Sustainability advocates are the first to admit, rather candidly, that the sustainability journey in Asia is one barely out of its infancy.
While that may be so, they are equally quick to point out that much progress has been made.
‘I definitely think companies in Singapore are more aware of corporate social responsibility (CSR). In fact, I don’t think there’s any room for companies to ignore it,’ says Jenny Costelloe, country director of CSR Asia (Singapore). ‘With SGX (Singapore Exchange) encouraging listed entities to produce CSR reports, there’s definitely heightened awareness.’
Noting that the way businesses operate can have long-term effects on the environment and society, and that global investors and other important stakeholders have called for companies to espouse sustainability and report on such initiatives, SGX released a policy statement and guide to sustainability reporting in June this year, part of a move to encourage ‘green reporting’.
Awareness with regard to sustainability issues had started taking shape prior, arguably one of the more significant being the Asian Sustainability Rating (ASR), which was launched in 2009.
Lauded as Asia’s most comprehensive and long running analysis of listed companies’ public disclosure on environment, social, governance (ESG) issues, ASR was developed in collaboration with Responsible Research and CSR Asia to gauge leading listed companies within Asia, thereby providing investors and stakeholders with an analysis of the sustainability strategies of these companies.
Within the 2011 ASR universe of 750 companies from 10 Asian countries, City Developments Ltd (CDL) was ranked 17th, and emerged top in Singapore and first among all real estate companies in Asia, scoring well in the general, environment and social sections.
CDL is no stranger to sustainability and its accompanying indexes, being the only Singapore corporation listed on both the Dow Jones Sustainability Indexes and the FTSE4 Good Index Series in 2002. It is also the only Singapore company to be ranked among the Global 100 Most Sustainable Corporations in the World in 2011.
Comparison
Ms Costelloe notes: ‘These indices have different transparencies in terms of their methodology. What’s good about them is that you can get a gauge on how well you’re doing against other companies in the same country and/or sector. Generally, nobody likes to come second, people want to be the best in class and that drives their behaviour.’
Benjamin McCarron, head of research at Responsible Research, agrees. He says: ‘The indices are beneficial in terms of raising the priority of environment, social, governance, and sustainability issues to board level and effecting change.
‘In particular, we know that FTSE tracks the dialogue they have with companies and has observed that where companies are at risk of falling out of an index, they frequently make strong efforts to improve.’
That being said, he cautions that while indices play a useful role at driving change across the broader spectrum of sustainability issues, which is important for sustainable development, the ability of sustainability indices to affect change at the level of core business activities within a company or industry can still be limited.
Carrie Johnson, director of Paia Consulting, on the other hand, sees the index as a catalyst for change. She says: ‘Sustainability indexes significantly help sustainability issues get credibility at the senior management level. Once the senior management team realises that investors are taking sustainability seriously, it helps raise the profile of sustainability internally.’
In fact, companies that list on sustainability indexes get exposure to a wider range of investors, who may not otherwise consider them, she says.
‘Several investor analysts now include sustainability risks in their overall risk assessment of companies. Being on a sustainability index helps reassure those investors that sustainability risks are being managed.’
According to a report by Vigeo, the number of European Socially Responsible Investing (SRI) mutual funds jumped 29 per cent to 879 between 2009 and 2010, with assets under its management achieving a 41 per cent jump to 75 billion euros (S$132 billion).
Ms Johnson says: ‘Many investment funds will now only invest in companies that can demonstrate that they are managing sustainability, or at least have taken their sustainability risks into account.
Integral part
‘There is a lack of companies in Asia that qualify for these funds, so those that do will be targeted by investors. Sustainability investment has gone from being a small subsect of investment, to being an integral part of what analysts include within their overall risk assessment of the company, before deciding whether or not to include them on their portfolio.’
Beyond SRIs, Mr McCarron notes that other approaches to investing also incorporate values, citing significant developments in Islamic finance in Malaysia as an example.
Further, he adds, there are a number of investor groups that have natural reasons to consider implementing consideration of responsibility and sustainability into their investment mandates, including faith-based investors, sovereign wealth funds, pension funds that wish to consider their members’ broader interests, employee funds, charity foundations and endowment funds, and funds run by cooperatives, such as cooperative insurers that may wish to reflect members’ social values through investment policy and activity.
‘In South Korea, there is a growing responsible investment ecosystem, partly led by the pension funds,’ Mr McCarron points out. ‘In Japan, unions are playing a role in taking forward responsible investment, driven by their members.’
‘While the majority of money flow globally and the region is not driven with sustainability considerations in mind, we also believe there are signs of progress. In our view, it is the home-grown Asian approaches that will be the most important to the region in the longer term.’
