Deloitte CFO Singapore Forum Financing a sustainable future - Friday, 29 January 2021 | 09:00am - 10:15am
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Deloitte CFO Singapore Forum Financing a sustainable future Friday, 29 January 2021 | 09:00am – 10:15am
Financing a sustainable future Mohit Grover Partner, Sustainability Leader Deloitte Southeast Asia © 2021. For information, contact Deloitte Touche Tohmatsu Limited Deloitte CFO Singapore Forum 2
How to measure ESG into financial reporting
ESG issues are Financial markets CFOs are missing CFOs have a role to
material are changing opportunities play
Environmental, social and Financial markets are changing The results of Deloitte’s the CFOs and their finance
governance (ESG) issues, once – with important consequences latest CFO Survey reveal that departments have a role to
for how companies finance when it comes to ESG, many play. In order to do so, they
considered extra-financial, are
themselves and shape their companies are missing might need to build new
now being seen as material investor relations. opportunities to engage with capabilities. They also need to
risks and opportunities for a investors effectively. provide reliable and real time
company’s bottom line. extra-financial information.
© 2021. For information, contact Deloitte Touche Tohmatsu Limited Deloitte CFO Singapore Forum 3
The global business landscape is changing Creating new risks and opportunities for businesses © 2021. For information, contact Deloitte Touche Tohmatsu Limited Deloitte CFO Singapore Forum 4
Locally, we have seen heightened attention to the ‘E’ in ESG
With a number of actions taken by regulators and investors in Singapore
Singapore’s Climate Action Plan
In 2015, at the Paris Accord, Singapore pledged to aim to “reduce our emissions intensity by 36 per cent below
2005 levels by 2030 and stabilise our emissions with the aim of peaking around 2030” (National Environment
Agency 2015).
CDL, CapitaLand and StarHub Singapore Carbon Pricing Act (CPA)
Carbon Tax was introduced in 2019 to motivate
ranked among world's most
businesses to improve their energy efficiency
sustainable companies and become more resource-efficient and
The companies have been included in the Global sustainable, leading to a greener economy and
100 Most Sustainable Corporations in the World planet.
Index.
Temasek’s Carbon Neutrality Targets MAS Guidelines on Environmental
In November 2019, Chief Executive Ho Ching Risk Management for Banks
announced that Temasek Holdings planned to go In December 2020, MAS published guidelines
carbon neutral by 2020. The firm also aims to on environmental risk management of banks,
halve the carbon emissions of its portfolio by 2030. asset managers, and insurers.
OCBC’s $10 billion commitment to green loans
In 2019, OCBC made over $4 billion SDG in green loans in multiple transactions, making it one of the premier
sustainability lenders in Asia. These transactions align with its goal to underwrite $10 billion SDG for sustainable projects
by 2022.
© 2021. For information, contact Deloitte Touche Tohmatsu Limited Deloitte CFO Singapore Forum 5Resulting in a growing awareness that ESG issues are material
Once seen as extra-financial, ESG issues are now seen as a material risk that impact
company’s bottom line
Perceived effect of the company's performance on ESG • The costs of sustainability are
issues on the cost of capital today apparent, but the
opportunity has been less
High Moderate Low No impact
visible
• Research suggests that a
Family owned 12% 26% 45% 13%
connection between ESG
performance and financial
Government or state owned 15% 31% 42% 12%
performance
• 87% of CFOs believe ESG has
some impact on the cost of
Private equity / venture backed 11% 25% 41% 11% capital
• But a perception gap exists
Listed companies 17% 26% 39% 13%
between listed and family-
owned businesses
Source: Deloitte European CFO Survey, 2020
© 2021. For information, contact Deloitte Touche Tohmatsu Limited Deloitte CFO Singapore Forum 6Financial markets are beginning to pay attention
New sustainable investment strategies are being used to assess a range of extra-financial
factors
Four main types
Traditional / Exclusionary Integrated Themed Impact Philanthropy
Investment
strategy
Mainstream
(Impact First vs
Finance First)
Limited or no focus Exclusion of non- Explicit consideration Strategy that Targeted Focus on one or a
on ESG factors of renewable energy of environmental, addresses specific investments, cluster of issue
underlying types, tobacco, social and sustainability issues typically made in where social or
investments defence etc. governance factors in such as climate private markets, environmental need
Investment focus
the investment change, food, water, aimed at solving requires 100%
decision-making renewable social or financial trade-off
process. energy/clean environmental
technology, problems. Provided
agriculture, etc. to businesses with a
clear social or
Including environmental
Green Bonds purpose.
