Companies wary of public perception as they seek optimal path to net zero
AS companies seek a path to net zero, they will also need to convince the public that the steps they take will lead to meaningful change.
Panellists from the banking, tourism and energy sectors gathered to discuss this and other related issues at an event, held on May 23, titled “Navigating to net zero in a fast-changing world”. The event was organised by The Business Times (BT) and presented by Schneider Electric. BT correspondent, Janice Lim, moderated the panel discussion.
OCBC head of global wholesale banking sustainability office Mike Ng said that as more information is made available, there may be a need for banks to change their approach towards financing certain transitional activities.
One such area could be the transitional funding of coal-fired power plants.
In the latest version of the Asean taxonomy for sustainable finance released in March this year, the Asean Taxonomy Board developed technical screening criteria for coal phase-outs which aim to “promote inclusivity without compromising credibility and interoperability”.
Ng said that even if OCBC wanted to provide such transitional funding, the move would be subject to the court of public opinion.
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“While the taxonomy says that this is transitional, at the end of the day, it is also subject to the opinions of non-governmental organisations (NGOs), the media and think tanks,” he said, adding that factors such as government commitment and the amount of carbon saved from such a move will receive scrutiny.
Furthermore, he noted that banks such as OCBC – which have made commitments to stop financing coal-fired power plants – will need to have a lot of discussions before deciding to unwind such policies.
Schneider Electric’s cluster president of Singapore, Malaysia and Brunei, Yoon Young Kim, said that the company is aware of how the public’s perception of its commitment to sustainability can affect different aspects of the company. These include the company’s share price and even its ability to hire fresh talent.
Kim noted that nowadays, new graduates who join the company say that they did so because it is “meaningful, purposeful and sustainable”.
Schneider Electric is a provider of digital automation and energy management solutions.
He also added that companies still need to produce profits and should be wary of adopting seemingly sustainable solutions without clear payoffs. “There are many things relating to sensors and Internet-of-Things platforms, how that converts and generates the right data (to be effective) because…it’s about a payback on investment,” he said.
Meanwhile, Sentosa Development Corporation (SDC) chief executive officer Thien Kwee Eng said that managing consumer expectations has been challenging as the hospitality industry tries to become more sustainable.
She noted that hotels on the island were concerned about meeting the high expectations that guests have when they considered removing amenity kits from their rooms.
“More can be done about consumer education and consumer behaviour,” she said, adding that she hopes guests can lower their expectations in some of these areas as the company adopts green initiatives.
Thien said that the statutory board also had a “very good” experience curating the “tiny home” accommodation at Lazarus Island, one of Singapore’s Southern Islands.
“We worked very closely with nature groups to understand the ecology of the Southern Islands, what might be some of the potential issues, we worked together with the (home) operators to undertake certain mitigations, and then (we) presented it to the guests,” she said.
Schneider’s Kim also acknowledged the importance of working together with stakeholders to green the entire supply chain, noting that 60 per cent to 90 per cent of a company’s emissions could be within scope three.
Scope three greenhouse gas emissions refer to indirect emissions that occur in a company’s upstream and downstream activities.
“There are a lot of activities on scope three (emissions) that many companies are working on.
“Sometimes, if you say you are not investing in this, you might not be qualified any more to be part of the system or the value chain, so that’s the reality,” he said.
In his welcome address, Kim highlighted certain initiatives that the company has taken to advance its net zero goals.
For instance, the company has launched the small and medium-sized enterprises (SME) Kickstarter Decarbonisation Programme, a three-year mentorship programme for SMEs in partnership with Enterprise Singapore.
It has also set up its Centre for Sustainable Engineering to showcase its green technologies to students at Nanyang Polytechnic. SMEs can also be introduced to these technologies, and be trained on e-mobility and infrastructure.
OCBC’s Ng noted that there is now a wealth of information out there for companies to learn from when they look at embarking on their own sustainability journeys.
“You just click on your competitor’s website, you can immediately see what they are doing, the actions they are taking.
“I would say if you are not there at the moment, be a quick follower. It’s not difficult to be a quick follower at all in the current context,” he said.
Setting the right targets
Panellists at the event also touched on the idea of linking pay to decarbonisation goals and targets.
