Take ESG commitments seriously, Sias conference panel urges companies

COMPANIES may be paying more attention to environmental, social and governance (ESG) disclosures today, but industry players said they need to be prepared to follow through on their commitments.

"Companies who are unable to meet the needs of both their investors and their other key stakeholder groups are going to face an existential threat to their own survival if they don't actually apply their minds to it," said executive director and head of the corporate finance and consumer department of the Monetary Authority of Singapore (MAS) Abigail Ng.

Speaking on a panel taking place during Corporate Governance Week, a six-day conference held by Securities Investors Association (Singapore) or Sias, Ng said she was heartened to hear that companies are trying to initiate change.

She added, however, that change will necessitate a mindset shift across all levels since companies are opening themselves up to liability if they make pledges they cannot keep.

Fellow panellist Shinbo Won, who is head of Asia ex-Japan for investment stewardship at asset manager BlackRock, also urged companies to make ESG issues a strategic priority and engage their boards to have oversight on the matter.

In his discussions with companies' communications and investor relations teams, he sensed that they were approaching the issue more as a reporting or compliance exercise.

"When we're trying to really understand if companies are truly trying to transition or truly trying to capture opportunities available in this transitional landscape, I think that this is the level of knowledge that we could not glean from those discussions before," he said.

Prior to the panel discussion, acting director for the directorate for financial and enterprise affairs at the Organisation for Economic Co-operation and Development (OECD) Mathilde Mesnard had highlighted several other challenges in assessing the efforts of companies' progress in ESG factors. Among them: low consistency of scores across ESG ratings, transparency issues within rating methodologies, portfolios that score well despite having a high carbon footprint and underdeveloped mechanisms to engage with corporate boards.

"The bottom line is that this diversity in climate-related reporting practices hinders the effective pricing of capital and slows the necessary alignment of markets to net-zero emissions," Mesnard said, adding that the OECD is working to harmonise these standards.

Panellist Yvonne Zhang, South-east Asia risk advisory climate and sustainability leader at Deloitte, also noted that companies are struggling to reconcile various ESG reporting standards within the resource-limited environment where they operate.

"How do we actually support companies in presenting a realistic picture whilst not sabotaging their current struggle to stay alive? That is one of the biggest problems we have to face today," she said.

Zhang further noted that as sustainability efforts are usually top-down efforts, competing issues and procedures at the middle management and frontline levels cause the "passion to be lost" as practicalities take over.

To achieve ESG goals, Ng of MAS said everyone within the business ecosystem can step up and make a difference as companies embed sustainability considerations across all their business decisions.

Similarly, Zhang advocated that a multi-stakeholder approach be taken to drive change: "At the end of the day, we need to make sure that we enable intelligent and actionable decision making by the right audience rather than labelling each other and calling out a lot of things."