Shifting focus: the rise of transparency
In today’s business world, transparency is a license to operate. Customers no longer have to guess how businesses are run -- access to information is available at their fingertips. Investors are making proactive, sustainability-focused decisions based on increased business opportunities and market access, improved brand reputation, risk aversion and increased capital.
As UNPRI put it in their ‘What Is Responsible Investment?’ report, there is a drive toward responsible investment due to ‘value-destroying reputational risk from issues such as climate change, pollution, working conditions, employee diversity, corruption and aggressive tax strategies in a world of globalisation and social media.’
Previously, these factors may not have been considered by investors to have an impact on the financial performance of a company, however 2015 proved a pivotal year for international development, alignment (with the advent of the the Paris Agreement and the launch of the Sustainable Development Goals) shining a spotlight on the growing need for increased transparency and responsible, inclusive business practices. As local, regional and international government bodies are aligning policy and supporting international frameworks that contribute to a low carbon economy, companies are under unprecedented pressure to respond to demands by stakeholders for increased transparency about where and how money is being invested. Media attention has grown around the topic of communication and transparency of business operations involving legal non-compliance. For example, in August of this year, a ground-breaking law suit was brought against an Australian bank for ‘failure to properly disclose the risks to the business posed by climate change’, The Guardian reported.
The bottom line: integrated reporting
Mandatory reporting of sustainability practices have come into play, with the Singapore Exchange announcing a mandatory requirement that all listed companies produce a sustainability report for the 2017 financial year. The Hong Kong Exchange strengthened their Environmental, Social Governance (ESG) guidelines last year for listed companies to ‘comply or explain’ with reasons why they have not reported against stipulations set out in the ESG guidelines.
Global reporting initiatives create a strategic dialogue between investors and companies, effectively communicating the benefits of sustainability on the company’s bottom line. Through integrated reporting the value created can also be communicated in financial terms resulting in long-term sustained growth over short term-profits. Sustainability-minded investors like BlackRock’s Chairman and Chief Executive Officer, Larry Fink, are encouraged to allocate or withdraw funds based on ESG disclosure. In his 21st Century Engagement he insists that ‘the best businesses strategically manage all aspects of the business and ensure that their investors, as well as other constituents of the company, have enough information to understand the drivers of, and risks to, sustainable financial performance.’
Ahead of the pack
A front running sustainable business that has benefitted from ESG adoption and integration into its business processes for over two decades is Asia’s top property developer, City Developments Limited (CDL). CDL’s Chief Sustainability Officer, Esther An, recognises that the company’s brand reputation and product differentiation have tangible business benefits for investors: ‘responsible investing is an emerging trend which is driven by a recognition that in the financial community, responsibility and ESG factors play a material role in determining risk and return.’
CDL was the first company in Singapore to be listed on the DJSI, FTSE4Good, as well as being the only company to in Singapore to be included in the Global 100 World’s Most Sustainable Corporations for eight years running and the MSCI since 2009. CDL’s reputation as an international leader in sustainability has spoken for itself, as An explains: ‘sustainability rankings help, because researchers and analysts can access platforms such as Dow Jones and the annual Channel News Asia SustainAbility ranking to track the company’s performance, good ESG ratings on these rankings will likely help us attract investors.’ In several instances, strong sustainability track records have helped CDL attract international business partners such as the acquisition of an expansive 4.2-acre iconic freehold site in prestigious Shirokane residential enclave in 2014.
For two decades now, CDL has integrated sustainable and green design features into their buildings and properties using resource and energy efficient approaches. The company has adopted a shared value approach to business, which connects company success with social progress. Committed to advancing Net Zero Agenda by World Green Building Council, through their value creation model, CDL has engaged and empowered tenants of its commercial properties to reduce energy consumption. Since late 2014, CDL partnered with energy service provider Tuas Power to develop an automated meter reading portal that empowers tenants to track their energy consumption real time.
The company has harnessed new technologies enabling it to address environmental challenges while achieving financial benefits. They have seen reductions in both operational costs and environmental impact amounting to US$12 million in energy savings of 8 office buildings between 2012 and 2016. Integrated reporting disclosures illustrate that CDL is creating measurable economic value while simultaneously creating value for society.
With advanced technology easily available today, companies are assessed around the clock, making transparency no longer optional. ‘Whether customers or investors, almost everyone has access to how companies run their businesses in the digital world. Should there be any non-compliance, the news is accessible online and a company’s reputation will be negatively affected ,’ An explains. ‘Good investors look to the long term, there are always investors who still focus on financial performance alone,’ but there is an increasing emergence of investors who strive to have a long-term partnership and grow with the business they invest in. CDL has had dedicated investors for over 20 years, with whom they share strategy and long-term sustained growth.’
To avoid unnecessary risks, businesses must take a proactive approach to track and disclosure ESG performance and to future-proofing their business to remain competitive. With this in mind, CDL’s Future Value 2030 Sustainability Blueprint set targets to prepare the company against challenges and sustain growth towards the next decade. CDL’s first mover advantage has secured them cost savings, a competitive edge and at the same time generated long-term value creation for both investors and within the communities they operate.
Join the conversation
HK Exchange: Press release:
UNPRI: What Is Responsible Investment? https://www.unpri.org/about/what-is-responsible-investment
CDL: ‘How We Create Value’: https://www.cdlsustainability.com/how-we-create-value/
World Green Building Council; Advancing Net Zero: http://www.worldgbc.org/advancing-net-zero
Creating Shared Value, Michael E. Porter & Mark R. Kramer, Harvard Business Review 2011 https://hbr.org/2011/01/the-big-idea-creating-shared-value
Progress Through Reporting: Get to grips with the six capitals: http://integratedreporting.org/what-the-tool-for-better-reporting/get-to-grips-with-the-six-capitals/
CDL Future Value 2030: http://cdlsustainability.com/pdf/CDL_ISR_2017.pdf