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An ESG rating is typically assigned to companies to determine and evaluate their focus and direction on Environmental, Social and Governance (ESG) issues, as well as a company’s exposure to long-term ESG risks, involving issues such as energy efficiency, worker safety amongst other things. The awarded score or grade to a company, known as the ESG Rating, is typically derived from the various frameworks that third-party auditors or investment managers have devised, assessing how well a company manages ESG issues that are material to the business. While ESG has shifted companies to rethink the direction of the company to include social and environmental impacts, the current metrics and assessments available have a long way to go in terms of adoption and proper accountability for the impacts of individual companies.

ESG Ratings, Source: MSCI

How ESG Ratings Work in Practice

ESG ratings are similar to credit ratings, whereby the key difference lies in how ESG ratings are not strictly based on financial data. Companies that spread across various industries are also typically assessed on idiosyncratic criteria, and benchmarked to industry peers. Using MSCI ESG Ratings as an example, there are three key factors that contributes to the ratings:

Peculiar issues segmented by industry

MSCI selects the 35 most relevant issues to specific industries. For example, although packaging material and waste is a key issue for the F&B industry, this issue is irrelevant for companies that do not physically package products, such as a SaaS company. However, there are some issues that are considered for ratings regardless of the industry, such as corporate governance or information disclosure.

Companies are scored on each key issue

Companies are scored from 0 to 10 on each of the 80 different exposure metrics and 270 governance metrics by MSCI, whereby a low score indicates the company is significantly exposed to the issue and is not managing that risk effectively, while a high score displays an aggressive effort to mitigate risks by the company.

To exemplify, a key factor that impacts the ESG rating of a pharmaceutical company is the prices of its drugs. As large pharmaceutical companies to dominate certain market segments or treatment areas, enabled by patents, a monopoly is formed allowing full control over prices. A recent case study would be the prices that Pfizer/BioNTech and Moderna have set for their Covid-19 vaccines, where not all countries were able to easily afford vaccines, leading to discrimination in access. High prices create bad optics for the company, where they are then seen as being opportunistic profiteers with little to no regard for the wellbeing of society. Although increasing drug prices boosts short-term revenue, if done in a dubious manner, the negative social impacts lead to negative press and social media reaction. This presents an ESG and a financial issue as it could affect reputation and brand value as well as a company’s overall cost of capital. As such, a delicate balance between all factors must be considered.

Issues are weighted: MSCI weighs key issues in accordance to timelines and their potential impact, where issues that could have a major environmental or social impact within two years have the highest weights, while issues with lesser potential for impact and a timeline of more than five years have the lowest weights. A key issue could be worker safety in manufacturing, where an immediate risk with severe financial and legal consequences is present, justifying a heavier weighting.

Benefits and Current Status Quo

ESG efforts have become increasingly important in recent years as awareness around the topic has grown significantly in both consumers, investors and company executives alike.

Generational Sentiment to ESG, Source: Deloitte

There are numerous ESG benefits for businesses that get it right, including providing competitive advantages, attracting more investors, improving financial performance, building customer loyalty, and helping to make a company's operations sustainable. An outstanding ESG rating also reflects market recognition of the company’s efforts and performance within the ESG sphere, improving brand image, and even lowering the cost of financing in the EU. The lower cost of financing for companies with higher ESG ratings typically stem from being less susceptible to systematic market risks. They also benefit from having better management of resources, human capital, and company-specific operational risks, all of which contributes towards a company's financials positively and assures liquidity providers of a safer investment, thus lowering the cost of financing.

Cost of Financing Relative to ESG, Source: MSCI

As of now, only 24% of companies are given a high enough rating to be considered leaders. According to a recent study by the United Nations, 89% of CEOs from more than 100 countries believe that their commitment to ESG practices is translating into real impact in terms of the financial success of their firms.

Breakdown of ESG Ratings, Source: Motley Fool

Limitations of ESG Ratings

Limitations still exist in this fairly premature epoch with ESG ratings first being mentioned as in 2004. Some of the most prevalent issues and limitations that exist for ESG scoring are:

Lack of Standardisation: With no industry standards for scoring and multiple third-party auditors using internally built frameworks, comparisons across different scoring methodologies are challenging and can lead to severe disparity in ESG scores. This is further exacerbated with the lack of transparency on how exactly the scores are calculated. Although there is a general understanding of what might be considered, the actual weights and proponents are rarely fully disclosed by firms, if any. The plethora of ESG topics may also prove to be a barrier to accuracy as scores may not be comprehensive enough as well.

Self-reported data: Oftentimes, relevant data used for the calculation of ESG ratings are self reported by the company’s management without validation from a third-party auditor. As such, there is a significant risk that some data, especially those who are ambiguous, may be highly skewed in some way to provide a misleading figure to boost scores. Another way to manipulate ratings is by Greenwashing - where firms make green claims that can potentially impact scores without making any material impacts. Firms may be incentivised to manipulate data and claims due to the attractive benefits that come with a positive rating.

However, albeit the above are considerable, regulations are always developing to mitigate or eliminate the above-mentioned issues with stricter accounting standards and audits being mandated to ensure transparency and veracity in data reported. Additionally, startups such as Ureca aim to enable retail investors to contribute towards sustainability and climate change by trading carbon credits transparently, allowing all of us to contribute to the cause.

