Making sustainability profitable in Singapore

Today Online 19 Nov 15;

The Singapore Exchange (SGX) recently announced plans that will make it mandatory for listed companies to publish sustainability reports that disclose their economic, environmental and social impacts. Likely to be introduced in 2017, the move by SGX represents a critical turning point.

In line with this, the Association of Banks in Singapore this month also launched a set of industry guidelines that will underscore the industry’s commitment to advance responsible and sustainable financing through a structured and transparent approach.

What, then, is driving this business mentality shift?

While many acknowledge that the world is changing — for example, with the United Nations adopting the new Sustainable Development Goals to further guide global development — and that sustainability plays a key role in this change, a large percentage of companies do not truly know what to do to keep up.

When done correctly, sustainability reports help organisations to better understand the impacts of their activities, guide their decision-making process and allow them to engage honestly and openly with their stakeholders.

However, Singapore lags behind Asian counterparts such as China, Taiwan and Malaysia in terms of sustainability reporting for listed entities.

Only 27 of 770 companies listed in Singapore — less than 4 per cent — currently produce public sustainability reports, despite the majority of the world’s largest 250 global companies publishing such reports (as of 2013), according to KPMG.

A global glance at specific sectors finds that key industries such as pharmaceuticals, transport, trade and retail are still trailing behind heavy industry and resource-based sectors (such as mining), utilities, and electronics and computers. This international perspective also sheds light on what we are seeing in Singapore.

The lack of acceptance and appreciation for sustainability’s true importance and value may be a result of the common view that sustainability and associated reporting are only an obligation or simply a box that needs to be ticked — an added pressure arising from growing societal demands to be active and transparent, rather than a real opportunity.

When external stresses are placed upon companies, they can feel threatened and react rashly by throwing money at the situation — for example, employing sustainability staff with no decision-making power.

The kind of reporting soon to be expected by SGX, though, will force companies to do more than simply meet a new regulatory requirement. Instead, it will require them to evaluate whether they are paying attention to the real issues of sustainability.

Rather than responding defensively to what they deem external pressure, this important step back can help them truly understand why stakeholders demand strong returns that are achieved with social and environmental integrity.

RESPONSIVE SUSTAINABILITY

The first step to instigate change is for organisations to reposition sustainability as a fundamental way to create value.

This can be accelerated and achieved by integrating sustainability into corporate strategy, creating an organisational awareness towards sustainability, and fostering a culture of innovation for sustainability linked with the incentive system of the company. In doing so, “external pressure” can become profitable advantage.

If sustainability has found its way into the company’s DNA, its market position would be strengthened by greater customer attention. Retention and especially recruitment of top talent also become easier, given that a reputation as a good, honest company is considered among the top five drivers of attraction, according to Towers Watson. In short, sustainability adds value.

Businesses are therefore left with two options for the future: Either they continue to progress reluctantly and consider sustainability “pressures” as unwelcome headwinds, or they change course and make them positive tailwinds by reframing sustainability from a constraint into an opportunity.

American clothing company Patagonia is one firm that is integrating long-term sustainability programmes into its key business strategy to create new opportunities. For example, its recycling-centric “worn wear” approach sells its customers higher-quality goods that can be repaired as necessary — with the help of 45 full-time repair technicians and readily-available DIY repair guides — rather than prioritising additional sales through replacement of products with a shorter shelf life.

Furthermore, Patagonia is engaging other players in the market such as retailers, manufacturers, non-government organisations, government and academic experts who in total represent more than a third of the global apparel and footwear market, to form the potentially game-changing Sustainable Apparel Coalition. The coalition works to jointly transform and reduce the social and environmental impact of their industries around the world.

Locally, City Developments Limited and Singtel have been at the forefront of publishing sustainability reports. Both companies have identified the reports as a strategic opportunity that gives them a more holistic view of their business, allowing them to identify and seek new growth opportunities.

Opportunities for innovative sustainable practices are readily available in Singapore and South-east Asia, where local starts-ups looking to expand quickly can integrate such measures into their operations from day one, rather than having to alter entrenched models.

ABOUT THE AUTHOR:

Dr Michael Hensen is the director of the Social Innovation Centre at INSEAD.