Sustainability reporting and custom M&Ms
THERE'S a story about an American rock band called Van Halen and candy that goes like this. The band, which was popular in the 1980s, apparently always had a clause in their standard performance contract stipulating that they should be provided with a bowl of M&Ms backstage.
Piece of cake, right? The catch, however, was that all the brown candies had to be removed from the bowl. And when the band was served brown M&Ms once, in violation of the clause, they reportedly wrecked that performance venue to the tune of thousands of dollars in damage.
That might sound like a random rockstar rampage. Yet the clause actually was meant to serve a specific purpose: to check whether the performance venue had read and closely followed all of the band's numerous technical requirements for their show, according to the band's lead singer. For instance, their equipment was so heavy that the floor of one concert venue once collapsed with the weight - hence those thousands of dollars, he revealed. That venue, coincidentally, had given the band a bowl containing brown M&Ms.
That probably seems miles and decades away from here. But innocuous M&Ms can be, in a way, similar to sustainability reporting, a practice that the Singapore Exchange is slowly trying to inculcate here.
Local listed firms are, for the most part, lagging behind their regional peers on sustainability reporting, a recent study conducted by the National University of Singapore (NUS) Business School's Centre for Governance, Institutions and Organisations (CGIO) and the Asean CSR Network found. It discovered that a mere 186 out of the 502 mainboard-listed companies in Singapore it assessed, or 37.1 per cent, published some kind of sustainability reporting - whether in the form of standalone reports or as a section in their annual reports.
The study also reported that companies with standalone sustainability reports tended to have more comprehensive disclosures and generally appeared to have put more effort into integrating sustainable business practices into their corporate strategies and operations.
To be fair, sustainability reporting standards were introduced only relatively recently. The Singapore Exchange began this year to require every listed issuer to prepare an annual sustainability report or explain why they have not done that, and the rules take effect in 2018 for companies with financial years ending on or after Dec 31 next year.
Perhaps the most commonly seen argument advanced in support of sustainability reporting is that being sustainable improves a company's performance in the long run. To nudge business owners to see the light, though, well-meaning proponents could try changing tack from emphasising the potential benefits.
Correlation is, after all, not causation. Companies that conduct their business sustainably may be conscientious in everything else too. There may also be some selection bias in the claim that sustainability correlates with financial performance, given that there is probably not much historical data on sustainability efforts across sectors and market capitalisation categories. It is possible that only companies that are already performing well have the bandwidth to publish sustainability data.
On top of that, producing sustainability reports may not actually mean the company is sustainable at its core, especially if its disclosures are just boilerplate statements, as observers have already pointed out.
Instead, the argument could be advanced that sustainability reporting is rather like making sure you don't give Van Halen brown M&Ms. To many companies, it may seem like a chore unrelated to their business. But properly and meaningfully done, it is a way to signal to the market the type of company it is, and how seriously it takes its responsibilities to society.
The slightly over a third of mainboard issuers that have already embarked on sustainability reporting, for example, demonstrate that they are not afraid of change. The ones among them that truly make it a point to provide meaningful sustainability disclosures show that they will do the right thing even if that takes time and effort.
Some issuers may still be coming to terms with the new rules, and a few may be delaying till the latest moment possible in hopes that the exchange may offer them more carrots or relax the rules a little. Whatever it is, if a company isn't doing sustainability reporting right, investors would be well within their rights to wonder whether one day their metaphorical floors will come crashing down too.
