-specific tools for sustainable business decision-making.

At the group’s first meeting in April 2018, Kalra spoke about Olam’s sustainability-linked loan as well as its creation of AtSource, a sourcing tool that helps manufacturers trace the journey of their agricultural raw materials and food ingredients from farm to table, and track the social and environmental footprint of their products.

“Between now and the next meeting, everyone will also go away and do some self-assessment, so that at the next meeting we can discuss what the roadmap forward will be, both for the circle and for each company’s sustainability plans,” said A4S executive chair Jessica Fries.

She noted that while A4S has produced guides for finance professionals, including in the areas of capital expenditure and natural and social capital accounting, these were developed with examples from Western countries. “Some of the techniques can be adapted to become applicable for Asian companies, but what would really help to localise and improve the guides are case studies from Singapore and Asia,” she said. 

“If you look at natural capital, for example, some aspects of the guide may not be very relevant for Singaporean companies that do not have global operations, because not much is grown in Singapore. We may need to look at that from a different perspective,” said Kalra.

The circle’s members plan to develop more Asia-relevant measurement and valuation tools for natural, social and human capital accounting, work with finance providers to embed sustainability in debt financing and discuss how to integrate material sustainability factors into decisions on strategic planning, budgeting and forecasting, management reporting and capital expenditure.

SATS chief financial officer Manfred Seah said: “We believe that integrating corporate reporting with sustainability reporting will provide a more balanced view of how our assets can be deployed to create long-term value for stakeholders, and we look forward to working with the others to develop a suitable financial framework that will provide better transparency and accountability for investment decisions.”

CapitaLand’s group chief financial officer Andrew Lim added: “In Asia, sustainability investing is set to gain more traction as its value becomes clearer. Our Circle of Practice can rally like-minded leaders in the region’s finance community to sharpen the focus on sustainability’s value.”

Pointing the way forward for Asia

The work done by the Singapore circle could also benefit other companies in Asia and other parts of the world, said Fries. “What we’d love to do is to share some of the insights more broadly, and take some of the case studies of the great work that is being done here and feed it back out into the global network,” she said. 

She noted that A4S has received calls from finance professionals in Hong Kong to set up a Circle of Practice there. It also had a roundtable with chief financial officers in Japan earlier this year, and will hold another roundtable for CFOs in India. “There is a lot of momentum building around the recognition of sustainability trends as both financially relevant and material,” she said.

Kalra added that Olam’s experience has shown that embracing sustainability is not only good for the environment in the long term, but also valuable to companies in the shorter term.

He summarised: “Companies that are more sustainable can get access to cheaper financing and enjoy other advantages, while companies that are not sustainable run the risk of governance and reputational issues and problems. These benefits and pressures apply to everyone, whether you are a global or local company. So whether you look at it from a risk or opportunity perspective, it’s far better to be a company that values sustainability.”

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