21 June 2024

What is ESG and Why is it Important for Singapore Businesses?

Environmental, Social, and Governance (ESG) criteria are regularly used by investors, consumers, and employees to examine companies and businesses. These ESG markers showcase how a business relates to the world around it, such as considering their impact on the environment and other factors beyond profit. Financial performance, while still critical, is no longer the sole metric. 

Organisations such as RHB are placing a focus on net zero targets, in order to offset the environmental impact of emissions and reduce their carbon footprint. This reflects many corporates’ intentional move to integrate ESG into their operational frameworks and strategic business planning – a move which also displays keen compliance to mounting regulatory requirements.

Definition of ESG

ESG is a concept that encompasses three key factors, which serve as a guiding framework for investors assessing the sustainability and ethical impact of investing in a company or business.

• Environmental: This encompasses how a company manages its carbon and emission footprint, and includes, but is not limited to, its energy use, waste management, and conservation efforts. 
   
• Social: This aspect considers how a company manages its relationship with its stakeholders, employees, customers, and communities. It also looks at the company’s management of labour standards, customer satisfaction, and employee rights. 
   
• Governance: This component covers the set of standards focused on a company's internal structure, decision-making processes, compliance to regulatory requirements, and accountability to its stakeholders and regulators. 

Investors use these three criteria to identify potential risks and growth opportunities in a business, with a growing recognition that ESG factors can have a significant impact on a company's performance and market value.

Why is ESG Important?

Investors and other stakeholders are paying closer attention to the environmental and social repercussions of business decisions. These metrics are designed to help observers gauge multiple aspects of a company's impact on the business and social landscape that they operate in. As such, investors often favour businesses that demonstrate a responsible and comprehensive ESG strategy. 

A strong ESG proposition can enhance a company's market image, attract top talent, and potentially lead to lower capital costs. 

Moreover, effective ESG practices ensure that businesses mitigate risks related to resource scarcity and regulatory compliance. By closely monitoring resource consumption and ensuring proper governance, companies minimise the likelihood of facing financial or reputational harm due to unsustainable practices or regulatory violations. Ignoring ESG can create financial, operational, and reputational risks.

Having an overall ESG framework, which aligns business goals with positive ESG outcomes, is thus instrumental in attracting investments and maintaining customer loyalty.

ESG in Singapore

As Singapore’s central bank and integrated financial regulator, the Monetary Authority of Singapore (MAS) is keen to grow and expand Singapore’s ESG ecosystem in the financial industry. They have launched key initiatives such as the ESG Impact Hub, which provides support and encourage collaboration between various stakeholders such as financial institutions and ESG FinTech start-ups. Launched in late 2022, this hub brings together the different players in the industry and facilitates the creation of tech solutions for the industry’s ESG needs. 

With initiatives like the Singapore Green Plan 2030, businesses across sectors are pushed towards eco-friendly operations, aiming for a significant reduction in emissions and a net-zero goal by 2050. No single institution can achieve this on their own, and meeting this goal requires a collective effort where everyone plays their part. To contribute to this national endeavour, RHB has implemented sustainability pillars to guide our business strategy.

Particularly, we have incorporated a net-zero commitment by 2050 into one of our key pillars, with four key focus areas: (i) reducing financed emissions, (ii) driving growth in green financial services, (iii) supporting companies committed to carbon neutrality and (iv) integrating sustainable and low-carbon practices into our operations. Together, we can do our part for the environment and make tangible improvements in the world we live in today.

ESG Case Studies

MAS Green FinTech
The MAS has taken proactive steps in creating Green FinTech initiatives, fostering an eco-friendly orientation in the financial services sector. This approach helps support Singapore's goal of developing an active ESG ecosystem, ensuring that finance and sustainability go hand in hand.

MAS Project Greenprint
To streamline ESG data collection and access, MAS unveiled Project Greenprint, a digital platform aimed at enhancing the financial industry’s ability to integrate ESG considerations into decision-making. This initiative provides the ability to monitor a company's ESG performance, allowing Singapore-based businesses to achieve transparent and efficient ESG reporting.

RHB’s Sustainability Commitment
RHB has cemented its dedication to ESG principles by crafting a comprehensive sustainability strategy. Since 2018, we have identified key sustainability initiatives and ensured that our corporate practices align with global ESG standards. Our Sustainability Framework is the product of our effort to seriously consider, assess and review our business impact on the environment, our community, and our stakeholders, beyond just focusing on profit. Our ESG performance has been experiencing steady progress, with RHB mobilising RM23.8 billion in sustainable financial services by the end of FY2023, exceeding our initial target of RM20 billion by 2026. Given our strong achievements thus far, RHB has increased our target to RM50 billion by 2026.     

RHB has also been recognised for our ESG efforts within the industry, winning ESG accolades such as a Bronze award for Best ESG Programme at the Employee Experience Awards 2023. We are encouraged to see our efforts being recognised and will continue to strive hard to achieve our ESG goals, and play our part in the collective national effort to better climate change. 

Pursuing ESG Goals for a Brighter Future

ESG standards have become critical markers for assessing an organisation's impact on the world. In both local and overseas contexts, there is an increasing awareness that sustainability and ethical practices are the future. 

This paradigm shift from profit-focused strategies to environmental concerns is a growing part of the modern business landscape. With the increased focus on ESG efforts and governance practices by stakeholders, companies that adhere to these criteria are aligning themselves with a brighter and better business environment.