In recent years, the concept of Environmental, Social and Governance (ESG) has swept the corporate world, evolving from an obscure idea to an unquestionable business imperative.
Of course, the barrage of ESG-related regulations and policies coming into effect have had companies worldwide, including those in Singapore, grapple with the challenge of integrating ESG into their business operations.
Yet, while the road to ESG compliance may seem laden with challenges, it also presents a golden opportunity to redefine your business strategy and create sustainable value for your stakeholders.
This comprehensive guide aims to get you up to speed on the dynamic ESG landscape in Singapore. From detailing the driving forces behind its implementation to highlighting the tangible benefits of adopting ESG practices, it will serve as your compass on your ESG journey.
Related Read: How Singapore Creates the Best Business Environment for a Sustainable Future
Detailed Breakdown of the ESG Risks
There are 3 types of ESG risks that we will explain below:
- Environmental risk
- Social risk
- Governance risk
Environmental risks involve how a company’s operations impact the natural world. This includes aspects like energy use, waste management, pollution, conservation of natural resources, and climate change mitigation.
Social risks include how a company manages relationships with employees, suppliers, customers, and the communities where it operates. It encompasses issues like employee relations and diversity, working conditions, local communities, conflict, and health and safety.
Governance relates to a company’s leadership, audits, internal controls, executive pay, shareholder rights, and transparency. This dimension of ESG encompasses issues like corporate risk, board diversity, business ethics, and corporate structure.
The Rising Importance of ESG: Why Should Businesses Care?
Global Shift Towards Sustainable Practices
Globally, there has been a significant shift towards more sustainable business practices, driven by a growing understanding of how the financial world impacts the environment, society, and the economy.
As consumers, employees, and investors increasingly demand more responsible conduct, businesses are being held to higher standards of accountability.
The Local Perspective: ESG in Singapore
For businesses in Singapore, ESG represents both a challenge and an opportunity. With its government taking active steps to transition towards a sustainable, low-carbon economy, businesses are under increasing pressure to align their operations with these sustainable development goals.
Unpacking the Benefits of ESG Compliance for Businesses
Businesses stand to gain numerous benefits from ESG compliance. Let us unpack some of the main ones:
- Top-line Growth: Companies that integrate ESG factors into their strategy can identify and capitalise on new growth opportunities. Unilever boosted sales of Sunlight and its other water-saving products by more than 20% in several water-scarce markets by developing a dishwashing liquid that consumed less water.
- Cost Reduction: Having a better ESG score can result in a 10% reduction in capital cost as it mitigates the risks that can impact your business.
- Regulatory and Legal Interventions: A strong ESG proposition can help companies anticipate and shape regulatory changes, reducing legal and regulatory risks. Companies with strong ESG credentials are less likely to face regulatory sanctions or legal actions.
- Employee and Cultural Benefits: A report by the WEF found that employees are more likely to stay and be engaged at what they consider to be purpose-driven organisations.
- Investment and Asset Optimisation: A report by McKinsey found that a strong ESG proposition can enhance investment returns by allocating capital to more promising and more sustainable opportunities.
Related Read: Small Business, Big Opportunities: How Singapore Can Help SMEs With ESG
Navigating Key ESG Frameworks
A myriad of ESG frameworks is currently in use, designed to help businesses measure, report, and compare their ESG performance.
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- GRI (Global Reporting Initiative): The GRI helps businesses and other organisations communicate their economic, environmental, and social impact.
- TCFD (Task Force on Climate-related Financial Disclosures): The TCFD focuses on financial risks related to climate change.
- SASB (Sustainability Accounting Standards Board): The SASB provides industry-specific standards for businesses to disclose financially-material sustainability information to their investors.
- BRSR (Business Responsibility and Sustainability Reporting): The BRSR is part of India’s newest regulatory schemes with its format based on the 9 guidelines of the National Guidelines for Responsible Business Conduct (NGRBC).
- GRESB (Global Real Estate Sustainability Benchmark): The GRESB offers benchmarks and assessments that companies can use to compare their performance against their peers to find advice to enhance their ESG results.