According to a Schneider Electric poll, 99 per cent of the 212 senior business leaders in Singapore support linking decarbonisation progress to C-suite executives’ pay.
Kim noted that this was “surprising” and suggested that more companies are becoming more engaged on the issue.
“I think the survey gives, at least, a warm feeling that people are engaged and leaders, especially, are engaged in this journey, which is a very important step in this sustainability path,” he said.
He added that Schneider Electric varies salaries by between 20 per cent and 50 per cent based on certain sustainability goals.
Still, Kim acknowledged that 75 per cent of respondents in the poll felt that their organisation was rushing to set decarbonisation targets too quickly.
He said that between setting early targets that may not be right or precise, and setting perfect targets and taking action at a later stage, he prefers adopting early targets as companies can “adapt as they go”.
“It is important to set the right targets but in the end…it is the strategic intent rather than the target itself to navigate into this decision,” he said.
OCBC’s Ng noted that when a company sets objectives for itself, these may end up being subjective targets which are difficult to quantify.
“What we found challenging in a very early stage was to find something that we could all work towards, and I think that itself should be based on objective and key results,” he said.
On May 16, OCBC announced decarbonisation targets for six sectors within the lender’s loan portfolio.
The six sectors – oil and gas, power, real estate, steel, aviation and shipping – account for 42 per cent of the bank’s portfolio but represent the bulk of emissions from its portfolio.
When setting these targets, Ng said that the lender wanted them to be ambitious and credible.
For example, its oil and gas sector decarbonisation targets are set based on absolute emissions, while other sectors will have targets based on emission intensity, or the emissions per unit of output or activity.
“Having an emissions intensity (metric) allows us to grow our power portfolio, and it’s important that we do that because going forward…we’re going to be needing much more power,” he said, referring to the lender’s target for the power sector to reach net zero emissions by 2040.
He added that many social indicators, such as gender equality, education and poverty reduction, are dependent on electrification, and that the emissions intensity metric allows the bank to support a just transition.
Aligning brand values with growth plans
Aside from setting achievable targets, panellists also spoke of the importance of aligning their companies’ values with sustainable goals.
SDC’s Thien said that because the statutory board only accounted for 6 per cent of Sentosa’s carbon footprint, the landlord had to convince the island’s stakeholders to be on board.
SDC has set ambitious goals to be carbon neutral by 2030 and to become a globally recognised and certified sustainable tourism destination.
“We had to really drive buy-in, a different level of engagement, get alignment and to a certain extent, direction setting which I would say, was not comfortable,” she said.
Still, she noted that by bringing the whole ecosystem of companies on board, all stakeholders were able to share best practices and lessons learned, as well as leverage economies of scale to solve issues that may have seemed insurmountable before.
As the different stakeholders join SDC on its sustainability journey, the statutory board has also been able to better shape the master planning of the island.
Thien noted that the island has a higher green plot ratio than Singapore, and that like-minded players such as hotel operator Accor Group and property developer Royal Group contribute to this with their developments as well.
Both parties are involved in the building of the new Raffles Sentosa Resort & Spa Singapore, which is expected to open later this year.
Furthermore, she noted that the island has had some success in engaging its stakeholders to be good stewards of the island. For instance, the SDC has educated them on how to spot the endangered hawksbill turtle’s nursing spots so that steps can be taken to put up incubators and protect the eggs.
It also aims to bring such issues, which are normally handled “back of house”, to the top of guests’ minds as a form of consumer education.
“It’s not just the technical teams or the sustainability folks that do this, but also the sales team, the product development team that constantly think on the business front to get the value back,” she said.
OCBC’s Ng said that while the bank has made net zero commitments, it also means that the bank has indirectly also committed its clients to net zero as well, adding that it is “a bit of a leap of faith”.
Despite this, he still sees the move as generating massive investment banking opportunities, noting that trillions of dollars will be needed to drive the energy transition and decarbonise different sectors.
“I think it is just amazing, very fascinating…and we will support our clients whether it comes to financing, or transition advisory, mergers and acquisitions advisory, there are just ample opportunities going forward,” he said.
Schneider’s Kim added that the topic of sustainability resonates strongly with new generations of employees and even his kids’ friends.
He hopes that by engaging the company’s partners and the community, it can help to accelerate the green transition.
“Let’s open our hearts and minds to make it happen.”
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