A STUDY by the Singapore Exchange (SGX) is under way that could result in mandatory sustainability reporting for listed companies in the next couple of years.
Voluntary guidelines already exist for companies to issue sustainability reports, but adoption of those guidelines remains low.
To speed things up, SGX this year is in the midst of a comprehensive consultation exercise with the various stakeholders, including companies and industry professionals, as it contemplates a set of guidelines that will make sustainability reporting par for the course for all Singapore-listed companies.
Winners of the Securities Investors Association of Singapore's Transparency Award in 2015 share their experiences with sustainability reporting and the changes ahead.
Question: Sustainability reporting could become a requirement in Singapore. Do you think sustainability reporting is something that should be mandated or simply recommended?
Patrick Chew: As a manufacturer of aluminium alloy extrusion products for the passenger rail transportation sector in the People's Republic of China, we are cognisant of the impacts our operations have on the environment and society and believe that corporates should strive to conduct business in a sustainable and responsible manner.
We are of the view that sustainability reporting has its merits.
For corporates, it serves to evaluate existing policies and impacts as well as to identify future opportunities. On the other hand, investors can obtain more information on the sustainable aspects of the business and increase their understanding of the company.
However, the transition from a voluntary disclosure to a requirement needs to be carefully implemented over time to ensure a smooth and successful implementation.
Ng Yat Chung: Mandatory sustainability reporting may encourage greater corporate attention to sustainability issues, despite the drawbacks of boilerplate style reporting to meet minimum requirements.
For corporations that take sustainability seriously, mandatory reporting imposes little additional burden. As a responsible corporate citizen, sustainability has been an integral part of NOL's operations and decision-making process.
With offices in more than 80 countries, sustainability is integrated into our business policies, processes and systems to ensure the sustainable development of our business, the environment and society.
Tan Tong Hai: StarHub believes that sustainability reporting ought to be strongly recommended as such reports ought to be driven by companies' innate desire to be socially and environmentally responsible, as well as practise good corporate governance, and then to share these in a report.
We believe that sustainability reporting is a good business practice as it ensures that companies measure and monitor their sustainability aspects, helping to assure the long-term survivability of the business, physical and social landscapes.
Esther An: Singapore, like many parts of the world, has seen heightened stakeholder vigilance and increasing demands for accountability and transparency.
Progressively, more institutional investors, in particular the Socially Responsible Investment (SRI) Funds, are assessing companies' Environmental, Social and Governance (ESG) performance and sustainability when investment decisions are made.
In line with the global trend for greater transparency and disclosure, the Singapore Exchange has already announced plans to adopt the "comply or explain" approach for sustainability reporting.
Survey and consultation sessions involving listed companies have been conducted.
With greater public pressure through social media, dialogue, green legislation and consumerism, stakeholder engagement has also become the driving force for companies to be proactive rather than reactive in disclosure and communication of ESG practices and performance.
CDL welcomes this move as responsible business practices is the global business trend that does not only benefit businesses but also the people and planet at large. Singapore is one of the most advanced economies globally and the emphasis on the importance of sustainable development is the way forward for continued long-term growth.
Based on a 2014 study published by NUS and the Global Compact Network Singapore, only some 30 per cent of the 537 listed companies here were communicating their sustainability practices. To increase the uptake of sustainability reporting significantly, progressive legislation should be introduced.
Singapore listed companies competing globally simply cannot afford to ignore the stronger calls for increased corporate transparency and greater stakeholder scrutiny - not to mention the misstep of not communicating on sustainability issues that are material to their business.
Terry O'Connor: Sustainability reporting has been gaining increasing prominence on the global agenda, and offers a more comprehensive account of corporate performance.
Singapore Exchange (SGX) launched voluntary guidelines for sustainability reporting in 2011 and recently announced that it will soon become compulsory for companies to comply with this mandate from FY2017 onwards.
Courts Asia Limited has incorporated sustainability reports, which encompass the disclosure of environmental, social and governance issues that are crucial to the group, since our first annual report in 2013.
This aids us in shaping our overall sustainability strategy to create long-term success and value for shareholders. A mindset that prioritises transparency and promotes sustainable development is key to responsible business practices, and this is especially crucial given the current circumstances of grappling with the transboundary haze.
In this regard, this spurred us to proactively reach out to our key furniture suppliers and partners with a firm request for them to check on their source of materials and declare that they do not use materials or products from companies suspected of contributing to the haze pollution.
Q: How do you view the concept of sustainability, and how is your company preparing for the prospect of sustainability reporting?
Tang Kin Fei: At Sembcorp, we believe that a truly sustainable company generates both economic value, as well as value for its customers, employees, partners and communities.