© 2021. For information, contact Deloitte Touche Tohmatsu Limited Deloitte CFO Singapore Forum 7Resulting in rapid growth in ESG investment strategies
With important consequences for how companies finance themselves and shape their
investor relations
More than • Investors are taking note
2,500 US$ 45 billion
flowed into ESG funds during the first quarter of 2020
• Asset managers are holding
corporate leaders
Investors representing over – while the overall fund universe experienced
outflows of more than US$380 billion. increasingly accountable for
US$80 trillion in funds had
signed up to the UN Principles for the ESG performance
Responsible Investment – In 2019 the cumulative issuance of sustainable debt passed
committing to include the • 2,500 investors representing
sustainability factors in their over US$80 trillion in funds
investment decisions US$1 trillion threshold
have signed up to PRI
2020 has been another bumper year
• More than US$1 trillion of
sustainable debt has been
Many governments are making sustainability central to their COVID-19 economic issued in 2020
recovery packages
70% 63%
of CFOs expect their ESG performance of CFOs expect a significant increase in the
to have a moderate or high impact on relevance of third-party ESG ratings on their
the cost of capital in three years’ investors’ and lenders’ decision making
time.
© 2021. For information, contact Deloitte Touche Tohmatsu Limited Deloitte CFO Singapore Forum 8However, some CFOs are missing an important opportunity
When it comes to ESG, many CFOs are missing opportunities to engage with investors
effectively
PERCEIVED EFFECT OF COMPANY'S
• ESG performance has an
PERFORMANCE ON ESG ISSUES ON THE
increasing role in
COST OF CAPITAL
determining a company’s
High Moderate Low No impact cost of capital
• 48% of CFOs believe the
company’s ESG performance
13%
6% has an impact on the cost of
24%
capital today
39%
• But 70% of CFOs believe that
it will have an impact on the
37% cost of capital in three years
• At a minimum, finance
36%
executives need to
33% familiarise themselves with
12% this topic
IMPACT TODAY IMPACT IN THREE YEARS
Source: Deloitte European CFO Survey, 2020
© 2021. For information, contact Deloitte Touche Tohmatsu Limited Deloitte CFO Singapore Forum 9CFOs have a critical role to play in communicating ESG performance
Both to their investors, but also to ESG rating agencies
• While defining ESG in a
company’s strategy is
of CFOs report to include ESG mainstream (72% of CFOs
considerations in the report this)
72% definition of the company’s • Using sustainability to
strategy engage investors is not (only
44% of CFOs report this)
• Finance departments have a
key role to play in financing
of them also use ESG the sustainable transition of
indicators to make the case their companies
for long term-performance • Connecting with investors
and understand the
44% disclosures that matter most
and rating agencies on ESG is
vital, but information must
to investors and rating be data-driven and easily
agencies communicable
© 2021. For information, contact Deloitte Touche Tohmatsu Limited Deloitte CFO Singapore Forum 10But they need to activate and engage internally
CFOs need to organise internally, focus on material issues and tell your story
• Organise internally – aligning
a company’s internal team is
important because
sustainability and corporate
performance are inextricably
linked
• Focus on the material issues
– material risks vary
depending on the industry.
Material sustainability risks
will have a short- and long-
term impact
• Tell your story – take control
of your sustainability
narrative and get ahead of
investor questions
Source: Deloitte Development LLP
© 2021. For information, contact Deloitte Touche Tohmatsu Limited Deloitte CFO Singapore Forum 11Olam’s sustainability journey Rishi Kalra Managing Director and CFO Olam Food Ingredients © 2021. For information, contact Deloitte Touche Tohmatsu Limited Deloitte CFO Singapore Forum 12
Important instruction:
Place an image in exactly the same
Finance for Sustainability position as this grey box.
Select the image.
