By Judy Hsu, Chief Executive Officer, Standard Chartered, Singapore And ASEAN Markets (Malaysia, Vietnam, Thailand & Rep Offices)
For many companies, there is a constant balance between generating growth and returns, and minimising negative impact on the environment, health and safety. Instead of turning away companies that cause stress to the environment and community, a more practical solution is for governments and banks to work with them to meet sustainable standards.
Because banks are able to influence capital allocation by assessing and managing risks, the industry is well positioned to play a bigger role in the development of sustainable finance. It is not about exiting sectors because they cause harm to our environment or community; these industries support many jobs that provide for families and sustain economies. It is more about supporting practices that promote sustainable business, employment and growth while being socially responsible.
The mission of providing finance responsibly can be met with predicament though. Banks thrive by financing clients, but they encounter a dilemma of balancing economic gains with environmental and social (E&S) impact when sustainability risks arise from these financing decisions. Banks can also become vulnerable to reputational risk from charges of their clients’ environmentally and socially inappropriate behaviour. But as an international financial institution that does most of its business in emerging markets, we are cognizant of our responsibility and the difference we can make through our choice to bank the right companies.
Since 1997, we have implemented a comprehensive approach to managing E&S risks. Our Environmental and Social Risk Management (ESRM) framework applies standards adopted from the Equator Principles to assess and manage E&S risks in projects. By being an active member of industry bodies, we also commit to understanding and promoting guidelines and policies to help clients address challenges and capitalise on sustainable growth opportunities.
Take for example our ESRM team, which acts as an in-house independent advisor on sustainability-related issues. It either lends support to a financing deal by working with willing clients to achieve the right E&S standards, or concludes that others’ sustainability goals are misaligned with what our Bank stands for. The team’s role spans from initial risk assessments and detailed due diligence to designing time-bound action plans tied to loan conditions. This is less about clients checking the right boxes, but more about our team working with these clients at every step of the way to ensure the desired outcome.
But why should companies invest time and resources to meet stringent standards that could compromise near-term gains? And how relevant are responsible business actions to Singapore?
Situated at the end of the Malayan Peninsula between Malaysia and Indonesia, Singapore is no stranger to the perennial haze caused by forest fires used to clear land for agricultural production and sale. The prolonged haze in 2015 resulted in disruptions including schools closure and suspended delivery services by fast-food companies. For the first time, consumers in Singapore boycotted products from companies involved in causing the haze, and had retailers withdraw those brands from their shelves. It cost the country some S$700 million of economic losses.
The realisation hit home. The need for sustainable practices has gone beyond building a green environment; it is also about the people and their community.
Remedial actions were taken. In October 2015, the Association of Banks in Singapore issued guidelines on responsible financing. A month later, Indonesia’s banking regulator announced that green financing would be compulsory for all banks in Indonesia by 2018. In 2016, the Singapore Exchange introduced sustainability reporting on a “comply or explain” basis to increase non-financial disclosures transparency. The Monetary Authority of Singapore is a supporting partner of the Collaborative Initiative for Green Finance in Singapore, an initiative that is being driven by the Singapore Institute of International Affairs in collaboration with the UN Environment Inquiry. A report that will outline the opportunities and possibilities to better mainstream Green Finance in Singapore has just been published this week.
Opportunities based on sustainable development principles could help the private sector unlock US$5 trillion in business opportunities and create 230 million new jobs in Asia by 2030, the Business & Sustainable Development Commission said in June 2017.
Banks’ success as a business is intrinsically linked to the health and prosperity of their markets. While we help clients that meet sustainability standards to build sustainable results, it is also about working with those who are not compliant today but are committed to making the right changes.
As rapidly-evolving sustainability benchmarks up the ante on corporate responses to the growing social demands on organisations, helping companies to secure their social licence to operate can only become the way forward. Without this intent, we risk losing the forest for the trees.
Judy Hsu is the Chief Executive Officer, Standard Chartered, Singapore and ASEAN Markets (Malaysia, Vietnam, Thailand & Rep Offices).