- IIRC (International Integrated Reporting Council): The IIRC provides an integrated reporting framework that connects sustainability disclosure to reporting on financial, intellectual and other capitals.
What framework you choose to adhere to will depend on your company’s objectives and the nature of the information you are trying to communicate. When choosing a framework, it is critical that you take advice from a trusted partner like InCorp.
ESG Adoption in Asia-Pacific: A Dive into Influential Stakeholders
A survey conducted by Aon indicates that financial stakeholders are the primary driving force behind ESG adoption in the Asia-Pacific. This section dives deeper into the role of financial stakeholders and customers in driving ESG adoption, as well as customer demand.
Financial Stakeholders as ESG Proponents
In the survey of 255 private and public companies, 25% cited financial stakeholders — such as shareholders, investors, and lenders — as the main motivators for ESG concerns.
Financial stakeholders are increasingly realising that ESG factors have a profound impact on a company’s long-term financial performance and risk management. Here are some reasons why they are driving the ESG agenda:
- Risk Management: ESG-friendly companies often better avoid potential environmental, social, and regulatory risks, protecting long-term financial performance.
- Improved Financial Performance: Studies correlate strong ESG practices with higher profitability and returns on investment.
- Increased Access to Capital: Investors increasingly favour companies demonstrating ESG leadership, often offering capital at more favourable terms.
Customer Demand and ESG
On the other hand, businesses are also experiencing increasing pressure from customers who are more environmentally conscious and demand sustainable products and practices.
These informed and conscientious consumers can significantly influence a company’s market position and profitability. Here’s why meeting customer demand for ESG compliance is essential:
- Brand Image and Reputation: A third of consumers favour brands with strong environmental and social values, enhancing the company’s reputation and loyalty.
- Competitive Advantage: Companies satisfying growing sustainable demands gain a competitive edge, protecting market share.
- Long-term Business Sustainability: Adapting to changing consumer preferences ensures long-term viability and unlocks new market opportunities.
Regulatory Landscape in Asia-Pacific and Its Impact on ESG
The regulatory environment for ESG is rapidly evolving in the Asia-Pacific region. This section discusses the current state and future trends of ESG regulations.
Current ESG Regulatory State in Asia-Pacific
According to the Aon study, in most Asia-Pacific markets, compliance is not the main driver of ESG action, as the regulatory environment is still evolving.
However, even in the absence of stringent regulations, companies are proactively taking up ESG strategies under the influence of other factors like financial stakeholders and customer demand.
Anticipating Future Trends in ESG Regulations
With North American and European Union regulators demanding higher levels of corporate disclosure on ESG progress, Asia-Pacific companies need to be prepared for a future with stricter ESG regulations.
It is becoming increasingly important for companies to improve their ESG preparedness and disclosure plans beyond their immediate borders.
Effectively Implementing ESG Strategies: A Path Forward for Singapore Businesses
Embracing ESG principles requires a clear understanding of what ESG is, its relevance to your business, and the benefits of ESG compliance. Beyond understanding, it’s crucial to take decisive action towards ESG compliance by integrating ESG into your company’s core strategy.
As seen from the Unilever example, businesses can achieve growth and operational efficiency improvements through ESG compliance.
Moreover, with growing consumer demand for sustainable practices and increasing regulatory scrutiny, ESG compliance is becoming a business necessity rather than an optional extra.
InCorp believes that ESG is more than a trend — it is the future of sustainable and responsible business.
Our mission is to help businesses like yours navigate the ESG landscape, finding opportunities that not only contribute to a better world but also drive your business forward.
Are you ready to embrace the ESG potential? Get in touch with InCorp today, and let us shape a sustainable future together.
FAQs About ESG Reporting
- ESG compliance offers benefits like risk management, improved financial performance, increased access to capital, enhanced brand image, and long-term business sustainability.
- Financial stakeholders and environmentally conscious consumers are key drivers of ESG compliance.
- Embracing ESG enhances your brand's reputation, promotes customer loyalty, and can lead to an increased market share.
- Adapting to the growing demand for sustainable practices ensures your business remains relevant and competitive in the long term, opening up new market opportunities.
Assist InCorp to help your business get started on ESG compliance in Singapore!
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