[Mac] in the menu, select ‘Arrange’
Subtitle and then ‘Send to Back’. [PC] right
and Date
January 2021 click and then ‘send to Back’. This
will then render the green box on
top of the image.Sustainability at the heart of our 2019-2024 Strategy
Informed by Key Trends Our Strategic Priorities and Enablers
Leadership Operational
& Talent Excellence
Right-for-me D A
1
Strengthen,
Streamline &
Right-for-the-planet focus our
portfolio
Right-for-producers
Offer
differentiated
Improve
2 products/services 3
margins in existing & new
How I live channels
and consume
Explore
investments
C in new B
engines for
growth
How it’s produced
4
Digital Sustainability
14Changing societal context for business
Escalating investor Higher bars on rights Radical transparency Investors skew capital
and social activism to operate on “ESG” performance
Powerful purpose Good products Collaboration for
doing good collective action
15Sustainability increasingly a critical theme for investors
The Global 100 most sustainable companies gave
investors a 163% total return, compared to 132.5% for
the MSCI ACWI, resulting in 30.5% out-performance
From a changing attitude
300
amongst investors…
200
To prosper over time, every company must
not only deliver financial performance, but
100 also show how it makes a positive
contribution to society
0 (Larry Fink, CEO of BlackRock, 2017)
30/11/2007
31/12/2006
31/10/2008
31/12/2017
31/7/2011
28/2/2005
31/1/2006
30/9/2009
31/8/2010
30/6/2012
31/5/2013
30/4/2014
31/3/2015
29/2/2016
31/1/2017
…to a real shift
Global 2010 MXWD We are going to see evidence over the long
term that sustainable investing is going to be
Financial performance of the Global 100 v MSCI
at least equivalent to core investments. I
Source: Corporate Knights, available at: https://www.corporateknights.com/wp-
content/uploads/2014/07/Media-Release_2018_G100_Final.pdf believe personally it will be higher
(Larry Fink, CEO of BlackRock, 2018)
16To create value over the long-term, we need to define and
actively manage a broader set of drivers beyond Financial Capital
Invisible ‘non reported’ Visible value
value ($) S$5.9bn
Our Social Human Natural Manufactured Intangible Intellectual
current focus capital capital capital capital capital capital
17Multi-capital accounting holistically captures value
Financial capital Human capital Natural capital Intellectual capital
The investments we make, The talent, skills, dedication The land, water, biodiversity The knowledge and IP that
the assets we build and the and inspiration of our and other ecosystem services we create and use to keep
value we derive for our workforce and our for crops to grow us ahead
shareholders responsibility to keep them
safe
1 3 5 7
2 4 6
Social capital Manufactured Intangible
The relationships we capital capital
forge and nurture with The equipment, tools The trust in our brand
suppliers as well as and infrastructure to and our reputation
the communities in create our products and which helps establish
which we operate services safely and multiple stakeholder
sustainably partnerships
18The key F4S
question Finance Sustainability
Can we establish a numerical link to
Sustainability through the development of a
decision-making tool at profit centre level?
19Finance for Sustainability (F4S) team established to lead
Olam's effort in creating this link
F4S aspires to become a “Best in class” business partner responsible for
maximising long-term intrinsic value
Internalisation of Accountants’ culture Common financial
externalities and mindset change currency
• Bridging finance and • Formalise approach to • Use common language
sustainability concepts measure, quantify and that everyone can
• Supporting strategic report our long-term understand, evaluate and
financial business ‘invisible’ value articulate
decisions • Create partnerships and • Communicate both
• Via our Business Units collaborations to grow stakeholder and
this mindset shareholder value.
F4S Vision: “Best in class” business partner responsible for maximising long-term intrinsic value for all
our stakeholders within Olam’s business units using non-financial drivers of value.”
“Finance for Sustainability” webpage: https://www.olamgroup.com/sustainability/finance-for-sustainability.html
20F4S embeds the multi-capital approach within Olam
Olam’s Integrated through IIS, allowing BUs and functions to manage
Impact Statement (IIS) multiple capitals
aims to provide all
Business Units and
Intellectual Financial
Functions with an
capital capital
understanding of it’s
impacts & dependencies,
Intangible Social
via a monetary capital capital
perspective, allowing a
Business Unit and Function
to manage a broad set of Natural Human
drivers beyond just capital capital
Financial Capital and drive
net positive change.
Manufacturing
capital
21Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms, and their related entities (collectively, the “Deloitte organization”). DTTL (also referred to as “Deloitte Global”) and each of its member firms and related entities are legally separate and independent entities, which cannot obligate or bind each other in respect of third parties. DTTL and each DTTL member firm and related entity is liable only for its own acts and omissions, and not those of each other. DTTL does not provide services to clients. Please see www.deloitte.com/about to learn more. Deloitte Asia Pacific Limited is a company limited by guarantee and a member firm of DTTL. Members of Deloitte Asia Pacific Limited and their related entities, each of which are separate and independent legal entities, provide services from more than 100 cities across the region, including Auckland, Bangkok, Beijing, Hanoi, Hong Kong, Jakarta, Kuala Lumpur, Manila, Melbourne, Osaka, Seoul, Shanghai, Singapore, Sydney, Taipei and Tokyo. This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively, the “Deloitte network”) is, by means of this communication, rendering professional advice or services. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. No entity in the Deloitte network shall be responsible for any loss whatsoever sustained by any person who relies on this communication. © 2021 Deloitte Asia Pacific Services Limited
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