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
Deloitte CFO Singapore Forum
Financing a sustainable future
Friday, 29 January 2021 | 09:00am – 10:15am
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
Deloitte CFO Singapore Forum Financing a sustainable future - Friday, 29 January 2021 | 09:00am - 10:15am
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
Deloitte CFO Singapore Forum Financing a sustainable future - Friday, 29 January 2021 | 09:00am - 10:15am
The global business landscape is changing
Creating new risks and opportunities for businesses

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Deloitte CFO Singapore Forum Financing a sustainable future - Friday, 29 January 2021 | 09:00am - 10:15am
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   5
Resulting 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   6
Financial 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   7
Resulting 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   8
However, 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

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CFOs 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   10
But 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   11
Olam’s sustainability journey
Rishi Kalra
Managing Director and CFO
Olam Food Ingredients

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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

                                                                                                    14
Changing 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

                                                                                           15
Sustainability 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)

                                                                                                                                                                                                                                                16
To 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

                                                                                            17
Multi-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
                                                                                                                                       18
The 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?

                                                              19
Finance 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

                                                                                                                         20
F4S 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

                                                                                      21
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