Sustainability reporting ultimately good for the business

SGX’s elevation of sustainability reporting to a “comply or explain” basis is a commendable initiative by the regulator to step up disclosure, accountability and transparency across listed companies. Such efforts have certainly played a part in Singapore’s recent top ranking in Corporate Governance Watch 2016 by CLSA and Asian Corporate Governance Association.

The sustainability reporting agenda promotes good business practices as it goes beyond merely rolling out another series of compliance standards. This aims to prompt Singapore companies to reflect on the meaning of their businesses.  It also promotes taking a long-term view that is in sync with global trends towards multi-stakeholder accountability.

Good sustainability reporting equates to better stakeholder engagement
Today’s business ecosystem is rapidly expanding to encompass more stakeholders who are increasingly vocal. Consumers and shareholders either love or loathe brands by judging them through the lens of sustainability. Millennials are fiercely devoted towards brands that resonate with their personal ethos. These brands may have sustainable practices that reflect their customers’ concerns for principles such as fair trade, human rights and eco-friendliness.

Socially responsible investing has started to evolve steadily. Asset managers, investment banks and pension funds make investment decisions that reflect their increasing awareness of sustainable business practices.  This is also driving companies to build up their sustainability reporting fundamentals to position themselves as desirable investment targets.

Greater attention on sustainability reporting
A concept virtually unheard of in the early 1990s, sustainability reporting has rapidly gained attention as multinational corporations progressively realigned economic performance goals with social objectives. General Electric, BMW Group, The Body Shop and Starbucks were early adopters that translated sustainable practices into measurable returns manifested through stronger bottom lines, greater customer loyalty, operational effectiveness and an intelligent data repository.

In Singapore, one such example is the Siloso Beach Resort. Its eco-friendly architecture and facilities serve to effectively reduce waste, cut costs and improve the bottom line. Such practices have also made the Siloso Beach Resort more attractive to international travellers. The resort’s sustainable practices are its corporate identity. It continues to attract global tourists seeking leisure in an eco-friendly environment, thereby proving that the returns on sustainability initiatives are indeed real and multifaceted.

Building on existing sustainability initiatives
Common concerns that small and medium-sized enterprises may have are the costs of implementing sustainability frameworks and a lack of readily accessible data for various indicators.  However, since the introduction of the new SGX listing rules 711A, 711B and Practice Note 7.6 in June 2016, many listed companies have come to realise that they have in fact already adopted many sustainable practices in their bid to enhance operational efficiency and improve profitability.

Many have also recognised that their sustainability report would serve as an important ‘calling card’ to demonstrate to business partners, authorities and stakeholders that they are responsible corporate citizens. This is particularly important for companies venturing overseas. With this mindset change, the Board and management will see sustainability reporting as a strategic opportunity rather than a compliance burden. And with proper professional advice, they will also realise that meeting SGX and Global Reporting Initiative requirements is not an insurmountable task after all as they can build on their existing sustainability initiatives.

Supercharging progress towards sustainability reporting with data analytics
SGX has recommended a phased approach for companies to progressively improve the qualitative and quantitative aspects of their sustainability reports.  Companies will need to develop systems and processes to collect and analyse relevant data.  As the saying goes, “what cannot be measured will not be achieved”.  To align with the 3-year phased implementation approach recommended by SGX, a company needs to build strong data analytics capabilities to create a database of relevant, interactive and timely information that could supercharge its progress towards sustainability reporting. Data analytics, exchange of information and resource pooling are integral to producing quality sustainability reports.

Laying the foundation for integrated reporting
Sustainability reporting is here to stay. We believe companies will positively embrace it to remain competitive and more importantly, lay the foundation for implementation of the International Integrated Reporting <IR> Framework. Sustainability reporting will become the new normal for corporations looking to survive and thrive in an increasingly perilous and volatile business world.

This article was written by Senior Director Sovann Giang, Director Dennis Lee, and Consultant Claire Nie of our Risk Advisory division and published in the Business Times Commentary on 30 December 2016.