This article was first published in the July 2018 China edition of Accounting and Business magazine.

With an increasing awareness of the need to assess whether natural resources are being used efficiently and economically, more governments and regulators are setting policies that benefit or penalise companies based on their use of natural capital and eco-system services. Clients, consumers and investors are also placing more weight on the holistic value that businesses generate, with some of the world’s largest funds scaling down or no longer investing in companies that rely on fossil fuels.

‘Not addressing ESG [environmental, social and governance] risks or having a comprehensive framework integrating sustainability into their business threatens any company’s fundamental survival. Being a responsible and sustainable company is key to future-proofing the business,’ argues Rishi Kalra, head of corporate finance at agri-business giant Olam International.

‘It is no longer a “good-to-have” but is absolutely mandatory for all companies to ensure sustainability is key to their growth agendas,’ he adds. ‘While this view is not as pervasive in Asia as it is elsewhere, it is increasingly gaining traction here and we now have an opportunity to lead the way.’

With the Singapore Exchange mandating sustainability reporting on a ‘comply-or-explain’ basis, Singapore’s corporate responsibility reporting rates have been on the rise; according to the latest KPMG Corporate Responsibility Reporting survey, 84% of the largest companies now report on corporate responsibility, faring better than the global average of 72%. Yet the survey also found that 75% of the top 100 companies are still not addressing the financial risks stemming from climate change and only 17% have set carbon reduction targets, well below the global average of 50%.

Hoping to build on this positive momentum, Olam International has spearheaded the establishment of the Accounting for Sustainability (A4S) Singapore Circle of Practice (CoP), building on an initiative set up in 2004 by HRH The Prince of Wales to drive greater adoption of sustainable decision-making. The Singapore CoP is a new corporate-led initiative that was launched in April with the help of eight other founding members — DBS Bank, CapitaLand, Japfa, Sysmex Asia Pacific, SATS, Norbreeze Group, Wipro Consumer Care and Jadestone Energy – and is the first of its kind in Asia. Operating in partnership with Olam International, it aims to bring together Singapore’s finance community to help embed more effective responses to social and environmental risks and opportunities.

Similar challenges

‘Many challenges faced by companies in Singapore are similar to those faced globally: a perception that adopting sustainable approaches will come at a cost, at least in the near term, even where this doesn’t have to be the case; a lack of availability of data; a need to engage the board and senior management on the benefits of moving towards a sustainable strategy; and a need to invest time to assess and adopt new thinking and approaches,’ says A4S executive chair Jessica Fries, who adds that the Singapore CoP will help companies to overcome some of these challenges by sharing practical tools and case-study examples from the A4S Essential Guide series, as well as sharing their own approaches and pooling knowledge and resources to find solutions that work.

‘With the introduction of the mandatory SGX Guidelines for Sustainability Reporting that took effect from FY2017, I believe more Singapore companies are seeing the opportunities brought about by sustainability reporting beyond a mere compliance exercise,’ says Sze Yen Tan, senior vice president, group accounting policy, at DBS Bank.

‘But finance’s role is not always obvious in this evolution of corporate reporting towards more holistic reporting of value creation, therefore platforms such as A4S can provide a supportive environment for members to share knowledge and learn from one another to develop meaningful reporting tools that take into account the specific roles of finance within an organisation, as well as the unique flavours of the ASEAN region.’

Reimagining sustainability

Kalra says platforms like A4S will be a key catalyst in bringing the private sector together to drive change at scale and reimagine what sustainable businesses can be. ‘We are better off working together and learning from each other to ensure we find solutions that are practicable and applicable in Singapore and Asia,’ he says.

Andrew Lim, group CFO at CapitaLand Group, says that the company hopes to tap the insights and experience of other CoPs, to share exemplary practices within Asia and encourage more companies in the region to make collective progress in addressing climate change.

‘We recognise that the long-term success of our business is closely intertwined with the health and prosperity of the communities we operate in; and savvy investors are increasingly aware of this interdependence,’ Lim says, adding that he believes sustainability investing is set to gain more traction in Asia as its value becomes clearer.

Each CoP meeting will be based around a series of workshops to review sustainable business practices and to learn, challenge and support members. The first explored macro-sustainability trends and the common challenges faced by finance professionals in responding to these trends, as well as what practical approaches can be taken.

‘As a start, the Singapore CoP members have agreed to review the maturity frameworks and guides for their respective businesses and discussed best practices already deployed elsewhere, as well as ways of improving their own effectiveness,’ Kalra explains. ‘It is a new area for many finance professionals in Singapore and Asia, and it is therefore crucial that platforms like A4S are set up to help develop and define standards of practice. Finance professionals tend to be guided by and get actively involved when they see the practical usage of available approaches and being able to link non-financial drivers with financial performance.’

More holistic picture

Tan says that in the same way that financial accounting provides information about a company’s economic performance, accounting for sustainability provides tangible measurement of and insights into a company’s environmental and social performance to capture a more holistic picture of sustainable value creation.

‘A consistent reporting framework enhances comparability among companies and provides a useful tool to investors in their resource allocation decision making process,’ she says. ‘In addition, the environmental and social performance often serve as strong pre-financial indicators of future economic performance. This is especially true as stakeholders’ awareness of the criticality of boundaries increases and thus expectations of corporates’ appropriate actions increases accordingly.’

With sustainability accounting still in its nascence in the region, there are bound to be problematic areas as companies transition to new mindsets. ‘One key pressure point that companies in this region share with the rest of the world is that there are not necessarily universal or standardised methodologies to assign values to areas like social or natural capital. However, with the increasingly active awareness and involvement with industry peers, NGOs, and other partners to drive positive change at scale, such as A4S or the Global Agri-business Alliance, Singapore companies have the potential to be regional leaders in this area,’ Kalra says.

Fries is confident integration of sustainability accounting will one day become the norm. ‘In the long term, we won’t need the word “sustainability”; it will just be “accounting.”’

Sonia Kolesnikov-Jessop, journalist