Building sustainable businesses amid a complex environment

A GROWING desire to foster a sustainable future is driving organisations to adopt responsible business practices and disclose material topics relating to environment, social, and governance (ESG) in their reporting.

While some companies are lauded for their efforts, others face criticism for practices like greenwashing, which involves providing a false impression or misleading information about how a company’s products are environmentally sound.

Companies that have demonstrated robust ESG practices have typically featured decisive leadership by the board of directors in establishing a clear direction, strategy and implementation of strong governance. Significantly, these organisations are increasingly committed to reporting their ESG performance amid a more stringent regulatory environment.

“Making the commitment towards greater transparency remains challenging for many, given the disparate and complex global landscape of climate and sustainability reporting. Despite the challenges, regulators, investors, and other stakeholders are increasingly expecting higher-quality disclosures,” said Giam Ei Leen, sustainability and climate leader at Deloitte Southeast Asia, and member of CPA Australia’s ESG Committee.

She noted that the International Financial Reporting Standards Foundation recently launched its first two standards under the International Sustainability Standards Board – an international body tasked to develop a consistent global baseline for sustainability-related financial disclosures.

Telling the whole story

A key challenge for companies to meet these enhanced standards relates to the availability and quality of data, said Giam. “With more robust standards, many companies will need to improve their reporting practices to ensure data that is complete, reliable, standardised, and verifiable.”

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Esther An, chief sustainability officer at City Developments Limited, highlighted the need to simplify increasingly complex ESG reporting requirements. “The ESG landscape has changed so much. Today, there are about 600 ESG ratings, rankings and standards globally. There’s an urgent need to streamline and unclutter the whole ESG reporting maze,” she said.

And while the quality of sustainability reports has improved, there is still a lack of “consistency and comparability” in such reporting, noted Mike Ng, group chief sustainability officer at OCBC.

“What we have found over the past couple of years is that companies are now increasingly disclosing the extent of, or rather what they perceive, as the risks that they face. But rarely do they actually talk about the extent of the impact, as well as the timeline of the impact when it comes to physical risks and transition risks,” he explained. Disclosures, then, need to move from mere “box-ticking” exercises to transparent, verifiable narratives that offer a deep dive into the company’s impacts and risks.

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On its part, Singapore has made significant strides in ESG regulation through its Sustainability Reporting Advisory Committee (SRAC), led by An. The SRAC’s recommendations, developed in collaboration with Acra and SGX RegCo, have been released for public consultation. These aim to augment reporting standards and facilitate better risk management and capital allocation.

Fostering robust ESG practices

Corporate boards and senior management play a key role in driving adoption of sustainable practices. In particular, they should focus on incorporating ESG considerations into their organisations’ core business strategy.

“ESG considerations, such as implications on financial reporting and risk oversight, should be integrated into an organisation’s core business strategy instead of being treated as separate initiatives,” said Giam. “In addition, ESG matters should be considered as a standing agenda item. Leaders should have a good understanding of the company’s disclosure process and regularly assess its progress.”

However, boards must be prepared to change course during their sustainability journeys, which are likely to be fraught with uncertainty. “The board can set the tone but in reality, it is a journey; it’s not clear how long that journey will take. Although we have certain targets set by regulators, many of these targets are now being relooked because of what has happened with geopolitics and the war in Ukraine,” said Bill Chua, independent director, EDP Renewables APAC.

Chua, Ng and An were part of a panel discussion at the Singapore Governance and Transparency Forum in August. This event was a collaboration between CPA Australia, NUS Business School’s Centre for Governance and Sustainability (CGS) and Singapore Institute of Directors (SID).

While implementing ESG practices is often easier said than done, there are practical solutions that companies can adopt. These include delegating specific ESG responsibilities to certain board committees. For example, diversity and inclusion initiatives can be allocated to the compensation or talent committee, while climate-risk issues can be overseen by the risk committee. Said Giam: “This shared governance model may help the leadership maintain close oversight related to specific areas of their expertise.”

Getting up to speed

For organisations still catching up on their ESG journey, Giam suggests a multi-pronged strategy. This includes understanding regulatory requirements, setting up robust data governance models, and creating cross-functional teams involving finance, compliance, audit, and other departments.

“While there may not be industry-specific models for every organisation, leaders should understand the unique challenges and opportunities that their organisations face, and leverage those to guide their ESG strategies,” she said.

As companies today navigate the complex landscape of ESG standards and expectations, leadership from the board and senior management can provide the strategic direction needed for meaningful disclosures and effective governance.