Helping companies make the best of the ESG opportunities ahead of them

BUILDING sustainable businesses, managing climate-related risks and learning how to best make use of the opportunities that have come out of recent disruptions to the global economy rank amid the top concerns and challenges for organisations these days.

They also happen to be areas in which Singapore sustainability consultancy, Paia Consulting, excels in; in fact, the growth and change in the demand for its services over the years serve as a cogent indication of the evolving concerns of companies here and abroad.

Founded in 2002, Paia specialises in helping companies understand, assess and manage their strategy, risks and reporting obligations in areas such as sustainability, ESG (environmental, social and governance) finance, environmental management and climate change, while also helping them stay on top of ESG opportunities in an effort to maximise long-term value creation.

These are areas that have grown much in importance and urgency in recent times, as governments, businesses and investors alike recognise the deepening of the climate crisis. Efforts to mitigate climate change - especially in the wake of the recent United Nations climate summit, COP26 - have also intensified, leading to new or altered rules and regulations that have added complexity to the business environment.

"At Paia, we have been seeing significant growth, both in terms of the number of companies engaging our services, as well as the breadth and depth of services that we are providing to these clients," said Paia's founder Carrie Johnson, a specialist in sustainability strategy, reporting and environmental issues.

Singapore-listed companies form the bulk of Paia's clients, but the consultancy has also worked with a host of notable non-listed entities here, such as the Maritime and Port Authority of Singapore, National Cancer Centre Singapore and the Singapore Environment Council.

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It has also worked with clients from farther afield, such as stock exchange Bursa Malaysia and international offshore energy facilities and services provider Bumi Armada from across the Causeway.

City Developments' chief sustainability officer Esther An is cited on the firm's website as saying that "Paia Consulting is one of the earliest CSR consultants in Singapore (and) has extensive knowledge in CSR, in particular sustainability reporting".

Paia is also working with more and more privately held entities, Johnson said, due to the escalating interest on the part of investors in ESG-related matters; this has, in turn, affected demand for the type of services Paia is offering.

Carbon concerns

"While 10 years ago our services were more limited to sustainability reporting, with limited uptake on our wider offerings around carbon and sustainable finance, in the past 5 years we are seeing a step change in requests - with a shift away from just reporting, to sustainability strategy, decarbonisation and sustainable finance," Johnson said.

Decarbonising, unsurprisingly, is at the top of the agenda for many of its clients, with the world's focus fixed determinately on ambitions to reduce carbon emissions. These ambitions were given fresh impetus at COP26, when various nations pledged or reinstated their pledges to reduce global warming.

Paia director Corrado Forcellati, who has years of experience in sustainable finance and strategy work, said: "In the past 2 years, we've seen our carbon services and sustainable finance services both grow significantly.

"The growth is a result of a few things. First, as companies are increasingly pledging to carbon neutrality and/or zero emissions, Paia is strategically working together with companies to set proper carbon and GHG (greenhouse gas) inventories to develop realistic targets.

"Secondly, the need to identify relevant metrics to measure performance and progress to meet targets are translated into green finance frameworks. Paia is increasingly working with companies to develop relevant frameworks in line with international principles and taxonomies."

In particular, the firm is seeing rapidly growing demand for its Task Force on Climate-related Financial Disclosures (TCFD) services, which include climate-scenario analysis, climate-risk-exposure assessment and the integration of climate mitigation into enterprise risk management and corporate strategy.

The scope of expertise demanded by clients has also broadened. Forcellati said that, while Paia has been conducting GHG assessments for its South-east Asian clients in the last 2 decades, these have been largely limited to Scope 1 and Scope 2 emissions.

Scope 1 refers to direct emissions from owned or controlled sources, such as emissions from company-owned cars, while Scope 2 refers to indirect emissions from the generation of purchased energy, such as purchased electricity or steam consumed by the company.

"But we have seen this change over the past year, with increased interest, while still limited, in Scope 3 emissions, and we expect this to increasingly be the trend over the next 2-3 years, with companies seeking to track scope 1, 2 and 3 emissions as standard practice."

Scope 3 includes all other indirect emissions that occur in a company's value chain.

Forcellati added, "This is being driven largely by stakeholders, typically investors and business partners or customers, requesting full carbon accounting disclosure, as well as leading-edge companies seeking to positively impact their own supply chains and minimise their carbon footprint by including Scope 3 emissions in their targets."

The work Paia has done for its clients has also benefitted the firm in helping it calibrate and refine its approach, knowledge and tools around carbon accounting.

And, as many of its clients have their carbon disclosures assured by independent third-party verifiers, Forcellati said the comments and feedback from this process have helped the consulting firm improve its offerings.

Sustainability in strategy

Paia has also noted that its clients are maturing in their demands, moving from being focused more on reporting and compliance obligations, to thinking more strategically.

Johnson said the increased interest in carbon accounting, decarbonisation pathways and sustainable finance frameworks point to a greater ambition on the part of companies to embed and integrate ESG into their corporate strategy and risk management.

"While sustainability reporting is still a core part of our business, we tend to work with companies that are taking a more strategic approach to reporting, embedding ESG into their operations. Compared to previously, ESG is shifting from being process-oriented to become more outcome-driven," she said.

Demand for the firm's training services - both public and in-house - has also been growing, as companies seek to build their internal ESG capabilities.

Companies are also devoting more of their resources and energies into future-proofing their businesses, Johnson said.

"We're working with a number of companies who are seeking to build resilience to climate risks, not just the physical risks of climate change, but also the potential regulatory, reputational and market risks. Those risks are coming into play as companies and countries around the world are tackling how to best reduce carbon emissions and avert climate change," she said.

"Since Covid-19, we have seen some of our clients set ambitious decarbonisation targets, including net-zero targets. With the increased focus on climate change, we are seeing some companies look seriously at how they can decarbonise, and how quickly. There are often many immediate cost savings to be gained through energy efficiency measures, and for companies with operations across the region, often renewable energy can be a lower cost option than traditional fossil fuels."

Boards are also noticeably placing a higher priority on ESG matters, such as climate risk, decarbonisation, diversity and building sustainable supply chains, Johnson added.

Cutting complexity

Through it all, Paia recognises the need to help its clients cut through the noise and complexity that the evolving interest in ESG-related concerns have engendered.

"The reporting requirements, and range of metrics can be a distraction. We give clear guidance to our clients navigating these disclosure expectations. Disclosures must be meaningful to the business and key stakeholders, (and) they should drive robust decision-making, based on the right metrics for the business and future strategy," Johnson said.

Forcellati noted that the rapidly growing carbon markets are proving to be a complex field for many corporates to navigate, many of whom are seeking only to purchase offsets that would aid their carbon reduction efforts. "Some of our clients have requested our support in helping them navigate the carbon markets, in selecting and purchasing carbon offsets on their behalf."

Paia's efforts are appreciated: Sembcorp Industries vice-president of group corporate relations, Ng Lay San, in paying tribute to the firm, said that "Paia is a practical consultancy who understands companies and our needs, as well as sustainability issues, well".

• This is the 12th in a 20-part Green Business series, in collaboration with UOB, exploring sustainability trends across businesses and industries.