The views come from a HSBC survey, ‘Navigator: Now, next and how for business, which involved seeking the viewsof more than 8,500 companies in 34 markets including 100 Singapore businesses. The survey sought to explore business understanding of ESG practices within their own business and their supply chain, as well as green finance.
Singaporean businesses showing green shoots around ESG practices
HSBC’s Navigator survey reveals that Singapore businesses see the importance of ESG, but adoption is lagging intent.
The findings show that amongst Singapore firms:
- 88 per cent agree that sustainable practices will enhance growth and profitability in the near term1 (87 per cent globally).
- Yet only 64 per cent have environmental policies in place (compared to global average of 74 per cent).
- 71 per cent have social policies in place (74 per cent global average).
- 79 per cent have governance policies in place (79 per cent globally).
The findings around governance within ESG – which is focused on the monitoring and reporting of a business’ sustainability measures – show that corporates in Singapore are responding positively to the Republic’s efforts to raise sustainability on the corporate agenda.
Measures include the Singapore Exchange mandating listed companies to produce sustainability reports on a “comply or explain” basis. Since its 2016 inception, there has been a 76 per cent year-on-year increase in corporates reporting their sustainability practices.2
Alan Turner, Managing Director and Head of Commercial Banking, HSBC Singapore, said:
“The HSBC survey shows that Singapore firms are making steady headway on the sustainability front, and should be applauded for their high level of disclosure. Having increased their transparency through reporting, now comes the pressure for businesses to up their game in developing meaningful environmental and social policies so to enjoy the business benefits.”
Building sustainability in supply chains – watch out for the blind spot
Whilst Singapore firms begin to get their own sustainability house in order, the next order of business will be to improve the sustainability practices of their supply chains - which HSBC’s survey reveals is a blind spot currently.
Whilst businesses in Singapore are monitoring their supply chains for environmental and ethical standards to some extent, only 8 per cent monitor it fully, compared to the global average of 15 per cent.
This reveals an emerging risk for Singapore businesses.
As sustainability moves up the agenda in Singapore, the region’s supply chains will need to react to retain their competiveness.
More than 4,500 companies base their head office in Singapore and draw upon suppliers from other neighbouring markets3. Changing weather patterns have meant that 50 per cent of all natural disasters across the world are happening in developing Asia4, with Lloyd’s estimating that USD22.5 billion of GDP is at risk from flooding in South East Asian cities alone.5 This is putting pressure on businesses to adopt ESG practices.
Yet according to an HSBC commissioned report in September 2018, Asian companies are trailing global peers in adopting ESG strategies and risk falling off multinational corporations supply chains.6 Just 24 per cent of Asian respondents have an ESG strategy compared to 48 per cent of corporates globally and 87 per cent of European and UK companies.7
So while Singapore-based firms may have strong ESG reporting policies within their own operation, the survey highlights the inherent risk of not being on top of downstream suppliers, especially given separate research indicates 80-90 per cent or more of a business’s environmental impact is located in its supply chain.8
Commenting on the need for businesses to address sustainability standards within their supply chains, Mr Turner said: “Companies are under increasing scrutiny from consumers, investors and governments to improve their sustainability credentials. For large multinational firms, this is also filtering through to their expectations on suppliers, many of whom are based in Singapore. Directionally, we can see where ESG is heading within supply chains so it makes sense for Singapore corporates to begin the journey with their own suppliers across the region.”
Misperceptions behind slower sustainable financing adoption in Singapore
While a high proportion of Singapore businesses are aware of sustainable financing, HSBC’s survey reveals there’s a disinclination to use it based on the hurdle levels and pricing.
The report shows that 64 per cent of businesses in Singapore are aware of green financing but do not use it, larger than the global average (58 per cent globally). 28 per cent of Singapore firms use sustainable financing, in line with businesses globally.
The top perceived barriers to usage of sustainable finance are tight qualification criteria (44 per cent), perceptions around green financing being more expensive than traditional finance (43 per cent) and increased risk (35 per cent).
Businesses also flagged that it is hard to get buy-in from Finance departments (26 per cent).
Commenting on the use of sustainable financing by businesses, Mr. Turner said: “We know that Singapore businesses are pragmatic in that they will take the green financing path if it makes financial and commercial sense. Clearly this is not the current sentiment. Yet in reality we are starting to see some instances of better pricing for green loans than conventional loans as well as different types of green financing coming online, all of which have varying degrees of criteria. What these points illustrate is there are perception challenges around green financing amongst Singaporean businesses which need to be addressed.
“Whether a corporate accesses green financing doesn’t really change the fundamental point that the issues around changing weather patterns and depletion of finite natural resources are not going away and will have an impact on just about every business. Seen through this lens, sustainability needs to be embedded into the risk management framework and operations of any business. Green financing will then be a simple causality of having the right business practices in place.”
1 Near term deemed to be < 3 years.
2 Sustainability Report in ASEAN Countries
3 Singapore Economic Development Board: The case for centralization in Asia
4 Earth Report 2018
5 ‘City Risk Index 2015-2025’, Lloyd’s of London, 2015. http://www.lloyds.com/cityriskindex/ (accessed 16 arch 2015).
6 HSBC News Release: Are ASEAN supply chains vulnerable to lag in adoption of ESG?
7 Sustainable Financing and ESG Reporting, East and Partners, September 2018
8 Carbon Disclosure Project