Environmental, Social and Governance (ESG) has evolved from a nice-to-have to a corporate imperative over the years. Governments, businesses and investors recognize the importance of ESG in driving the world’s transition to a greener and more sustainable future and are doubling down on efforts to achieve nature-positive targets.
At the World Economic Forum’s annual meeting in Davos earlier this year, global leaders discussed how new approaches and partnerships could lead to new solutions, such as leveraging philanthropy in new ways, driving climate adaptation and spurring more ambitious, comprehensive and sustainable infrastructure investment plans that could stabilize the planet and help the world meet the 2030 emissions reduction goal.
Driving Sustainable Change
Among the businesses driving sustainable change is Apical, part of the Singapore headquartered RGE group of companies. As the world’s second largest vegetable oil processor, Apical has embarked on a journey to become a leading second-generation biofuel feedstock provider through the collection of waste and residue from mill and palm oil refineries, along with used cooking oil, to act as an alternative to other forms of feedstock.
The company has also diversified its operations into other downstream areas such as sustainable aviation fuel (SAF) used to power aircraft. Through a joint venture, Apical is now commercially using at scale the waste generated by its operations as viable feedstock to produce SAF. These efforts highlight the company’s commitment to driving sustainable change in the palm oil sector.
In the real estate sector, Hong Kong’s Sino Group is leading the way toward a climate-resilient built environment. Sino Group integrates sustainability into all aspects of its operations and aims to achieve net zero by 2050 through more energy-efficient design, green construction and procurement, renewable energy usage, reduction of waste and carbon emissions and promoting sustainable living at its properties.
As of June 30, 2022, the company recorded a reduction of greenhouse gas emissions and electricity consumption by almost 40% from its 2012 baseline, exceeding its initial target.
Capitalizing on the Green Transition
As the world transitions to a low-carbon economy, investors are ready to capitalize on opportunities presented by this global shift. HSBC Global Private Banking offers investors three main ways to embed sustainability into an investment portfolio: ESG enhanced, thematic and impact investing.
ESG enhanced investments refer to investing in companies that score well on ESG criteria, while thematic investments focus on specific sustainability themes such as renewable energy, water conservation or circular economy. On the other hand, impact investing aims to generate an intentional, direct and positive social or environmental impact alongside financial returns.
The bank believes that by adopting an ESG approach to investment and finance, investors can play a crucial role in driving the transition to a low-carbon economy, while also generating long-term financial returns.
Bridging the ESG Trust Gap
But while companies are starting to make progress on sustainability objectives, some investors feel strongly that they are not getting the quality of ESG data required to evaluate a company’s strategy and risk profile, according to the Asia-Pacific findings in the latest EY global corporate reporting and institutional investor survey. This information gap threatens to stifle access to capital for many organizations and ultimately, could hinder progress on decarbonization.
Investors believe that Asia-Pacific organizations are “highly selective” about the information they provide and unless there is a regulatory requirement to do so, most companies will provide only limited ESG disclosures useful for decision-making.
The good news is that both sides acknowledge that there are weaknesses in current reporting standards, including issues such as lack of requirements for supporting evidence, separation of ESG reporting from mainstream financial reporting and a lack of forward-looking disclosure, so more can be done. Asia-Pacific companies can bridge the ESG trust gap with investors by taking key action to ensure that sustainability is built into their reporting processes—systemically, strategically and rigorously.
Advancing Social Justice
In addition to environmental concerns, organizations are starting to give the same attention to the social component of ESG. Businesses today are faced with a growing number of social justice issues that can affect their corporate reputation—from human rights and gender equality to health and safety, and community engagement.
FGV Holdings Berhad, a global and diversified agribusiness based in Malaysia, is one of the world’s largest producers of crude palm oil. In its efforts to operate a sustainable and socially responsible business, FGV has implemented various programs to strengthen its labor practices, including aligning its policies and recruitment practices with international labor standards.
One of the main standards adopted by FGV is the no recruitment fees policy for the hiring of migrant workers. The company has taken several measures, including setting aside about US$25 million to compensate current and former FGV migrant workers who had paid recruitment fees to secure jobs.
Indeed, there is plenty that businesses can do to build on the ESG framework to drive real change. Those that lay the right foundation now are likely to succeed long into the future.