Singapore can support emerging market companies in their ESG ambitions

THE demand for sustainability that has swept advanced economies is now in full force in emerging markets. Businesses in these fast-growing countries are finding that mere pledges to be greener, more socially responsible and better governed are not enough to satisfy myriad stakeholders and ultimately stay in business.

Meeting the ESG requirements of consumers and the companies they supply is becoming essential for businesses in emerging markets. Environmental regulations in the developed economies of Europe and North America that they export to are tightening.

Steel producers in South-east Asia, for example, are building electric arc furnaces to make their operations greener, which is also helping to shield their European buyers from paying new tariffs on high-carbon imports.

Emerging market companies significantly lag behind their developed market counterparts on all three ESG pillars, according to recent research by Boston Consulting Group. Catching up requires having the right equity investors with well-established track records in ESG standards and best practice, as well as building the right boards with directors with strong sustainability and governance acumen.

The right board members, dedicated and proactive, can help spot potential risk issues early, particularly in sectors and jurisdictions where ESG standards are either nascent or in need of improvement. Importantly, they can also provide independent, balanced opinions to support companies in their growth journeys, carefully balancing compliance and performance.

Finding the right investors and directors with ESG experience may seem like a daunting task for many emerging market companies, but Singapore is a good place to start.

It offers access to diverse markets and resources, and it is home to some of the world’s most sophisticated investors for whom impact, sustainability, and good corporate governance are embedded into their organisations, from the likes of Temasek to venture capital fund managers such as Wavemaker Partners.

Singapore is also home to a large pool of seasoned executives and accredited non-executive directors who can bring value to emerging market boards, some whose family businesses have contributed to the city-state’s incredible rise over the last six decades. Many have experience growing Singapore companies in emerging markets, with expertise in the adoption of group structures in regional markets.

To uplift director competencies, the Singapore Institute of Directors this year established an accreditation framework built around corporate governance and director duties, with a focus on financial proficiency, risk management, strategy, human capital, digital savvy and sustainability.

It could also be a good time for emerging market companies in Asia-Pacific looking for strategic equity investors to contribute qualified board members and strengthen their practices.

While emerging market equities have underperformed their developed market peers since 2010, companies and governments in emerging markets have renewed their focus on capital expenditure and infrastructure spending. Indeed, earnings in emerging markets are growing faster than in developed markets for the first time in a decade, and this is set to continue, according to Eastspring Investments.

There is also a more general push for improved corporate governance in emerging market companies that is also helping to drive shareholder returns and bring more investors into these markets, with regulatory support for corporate efficiency in India being just one example.

International Finance Corporation, the largest global development institution focused on the private sector in emerging markets, sees these trends as major opportunities, and is ready to further support ESG compliance through strategic equity investments and advisory services.

Its Asia-Pacific business is ramping up its equity commitments to strengthen development impact, support its strategic priorities including job creation, and build more sustainable companies through proactive engagement, building on more than six decades of ESG expertise. That includes taking stakes in Singapore companies looking to expand their presence in emerging markets around the world.

Partnering with Singapore investors and tapping into their pool of highly qualified directors can provide emerging market companies with the critical edge they need to thrive in an increasingly demanding global market. And with some positive investment drivers on their side and increasing demands to do better from a multitude of stakeholders, it could well be time to turn to Singapore for that extra leg of support for the future.

Riccardo Puliti is regional vice-president for Asia-Pacific at the International Finance Corporation. Terence Quek is CEO of the Singapore Institute of Directors.