The ESG Imperative Facing Growth Stage Companies

By Eric See, Jaslene Pang and Dr. Wilson Chew

Growth stage companies are recognising that there are business imperatives of
incorporating ESG principles into their business strategies.

The increasing demand for compliance is an opportunity

which should be converted into a competitive advantage.

The speed at which a GSC achieves measurable ESG excellence is, in and of itself,

a differentiating factor with long-term benefits.

Our climate continues to change as temperatures rise. Businesses, too, are feeling the heat on their bottom line.

Growth stage companies (“GSC”), in particular, are recognising that there are two business imperatives of incorporating Environmental, Sustainability and Governance (“ESG”) principles into their business strategies: (1) the increasing demand for compliance; and (2) the competitive advantage of doing so.

INCREASING DEMAND FOR COMPLIANCE

According to the World Bank, since 2015, ESG compliance has increased in intensity as stakeholders such as consumers, suppliers and governments around the world demand greater transparency and accountability. The fact that consumers are more likely to purchase ethically sourced and sustainable products forces players in the supply chain to choose the companies or organisations with whom they do business.

The first is through her domestic climate policies e.g. developing sustainable aviation fuel ecosystem.

The second is to act as the global co-facilitator (with Norway) on climate negotiations.

On the third, on the domestic policy front, Singapore increased her carbon tax from S5/tonne to $25 per tonne (of emissions) from January 20242 . GSCs whose operations emit high greenhouse gases should consider abatement actions by incorporating renewable energy sources in their business operations.

COMPETITIVE ADVANTAGE

Companies that incorporate ESG initiatives into their business strategy tend to perform better through greater resilience and access to capital.

a. Greater resilience

Positive outcomes of a well-executed ESG strategy manifest in enhanced reputation and stakeholder trust which, in turn, contribute to corporate resilience.

Companies that publicly pledge their commitment to ESG and emphasise proactive engagement with stakeholders engender trust and brand loyalty with stakeholders making them economic-cycle-proof.

A cyclical-proof strategy that incorporates ESG considerations typically involves both comprehensive risk assessments and ways of driving operational efficiency. GSCs that are adept at evaluating and mitigating risks are better prepared to weather challenges such as regulatory changes, climate-related impacts, or supply chain disruptions; whilst those that can achieve higher operational efficiency as a result land themselves with cost savings.

b. Greater access to capital

GSCs with a robust ESG strategy also enjoy greater access to capital. Such access expresses itself through a wider pool of investors and lenders.

Is it any surprise that investors are increasingly prioritising ESG factors in their investment decisions, as are lenders as such moves relate to better rates through green loans?

In short, the question is no longer whether a GSC should consider embarking on a suitable ESG strategy, but, rather, when and how.

FUNDAMENTAL ELEMENTS IN AN SME ESG STRATEGY

Developing an effective ESG strategy requires a comprehensive approach that integrates three key fundamental aspects: (a) ESG reporting; (b) stakeholder engagement; and (c) integration of ESG considerations into overall corporate strategy.

a. ESG Reporting

There are increasing expectations for ESG reporting.

GSCs listed on The Singapore Exchange (“SGX”) should note that the latter has introduced a phased approach to mandatory climate reporting. The listing disclosure requirement emphasises five main aspects:

· Board Statement to provide an endorsement and commitment towards sustainability.

· Selection of suitable ESG Framework(s) to guide reporting and disclosure.

· Identification and reporting of material ESG factors in the context of the business model and stakeholders.

· The policies and practices in relation to each material ESG factor.

· Defining time-based targets for each material ESG factor.

There are no mandatory requirements for ESG reports for privately held GSCs. However, voluntary ESG reporting is considered best in class behaviour.

In terms of reporting formats, companies could choose from a variety of frameworks that are commonly used by investors, businesses and governments. These include GRI, CDP, SASB, TCFD, and WDI.

A SUSTAINABLE FUTURE FOR GROWTH ENTERPRISES

The increasing demand for compliance for both private and publicly listed GSC’s should not be perceived as a costdriving chore. Rather, it is a process and opportunity which should be converted into a competitive advantage. The speed at which a GSC achieves measurable ESG excellence is, in and of itself, a differentiating factor with longterm benefits.

One major benefit is that a well thought-out ESG programme gives the GSC a stronger strategic compass which helps it better navigate the challenges of a rapidly changing business landscape.

In other words, the journey towards ESG excellence may be a gradual and, to some extent, a resource-intensive one, but the benefits to be gained are well worth that investment in time and effort.

The ESG Imperative Facing Growth Stage Companies

INCREASING DEMAND FOR COMPLIANCE

COMPETITIVE ADVANTAGE

FUNDAMENTAL ELEMENTS IN AN SME ESG STRATEGY

A SUSTAINABLE FUTURE FOR GROWTH ENTERPRISES

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