In addition, a sustainable company is one that builds resilience for the long term, by identifying and responding to ever-changing economic, environmental, social and governance challenges facing its businesses.
Sembcorp first embarked on our sustainability reporting journey more than 10 years ago. Over the years, I'm happy to say we have made progress, and we continue to publish a sustainability report each year.
We have adopted the Global Reporting Initiative framework since 2009, and have been named a component stock of this year's Dow Jones Sustainability Asia/Pacific Index.
These global frameworks and standards have given us benchmarks to review and strengthen our policies, systems and processes on an ongoing basis.
Mr Tan: Sustainability is the practice of ensuring that one's company does good business well, ensuring the long-term viability of the company, the community within which it operates as well as the natural environment.
This includes the company's business practices, for example, HR management, ethics and governance, that help to ensure that the company is viewed favourably by its various stakeholders.
Most importantly, it must be driven by a company's wish to do the right things in the right way when it conducts its business. StarHub has been publishing sustainability reports since FY2011.
Mr Chew: We believe that sustainable development does not mean sacrificing corporate profits. Rather it is an opportunity for risk management, efficiency improvement, innovation and growth, to ensure the sustainable long-term growth of our business.
In fact, we have just recently in May 2015 launched our first sustainability report, and will continue to review and improve our policies so as to align our sustainability reporting with regional requirements and international best practices.
Ms An: In line with our long standing commitment to sustainability, CDL has been a firm proponent of sustainability reporting to track, measure, review and improve on our ESG performance. We started incorporating a concise CSR report in our annual report since 2004.
In 2008, we published Singapore's first Global Reporting Initiatives (GRI)-checked dedicated social and environmental report. Going beyond compliance, CDL published sustainability reports annually since then and in 2012, we became the first Singapore listed company to achieve GRI Level A+.
GRI is an internationally accepted reporting framework that is widely used by corporations to measure and disclose their sustainability performance.
In 2015, we adopted the integrated reporting approach for our sustainability report. This aims to connect ESG performance with financial impact, making greater business sense of the company's sustainability-focused business strategy.
Our priority in ESG issues is closely linked to our risk management. In addition to business-related risks, ESG risks such as fraud, corruption, as well as ineffective environmental health and safety (EHS) management have been identified as strategic risks for our business.
Sustainability reporting serves as an accountability tool that we use to review and ensure that effective controls and mitigating measures are put in place to manage these risks, and to disclose our progress. Over the years, CDL's efforts in sustainability have enabled us to enjoy first-mover advantage.
Environmental-related legislation progressively mandated for our industry has had little business impact on our operations.
Proactive sustainability reporting has led CDL to establish frameworks, systems and processes where we can manage, monitor, measure and improve on the materiality issues that affect our business and stakeholders. We continuously benchmark our performance against global best practices and standards, and are heartened that our commitment to ESG tracking, disclosure and reporting has been affirmed by international sustainability performance benchmarks.
CDL is the first company to be listed on three of the world's top sustainability benchmarks: FTSE4Good Index Series (since 2002), Global 100 Most Sustainable Corporations in the World (since 2010) and Dow Jones Sustainability Indices (since 2011).
It is also listed in the Global Compact 100 Index, Global Real Estate Sustainability Benchmark (GRESB), MSCI ESG Indexes, Euronext Vigeo - World 120, Ethibel EXCELLENCE Investment Register and STOXX Global ESG Leaders Indices.
In Singapore and Asia, CDL was ranked Asia's Top Property Developer and Top Singapore Company for the second consecutive year in the Channel NewsAsia Sustainability Ranking 2015.
We were also named the Asia Pacific Green Builder of the Year by international research consultancy Frost & Sullivan in 2012.
Testament to our ESG performance, these listings have helped CDL attract global investors and partners, contributing to our sustained growth.
Q: One common remark about Singapore-listed companies is that they do not disclose enough about the positive things they do with regards to sustainability and corporate governance. Does that observation fit with your experience, and why do you think such an observation might exist?
Mr O'Connor: We refer to SGX's Guide to Sustainability Reporting and refine the reports based on feedback from shareholders and various stakeholders.
One reason why Singapore-listed companies do not disclose enough could be the lack of a single international framework for fair comparison and benchmarking, exacerbated by the perceived notion of increased costs and scope for reporting, and genuine lack of understanding on the process and requirements - teething problems that usually accompany the early stages of new initiatives.
However, together with SGX, there has been a recent proliferation of independent agencies and consultants who have been able to effectively guide companies in showcasing their sustainability excellence.*
Mr Chew: Such a perception is possibly due to sustainability reporting being a relatively new concept that was first introduced in 2011 as a voluntary exercise.
