Investor interest in ESG performance on the rise

As a series of government initiatives help nudge sustainability into the mainstream, companies are reporting that both investors and shareholders alike are sitting up to take note of their ESG practices.

Responsible finance is on the rise as banks in Singapore (pictured) are now expected to integrate ESG criteria into their risk assessment and lending processes. Image: Aleksandar Todorovic / Shutterstock

Long relegated as a fringe issue on the corporate agenda, sustainability is fast becoming a rising concern among investors and shareholders, said business heads from leading Singapore companies on Wednesday.

Speaking at a panel discussion on sustainability and climate change hosted by the Singapore Exchange, representatives from Singapore-listed companies DBS Bank, City Developments Limited (CDL) and Olam International said they have seen a sharp rise in stakeholder and investor interest in sustainability issues in recent years. 

“Investors and shareholders are now looking at our ESG performance,” said Esther An, chief sustainability officer at CDL. “Ten years ago, no one would pay any attention to our sustainability numbers or strategy at an AGM. But there has been growing interest for the past three or four years.”

Sustainability performance, broadly measured by what the industry calls environmental, social and governance (ESG) indicators, has been climbing up the corporate agenda for companies worldwide as consumers demand increased transparency from businesses and issues such as climate change pose a growing risk to operations.

The resulting pressure on lenders and investors to restrict financing to companies associated with unsustainable practices has had a significant impact on corporations, said business leaders.

Mikkel Larsen, managing director of Tax and Accounting Policy at DBS Bank, said the bank has relooked at its business in recent years to assess the direct and indirect impact of the bank’s footprint on the environment.

“It is becoming a requirement to be a sustainable bank,” Larsen said. “We’ve seen situations where banks haven’t had sustainability measures in place, and the very dramatic impact from stakeholders who aren’t willing to conduct business with them. Sustainability is now more than a piece of paper in the drawer.”

CDL’s An agreed, noting that “sustainability practices matter to investors”.

As one of the sustainability leaders in Singapore’s property landscape, CDL has been tracking its ESG performance since 2004. It first published a sustainability report in 2008, and last year, launched a fully integrated report, which combines financial and sustainability reporting.

At CDL, sustainability-related costs are not looked at separately, but fully integrated and absorbed by different departments across the business, said An. “We look at sustainability from the day we get a piece of land. We plan for the usage, protect its biodiversity, and work to maximise natural resources. It does not cost more, but it requires more effort,” she added.

Its commitment to the motto ‘Conserve as we Construct’ includes allocating two to five per cent of the construction costs of new developments into green features, and driving innovation through community involvement and engagement, she said.

The rise of responsible finance

Responsible finance – which favours lending that has a positive impact on the environment and wider society – has been gaining prominence, boosted in particular by international targets such as the Sustainable Development Goals (SDGs) and treaties such as the Paris Agreement.

The SGDs, adopted in September last year by the United Nations, set the global development agenda till 2030 and outlines specific targets and actions to end all forms of poverty, fight inequality and tackle climate change, while the Paris Agreement is the first universal treaty signed by almost 200 nations to combat climate change.

You’ve got to think about the impact that one wrong environmental decision can have on your brand and standing in society.

Mikkel Larsen, managing director of Tax and Accounting Policy, DBS Bank

In Southeast Asia, regional events such as the annual haze crisis resulting from rampant deforestation in Indonesia have also led to an increased focus on responsible finance, with pressure mounting on banks and investors to adopt ESG screening.

report released last year by non-profit group WWF (World Wide Fund for Nature), for instance, scored various finance institutions in the region on their ESG performance, and highlighted the need for banks and investors in Southeast Asia to play catch up with international peers.

The Association of Banks in Singapore also released a set of broad guidelines last October for banks in Singapore to incorporate sustainability standards on issues such as deforestation, human rights, and corporate ethics into their lending and business practices.

Banks are expected to integrate ESG criteria into their risk assessment and lending processes and publish them in their annual reports and websites by 2017.

Consumers drive sustainability demand

The growing focus on responsible finance has compelled senior management in companies to look at sustainability more seriously. And while achieving management buy-in for integrated ESG practices still has a way to go, An said the Singapore Exchange’s implementation of mandatory sustainability reporting for public companies is a step in the right direction.

Starting financial year 2017, more than 800 listed companies in Singapore will be required to publish sustainability reports on a ‘comply or explain’ basis.

The reports will have to cover five specific components, of which management buy-in, the identification of material ESG factors, and targets for the forthcoming year have to be included.

Regulatory guidelines aside, consumers are also a key driver in paving the way for greater adoption of sustainability practices, said the panelists.

“At the beginning, you couldn’t put a price tag on sustainability KPIs,” said An. “Even today, having green features is not the main deciding factor in driving consumer choices, but we are starting to see it move up in priority.”

Olam International, a leading agri-business operating in 65 countries, puts consumer expectations at the centre of its commitment to responsible business, said its senior vice president, Vasanth Subramanian.

Aiming to achieve fully sustainable supply chains by 2020, the business has precise targets and clear expectations of suppliers and the methods of which materials are ethically sourced.

“It’s a lot about what the consumers want and expect,” said Subramanian.

“Consumers are the biggest driver. If they are demanding it, companies will provide the supply. And we are starting to see this more and more,” An added.

Larsen highlighted the ever importance of sustainability, particularly in a climate where nations and corporations can no longer afford to ignore the devastating effects that climate change and unethical practices have on the environment.

“You’ve got to think about the impact that one wrong environmental decision can have on your brand and standing in society,” he said.

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