Sustainability matters for all businesses
Adopting sustainable practices makes economic sense in the long run
By Esther An
THE global race to zero has been accelerating to tackle the climate emergency. Over the last couple of years, we have seen a greater convergence of global, national, and business commitments to transition to a net-zero future. Businesses, large and small, are facing the existential threat of climate change, rising regulatory and consumer scrutiny.
Environmental, social and governance (ESG) challenges of physical and transitional risks are real and are threatening the sustained growth of most businesses. The global economy could lose up to 18 per cent of its current GDP by 2048 if climate action is not taken. In the built environment industry, we saw a tightening of green building standards, rising demand for more sustainable practices, materials and services, and a greater push towards decarbonisation, innovation, prompt and transparent ESG disclosure.
Small and medium-sized enterprises (SMEs) are the backbone of the global economy. They account for over 90 per cent of global businesses and contribute to 90 per cent of global GDP. In Singapore, SMEs make up 99 per cent of our economy and 70 per cent of our employment.
Three in 5 Singapore SMEs believe in the importance of incorporating sustainability practices in their businesses. However, they face challenges and concerns. A common belief is that going green is costly and only applies to large corporations, and SMEs have insufficient resources and expertise to embed sustainability in their operations.
That said, with the spike in stakeholders and investors calling for companies to measure and report their ESG impacts, SMEs can leverage on access to new opportunities, gain competitive advantages and improve access to markets and sustainable financing.
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Greening to sharpen competitive edge
To overcome these challenges, business leaders must adopt the correct lens to transform them into growth opportunities. Catalysing this change requires a shift in mindset, leadership commitment, strategy, and skill set, putting ESG as a priority. Firms that integrate sustainability and innovation to future-proof their business have put themselves in a better position to achieve long-term growth.
Adopting sustainable practices makes economic sense in the long run. Sustainability is not a fad. It has exploded into the mainstream over the last couple of years as the world has learnt from the Covid-19 pandemic that the health of the planet, people, and business are interdependent.
Sustainability will continue to gain momentum and will eventually become a norm. While going green has often been associated with higher upfront costs, the benefits reaped over time will exceed the initial investment cost. For instance, by implementing robust energy management solutions and the adoption of efficient fittings and solutions in its managed buildings, CDL has achieved savings of more than $34 million in energy expenses across its managed properties from 2012 to 2021. With higher carbon taxes and grid prices expected in the coming years, the financial impact of the energy savings will be even more evident.
Cost of inaction will outweigh cost of action
Climate risks are business risks. Integrating sustainability helps companies to mitigate environmental and reputational risks. For many businesses worldwide, Scope 3 emissions from their suppliers can account for more than 70 per cent of their carbon footprint. As of 2021, approximately 21 per cent of the 2,000 largest companies in the world have set a net-zero target by mid-century.
Multinationals (MNCs) are increasingly under consumer, regulatory and investor pressure to report and manage their emissions across their supply chain. Eventually, these pressures will cascade down to SMEs as part of the supply chain through procurement requirements. SMEs that do not accept the reality of this trend risk losing out on business opportunities.
CDL has established specified responsible sourcing guidelines along its supply chain for more than a decade now to select suppliers who have incorporated sustainable practices. Over and above the evaluation of the Environment, Health and Safety (EHS) culture and track record of its potential suppliers, it has also established a target to ensure that 100 per cent of its appointed suppliers are certified by recognised EHS standards by 2030.
In Singapore, the regulatory landscape for sustainability has rapidly evolved to support the nation’s climate ambition towards achieving net zero by or around 2050. The Singapore Green Plan 2030 launched in 2021 maps out the national greening commitment and this will impact the way businesses are managed, including an energy reset, a greener built environment, carbon and waste reduction, sustainable living, and the transition to a green economy. Companies with unsustainable practices will find themselves negatively impacted by the fast-changing ESG regulations.
Helping SMEs create new opportunities
The proliferation of ESG investing creates additional sources of funding for SMEs. According to a recent HSBC survey, 72 per cent of Asian investors have increased their attention to environmental issues, social issues, or both, in the last 12 months. SMEs can create opportunities across a wide range of geographic areas and sectors, and different segments of the labour force. In particular, social enterprises are vehicles for inclusive growth and the achievement of the triple bottom line.
Impact investing has gained momentum due to the effects of the prevailing climate crisis and pandemic, with International Finance Corporation (IFC) data projecting its growth of up to US$26 trillion. This growth spurt has produced a new generation of SMEs committed to social and environmental good.
About 60 per cent of SMEs in Singapore believe in the importance of incorporating sustainable practices into their business. However, many face barriers such as insufficient knowledge, resources, and training. In fact, 43 per cent of SMEs cited that the most preferred form of support for incorporating sustainable practices was collaboration opportunities with industry bodies, government-linked companies, or large businesses.
As a matter of fact, support and guidance from global and national organisations are abundant. A good start will be “The SME Guide to Corporate Sustainability” published by the UN Global Compact.
It helps SMEs gear up for their sustainability journeys. Global Compact Network Singapore launched a similar SME Guide to highlight the latest sustainability trends in Singapore and offer insights on how businesses can adapt to such transformation.
For listed SMEs, Singapore Exchange (SGX) supports the sustainable finance ecosystem in Asia by providing access to publications, guidance materials and webinars to make it easier for the ecosystem to access and learn about the evolving sustainability landscape.
The Singapore Institute of Directors (SID) set up an ESG Committee in 2021 to dedicate efforts to raise the level of understanding of sustainability compliance and adoption of ESG into their business strategy among company directors and corporate leaders. With the support from SGX and sustainability professionals, SID launched in May this year a dedicated ESG training course under its Listed Entity Director (LED) Program.
The course will delve into the board and director’s role and responsibilities in sustainability governance to meet SGX Listing Rules on sustainability reporting.
The Global Reporting Initiative (GRI) has published guides for SMEs to embrace reporting. Its report, “Small Business, Big Impact – SME Sustainability Reporting from Vision to Action”, features the business case of integrating sustainability into operations and reporting over the last 15 years. Only through transparent reporting and communicating about a company’s sustainability performance and progress towards its goals will it be able to build reputation and trust among investors and stakeholders.
According to CDP, keeping up with capital markets’ ESG requirements is essential for SMEs to secure funding. As financial institutions seek to reduce their portfolio emissions, they require environmental data from companies to feed into their investment and lending decisions. Its “SME Climate Disclosure Framework” empowers SMEs to make strategic and impactful climate commitments, track and report progress against those commitments, and demonstrate climate leadership.
The Monetary Authority of Singapore (MAS) has been taking active steps to promote sustainable financing. Its Green and Sustainability-Linked Loan Grant Scheme (GSLS) aims to support corporates of all sizes in accessing financing as they invest in green projects and move towards more sustainable business models. The grant also supports banks in developing green and sustainability-linked loan frameworks to make such financing more accessible to all corporates, including SMEs.
CDL launched the first green bond by a Singapore company in 2017 and has continued to adopt green loans and sustainability-linked loans to accelerate green building innovation and technology application for low-carbon operations and production.
Today, the business of business is more than short-term profits. With people, planet and profit intertwined and connected, all businesses are able to drive positive change via engagement, education, and empowerment. Larger corporations must take the lead to grow this force for change by empowering partners and stakeholders along the value chain to turn risks into opportunities.
The writer is Chief Sustainability Officer, City Developments Limited
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