Additionally, as plans for the 'comply or explain' requirement by 2017 was only introduced in Singapore in 2015, the initial absence of the 'comply or explain' requirement may have diminished some companies' focus on sharing their sustainability and corporate governance activities.
Moreover, sustainability reporting is still in its infancy stage in Singapore.
We believe that there will be increased transparency and disclosure as more companies join the sustainability reporting bandwagon.
Mr Tan: It might be observed that Singapore-listed companies are disclosing more with each report that they do.
An absence of transparency and full disclosure could be the result of many reasons, such as the fear of leaking commercially sensitive information, negative perceptions or just inserting vague generalising statements.
Q: How do you decide what and how much to disclose? What are the processes and principles that you use?
Ms An: In each reporting cycle, CDL's CSR Committee reviews the content of the report to determine its relevance to our business.
Efforts are also made to ensure that current and emerging material issues pertaining to sustainability and the interests of our stakeholders are addressed.
Other operational committees oversee existing management systems and certifications such as the ISO 14001 Environmental Management System, ISO 50001 Energy Management System and Singapore Quality Class.
Relevant targets and key performance indicators are established, tracked and disclosed within this sustainability report.
Each report continues to integrate ISO 26000: 2010 Guidance on social responsibility - CDL actively promotes compliance with internationally adopted standards and regulations in the fields of occupational standards, environmental protection and the fight against corruption.
Each year, besides aligning our reports with updated GRI's Guidelines, we continue to keep abreast of the latest global reporting standards and improve on our sustainability disclosure.
Beginning from 2015, we made the transition from sustainability reporting to an integrated reporting (IR) approach as outlined in the International Integrated Reporting Council's (IIRC) Integrated Reporting Framework.
The IR approach aims to make business and financial sense of environmental and social performance, for more meaningful and all-rounded corporate reporting.
Centred around six capitals - Financial, Manufactured, Organisational, Social and Relationship, Human, and Natural - this new approach aims to present a holistic picture to our investors and stakeholders on how the interrelation between our business and sustainability performance leads to value creation over the short, medium and long term.
The CDL 2015 sustainability report, titled "Creating Value for the Future", is aligned with GRI's latest G4 Guidelines at the Comprehensive level.
The new G4 guidelines focus on materiality, which refers to issues of relevance and importance to the company.
Similarly, integrated reporting focuses on material information that can affect a company's long-term viability and influence its stakeholders' assessments and decisions.
Responding to the increased emphasis on materiality, we conducted an in-depth review, engaging key internal and external stakeholders to evaluate and prioritise our material issues.
With materiality at its core, the report focuses on the economic, environmental and social aspects that have been identified as material to our business and stakeholders. Materiality also applies across the value chain where CDL has considerable influence, but not direct control.
Climate change is undeniably a global business risk that all businesses have to address.
We believe this new integrated approach to our sustainability report provides greater clarity to the investment community on the material issues that may impact our business and the strategies that we have implemented to mitigate these ESG risks - thus allowing investors a deeper assessment of CDL's prospects.
Mr Tang: Sembcorp is committed to providing our stakeholders with an accurate, coherent and balanced account of our performance. We strive for best-practice transparency.
This means not only maintaining compliance with disclosure requirements, but where possible, going beyond compliance.
An example of such additional disclosure would be our reporting on sustainability.
Sembcorp's sustainability disclosures are guided by the Global Reporting Initiative Sustainability Reporting Guidelines, as well as by the principle of materiality.
In identifying our material issues, we engage both internal and external stakeholders, to ensure that we have considered the issues they deem important.
Mr Tan: StarHub believes in transparency and disclosure. We disclose as much as we can, as long as divulgence of the information is not restricted by the regulators or it is not commercially sensitive information.
Mr Chew: We have always wanted to incorporate the principles of sustainability and corporate governance into our business and took the opportunity to put in place a structure recently.
As we are listed on both the Stock Exchange of Hong Kong Limited and Singapore Exchange Securities Trading Limited (SGX), we used the Draft Environmental, Social and Governance Reporting Guide (HKEx ESG Guidelines) from the Stock Exchange of Hong Kong Limited as a starting point and strive to meet the HKEx ESG Guidelines.
We started with a materiality assessment to identify relevant quantitative environmental and social key performance indicators (KPIs).
We followed up with a review of the key topics discussed by stakeholders such as peers, industry sources and sustainability reporting guidelines such as the Global Reporting Initiative (GRI).
We also used environmental impact modelling and valuation models to quantify the most material environmental impacts for our industry. KPIs were then ranked to determine materiality of impacts, and cross-checked against data availability.
The most relevant KPIs were compiled to form our sustainability report.
Q: Do all those disclosures make a difference? Are enough of the right people paying enough attention, and is there enough understanding about what is being disclosed?
