Companies can't ignore ESG because it is costly or complex, say panellists

    By RAPHAEL LIM 

    The Business Times, 9 September 2021

    COMPANIES must think beyond shareholders and consider their other stakeholders to ensure the long-term sustainability and resilience of their businesses - which means that the topic of environmental, social, and governance (ESG) cannot be ignored, no matter how complicated or expensive it may seem, said panellists at a conference on Thursday.

    The points were covered in a panel discussion on "The New Capitalism" at the Directors' Conference organised by the Singapore Institute of Directors.

    Maybank Singapore's head of global banking, Gregory Seow, noted that while companies should still keep an eye on making profits, taking a long-term, sustainable view also matters.

    "Short-termism", such as seeking profits each quarter, may negate the importance of factors that are critical to long-term survival of both companies and communities they serve, he said.

    Mr Seow noted that those who set out long-term value creation with broader performance metrics - covering customers, supply-chain partners, employees, financial partners and communities at large - will be more sustainable and resilient through cycles.

    The need to embrace a long-term view comes amid growing consciousness on social responsibility, particularly among the younger generation.

    Vikram Chakravarty, global head of strategy at EY-Parthenon, noted the fundamental shift from consumers on ESG topics, and that more capital is being deployed to ESG investing.

    "It is super important for boards to tackle this, and you cannot avoid this just because it is complicated, hard to quantify, expensive and difficult to figure out," he said.

    Directors who focus on metrics such as internal rate of return may question the potential expense and unclear operating results from ESG, but Mr Chakravarty added: "At a sector level, some things are more material than others... You should not be trying to solve all aspects of ESG."

    He said that it has been found that listed companies which adopt the right targeted approach have outperformed those who simply do everything or ignore ESG altogether.

    "Please stop doing good for the sake of doing good, figure out - in the company, in the sector - what is material, focus on that."

    He added that companies should also be willing to take big concrete steps and not just pay lip service with small experiments.

    He highlighted that Singapore companies should think about embracing new trends, as most of them have not been innovative enough, and have faced stifled growth and flat margins.

    Companies would need to think of how to use mega trends such as digitalisation or ESG to transform themselves to become champions. Bolder moves may be needed.

    The panellists observed that ESG is also an issue for small and medium-sized enterprises (SMEs) to consider. Tay Woon Teck, partner at RSM Risk Advisory, said: "ESG is definitely not a luxury for the SME, it is essential.

    "The structural costs of operating in Singapore will kill you unless you're able to grow revenue," he said, adding that considering environmental factors, for example, can help SMEs reduce packaging and save costs. The topic of ESG also goes beyond the environment, and there are opportunities for them to serve the community.

    Byron Loflin, global head of board engagement at Nasdaq, noted that ESG is also about creating competitive advantages and being more efficient. "It's exploring ways to do business in a cost-saving way that is complementary to ESG, and then ESG can be complementary to the SME. It's not going to happen overnight, but it's what I'm seeing, locally, nationally and internationally."

    He noted that many organisations are now interested in identifying how capitalism can work for the betterment of the planet as the world emerges from the pandemic. He added that helping companies to address the key areas and metrics around stakeholder capitalism and its impact on communities and workforce, would affect the long-term returns on investment.

    Maybank's Mr Seow noted the investment community is increasingly homing in on potential investee companies through their sustainability strategies. The banking sector too can drive a "catalytic and impactful change", in partnership with relevant government agencies, especially in East Asia, where bank loans still form the lion's share of corporate funding.

    He noted that it is critical for board and management to provide a coherent strategy and engage with shareholders to get buy-in on longer-term performance metrics.

    "We have to, together as a community, mitigate risk through investing in the long-term. At the end of the day, companies with stakeholder capitalism in mind will eventually have a competitive edge over the long-term."