Forge a Greener Tomorrow with RSM Today

In today’s business landscape, businesses are increasingly being held accountable for stakeholder impact, the environment, and the society. It is crucial for businesses to implement responsible and sustainable practices, instead of solely focusing on short-term profit maximisation.

A focused, long-term business strategy that integrates environmental, social and governance (ESG) considerations is imperative to strengthen sustainability ratings.

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Investors and consumers are increasingly alert to the growing climate and social issues, both locally and internationally, and have shown increased favour towards companies with transparent, environmentally and socially responsible business practices. Against this backdrop, the regulatory environment has evolved; the Singapore Exchange (“SGX”) has mandated annual climate reporting for listed issuers from FY2022. Companies with a proactive Environmental, Social, and Governance ("ESG") strategy are best-placed to navigate this increasingly complex business and regulatory environment, but efforts are often complicated by various competing ESG frameworks and standards.

 

HoW CAN A SUCCESSFUL ESG STRATEGY BENEFIT YOU?

A growing number of companies actively integrate ESG strategies in their business implementation, not only to comply with regulations, but also to achieve higher and sustainable long-term growth. In other words, having strong ESG credentials help companies realise actual benefits. These include:

MINIMISE LONG-TERM RISKS

Organisations can identify and minimise climate-related material risks.

GROWTH OPPORTUNITY

Organisations can assess their ESG performance and perform benchmarking to strengthen business strategies.

APPEAL TO INVESTORS

With transparent performance reports, organisations are better able to attract sustainability-conscious investors.

 

COST
SAVINGS

Integrating ESG in business fosters more efficient practices that drive down operating costs and carbon footprint.

LONG-TERM LOYALTY

ESG principles prioritise sustainable, long-term growth that can help organisations build the trust of investors.

IMPROVED BRANDING

Organisations can brand themselves with a strong ESG culture and attract talents passionate in doing good.

The transition towards a green economy cannot be over-emphasised in today’s business world. Singapore’s commitment to carbon emission goals for 2030 and 2050 have accelerated the need for more pervasive measures to be taken to address the issue of “greening”. Regulations have been tightened and a slew of initiatives have been introduced to encourage greater adoption of sustainable business practices.

Carbon tax will continue to progressively increase to hold businesses accountable for their carbon emissions. By 2024, businesses are expected to pay S$25 for every tonne of carbon emitted (approximately equivalent to operating a gasoline powered car for half a year, or taking about three economy flights within Europe). This will increase to S$50-S$80 per tonne by 2030.

To improve accountability for non-listed companies, the newly established Sustainability Reporting Advisory Committee set up by ACRA and SGX in June 2022 also seeks to develop a roadmap for sustainability reporting for such enterprises.

SMEs (small and medium enterprises), which contribute almost 50 per cent of Singapore’s gross domestic product, will unquestionably have to manage their own decarbonisation transition. They will need to capture opportunities in the green economy to remain relevant and competitive. As such, SMEs can adopt the following framework, as shown in the box, “A Step-by-Step Guide for SMEs”.

 

A Step-by-Step Guide for SMEs:

 

Reorganise

Being sustainable is good for business. As SMEs embark on sustainability plans, they are also creating their own competitive advantage against industry peers. Numerous studies have shown that “green companies” have inherently higher valuations, are able to attract talent (especially the younger generation), and having a green agenda improves brand reputation and marketability.

The Greenhouse Gas (GHG) Protocol has established a GHG emissions classification system that allows for businesses to track direct and indirect GHG emissions. SMEs today can deep-dive into their operations, examine the business from a sustainability angle and identify areas where improvements or outright changes can be made. For example, they can modify the way customers are served, or reassess the viability of continuing certain lines of business.

Today, the clean energy movement has driven companies to accelerate sustainability plans, including traditional energy providers such as natural gas suppliers. Locally, a number of alternative energy providers have adopted practices like installing solar panels to provide clean energy and reduce reliance on nonrenewables. These efforts go some distance in enabling the company to save costs, reduce pollution and increase efficiency.

Leaders must be prepared to make green decisions. Middle market players need to prepare themselves for a mindset change and constant evolution to navigate the business transition into a more green state. The change starts from the top. Leaders need to start with a green strategy, build the components of the business around achieving this strategy and contributing to business performance in the longer run. To encourage the right type of behaviours, leaders can consider:

  • Setting up a sustainability task force - This ensures that there are nuanced discussions around ESG and a roadmap can then be formulated to reach certain ESG milestones or targets within realistic time frames.
  • Recognising and rewarding employee actions which align with ESG goals - This ensures that the business is transforming in the right direction. Changing attitudes, mindsets and behaviours when it comes to sustainability transforming is the secret to winning the war.

 

Build Capability

A business’s sustainability practices goes hand in hand with digital movements. Going digital creates a wider impact to the economy, reaching a broader user base. Going digital also reduces the amount of greenhouse gas emissions associated with traditionally cumbersome and manual processes. To aid this transformation, Infocomm Media Development Agency introduced a Playbook to raise awareness on sustainability. This allows SMEs to leverage on the Internet of Things, data science and digitalisation initiatives. These will allow better tracking and optimisation of energy resources.

Locally, there have been success stories with companies in the cleaning and maintenance sector adopting automation to achieve better sustainability in operations. The application of robotics that possess energyconserving systems contribute to a more eco-friendly service approach.

Accreditations and certifications are not just badges of honour. The entire process usually involves a critical appraisal by professional bodies. This allows SMEs to compare themselves against green standards adopted by other industry players. Associations such as the Singapore Environmental Council provides assessment processes that aids applicants in implementing effective environmental friendly practices. Other international environmental standards such as ISO14001 Environmental Management Systems, can provide some form of benchmarking in terms of processes and practices.

 

Take Action

Involve the value chain. It is important for businesses to realise that their decisions on going green will affect the wider supply chain. According to the GHG protocol, emissions indirectly emitted via the company’s value chain accounts for more than 70 per cent of the total business emissions (both up and down stream). Some examples of this include buying from sustainable sources, working with partners that deploy sustainable logistics and distribution measures, and treating and reducing the impact of waste and by product emissions. With the spotlight now placed on sustainable food sources, there are poultry producers who repurpose waste by products for different applications (e.g. packaging, re-using products for other industry applications). These measures reduce the resource gap and contribute by lessening GHG emissions caused by the SME’s value chain.

Developing deep skills - It is important for SMEs to bring along their employees on this sustainability journey. SMEs should consider enrolling their existing employees for sustainability themed courses, help with job redesign and redeployment of the workforce. For instance, the SG United Career Conversion Programme will give companies access to relevant technical training that aids in job transformation for the sustainability movement. Other government agencies and business associations are also contributing to the support for industrial transformation.

Singapore’s SMEs have proven themselves resilient and adaptable. The Covid-19 pandemic has shown that business owners with the right attitudes and tenacity can tide through challenging economic times. The sustainability movement is a not a rude awakening, but rather should be seen as an opportunity to change and transform the old ways. And in doing so, one can uncover opportunities to breathe new life into the business model, whilst at the same time allowing SMEs to do their part.

 

 

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START YOUR ESG JOURNEY WITH RSM

Talk to our dedicated team of ESG specialists today. We provide a comprehensive suite of services to help you develop your ESG strategy, manage climate-related risks, navigate regulatory requirements, and streamline the reporting process through the use of technology.

How can advisors make a significant difference in helping implement ESG strategies for a brighter future?

Check out Mindshop's latest podcast where their Managing Director James Mason interviews RSM Partner Dennis Lee on practical ways advisors can implement environmental, social, and governance (ESG) strategies for their clients and in their own firms.

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