Ms An: At the start, we certainly faced challenges and cynics when we first embarked on integrating CSR and sustainability into our business operations.
Bolstered by a strong mandate by our top management, we overcame the barriers and focused on our triple-bottom line.
Through this, we have built a resilient business that is keenly attuned to mitigating ESG risks and identified new growth dimensions.
Even though there was little engagement from the investment community on these issues in the formative years, we held firm to our belief that ESG concerns would strongly shape the future of businesses.
This foresight has now set us apart from our peers. It is becoming evident that with a changing business landscape, ESG is no longer a 'good to have', but has become licence to operate.
Slowly but surely, mindsets are evolving. We have also noticed that increasingly, there has been greater interest in sustainability and ESG issues from stakeholders, in particular the investment community.
With the increasing threat of climate change and the haze issue in the region, more consumers are now showing stronger interest in responsible sourcing of materials by businesses.
We are glad to see that more stakeholders are paying attention but there is still a long way to go until consumers are willing to pay more for sustainable products.
Mr O'Connor: In the bigger scheme of narrowing the information gap and deepening stakeholders' understanding of business practices in non-financial areas, these disclosures do make a difference.
Given that SGX has mandated sustainability reporting by FY2017, there will be increased efforts by both investors and investee companies to align on expectations and sustainability goals.
Mr Chew: We believe that these disclosures are a step in the right direction and will boost Singapore's reputation as a leading capital market.
Sustainability reporting is a long-term exercise and there is a need for corporates, small or large, to participate in sustainability reporting.
While results may not be immediately visible, we believe that such efforts will garner more visibility and traction, and over time, translate into benefits for companies and investors alike.
Companies will be more prepared for the future as they evaluate and manage environmental and social risks, ensuring sustainable business growth.
Investors will be able to gain an increased understanding of the company as corporates share their strategy to adopt sustainable business practices.
Mr Tan: The Environmental, Social & Governance integration into the investment decision-making process is growing. While the practice is still relatively new, many asset managers now consider ESG factors as part of their investment process.
There is a growing amount of ESG data available on investment platforms to help investors understand how ESG factors affect portfolio risk and performance.
Customers nowadays are also more influential and prefer to buy from companies which are socially and environmentally responsible.
Additionally, employees are also more inclined and proud to work for such companies.
Q: What are your goals and priorities regarding transparency for the year ahead?
Mr Chew: Having published our first report, we have made certain key observations in the areas of workplace quality, environmental quality, operating practices and community involvement.
We believe that everyone, both within the organisation and external stakeholders that we engage (such as suppliers and customers), have a moral duty towards good corporate sustainability.
In the year ahead, we will seek to further build on these areas that we have identified, and work closely with all our stakeholders to uncover additional areas of improvement.
Mr Ng: The company focuses on implementing high standards of environmental performance, improving supply chain security, ensuring safe operations and supporting the communities in which we operate.
We continue to look for best practices that can help us improve our performance and processes. We will continue to build on good relations with our stakeholders to communicate the company's strategic direction and financial performance with transparency and integrity.
Ms An: As we complete our 20-year journey of integrating CSR into our business, we have reviewed and set higher goals and priorities pertaining to sustainability and transparency.
For instance, we have published our Climate Change Policy on our website and are reviewing our carbon reduction targets which were set in 2011.
We believe that such responsible practices will future proof our business and hence create greater value for our stakeholders.
For sustainability reporting, we will continue to fine-tune our IR approach by connecting our ESG performance with business and financial impact, with a focus on issues that are material to our business.
This enables us to adopt a forward-looking outlook on our expected growth and development areas.
As investors and analysts are placing greater emphasis on risk management and transparency, we will also continuously review how we address our ESG risks and opportunities to reflect their growing importance and relevance to long-term business viability.
Mr Tan: Transparency has always been the key cornerstone of corporate governance for StarHub. We will continue to take active steps to enhance transparency in the company's business practices.
Investors' confidence and customers' trust and preference are paramount to StarHub. We strongly believe that transparency and trust combined can, in turn, become the company's greatest competitive advantage and bring alongside significant benefits that can move the company forward with sustainable growth.
Mr O'Connor: We will continue to manage, maintain and measure the impact of our performance and goals around ESG issues, and encourage good governance, integrity and transparency to our employees and stakeholders.
- Patrick Chew, chief executive, Midas Holdings
- Ng Yat Chung, president and chief executive, Neptune Orient Lines
- Tan Tong Hai, chief executive, StarHub
- Esther An, chief sustainability officer, City Developments
- Terry O'Connor, group chief executive, Courts Asia
- Tang Kin Fei, group president and chief executive, Sembcorp Industries
Moderator: Kenneth Lim