Conclusion

As our planet becomes increasingly susceptible to the negative effects of climate change and global warming, corporations have a critical role to play in helping to ameliorate these effects. The incorporation of ESG ratings, with its corresponding financial benefits in both operational costs, risk management, financing, and attracting increasing amounts of consumers who put a significant weight on the environment and sustainability is one of many concrete steps that society will take henceforth. We all have a role to play for a bigger cause and at Green Doctors Program, we aim to contribute by reducing the amount of wastes produced by disposable medical blisters through a novel solution.

References

Fidelity: "ESG Ratings." Fidelity. Retrieved from [I I=o-https://www.fidelity.com.sg/beginners/esg-investing/esg-ratings

MSCI: "ESG Ratings." MSCI. Retrieved from https://www.msci.com/our-solutions/esg-investing/esg-ratings

TechTarget: "ESG Score." TechTarget. Retrieved from https://www.techtarget.com/sustainability/definition/ESG-score

The Motley Fool: "ESG Rating." The Motley Fool. Retrieved from https://www.fool.com/terms/e/esg-rating/

Deloitte: "What Is ESG Rating?" Deloitte. Retrieved from https://www2.deloitte.com/cn/en/pages/risk/articles/what-is-esg-rating.html

Deloitte: "ESG Ratings: Do They Add Value?" Deloitte. Retrieved from https://www2.deloitte.com/ce/en/pages/about-deloitte/articles/esg-ratings-do-they-add-value.html

Climate change is happening far away - the ice caps are melting and putting polar bears at risk, wildfires are raging through popular tourist towns in Greece and Spain, Europe is experiencing hotter and hotter summers every year. There is no immediate pressure or impact in Singapore, right? Wrong. 

Climate change impacts every corner of the globe, including our tiny island-state of Singapore. According to Singapore’s First Aid Training Centre, the annual mean temperatures rose from 26.9℃, in the 1980s to 28℃ . While this increase may seem small, it’s a significant change considering that a 1.5℃ increase in global mean temperatures is enough to offset serious damages such as sea ice melting, heat waves and loss of biodiversity amongst other consequences. 

Here are just some of the impacts of climate change that we feel - some of which you may have felt yourselves and others, you may not have even noticed: 

Source: Ministry of Sustainability and the Environment

Rise in daily temperatures

While we may be used to the heat and humidity here, the blistering heat waves in May 2023 took us all by surprise across Southeast Asia, with a record-breaking 37℃ recorded. But isn’t that what it’s always like in Singapore? While the recorded temperature may seem not so different to what we usually see when we check our weather apps, the “real feel” of the hot weather during this period reached closer to 43℃. And no, that’s not normal (Koons, 2023). 

According to a report by the National Environment Agency, Singapore’s average temperature has increased by 1.1℃ since 1990. However, it is projected to rise up to 4.6℃ by the end of this century. This rise in temperature can have detrimental effects on our health, safety and overall quality of life. 

Why should we care? 

One of the most significant impacts of the rise in daily temperature is increased risk of heat-related illnesses, including heat strokes and heat exhaustion. Prolonged exposure to higher temperatures only increases the risk of falling victim to these illnesses.

Furthermore, while hotter temperatures is in itself an impact as a result of climate change, it can lead to further negative environmental impacts. For example, rising temperatures likely means increased energy consumption as people turn to air conditioning and other cooling devices to counter the hotter weather. In addition, rising temperatures have also been correlated with increased air pollution, reduced water availability and threats to plant and animal biodiversity (Singapore First Aid Training Centre, 2023).

Increased in rainfall

Don’t forget to take your umbrella out when you leave the house, because increasing rainfall and unpredictable weather patterns is another effect of climate change we feel here in Singapore. Rainfall trends across the last 30 years have shown that Singapore has experienced increasing rainfall, with increased intensity, as well as increased frequency of intense storms. Studies suggest that average rainfall has been increasing at a rate of 78mm per decade since 1980 (CNA, 2023). 

Source: Channel News Asia

Why should we care? 

Heavy rainfall can lead to risks to the environment, human life and damage to infrastructure and agriculture. In Singapore, a higher frequency of intense storms threaten low-lying areas with more frequent and potentially more severe flooding. Increased rainfall, coupled with other impacts of climate change in Singapore such as increased temperatures, the urban heat effect and sea level rise also threatens local food production. While you may or may not be a farmer or food producer, as a consumer this also impacts you. According to the National Climate Change Secretariat, we are a country that imports up to 90% of its food. We are particularly vulnerable to global shocks in supply and prices. This includes shifts in global weather patterns... And yes, this includes increases in global temperature

What can we do? 

What is being done about this? In February 2021 Singapore unveiled the Green Plan 2030, a whole-of-nation movement to advance Singapore’s national agenda on sustainable development and propel efforts to achieve ambitious goals to reach climate targets by 2030 (Singapore Green Plan 2030, n.d.).

These efforts work towards ensuring that not only will our generation live in a greener and healthier environment, but for future generations too. 

The Green Plan 2030 reflects the collective effort needed by individuals, corporates and government to achieve ambitious climate targets in a timely manner. Because of the aforementioned impacts of climate change in Singapore, the Green Plan 2030 has become a crucial effort to galvanise towards climate action. 

Why is the Green Plan 2030 important? 

The Singapore Green Plan has five key pillars - City in Nature, Energy Reset, Sustainable Living, Green Economy and Resilient Future. 

Source: SG Green Plan 

From greener spaces to cleaner and more efficient energy, the Green Plan will help mitigate impacts of climate change and transform the way we live: 

1. City in Nature

The City in Nature pillar, its policies and initiatives will help to mitigate climate-related challenges such as extreme weather patterns - impacts that are likely to be exacerbated by urban development. This pillar aims to create a greener, more liveable and sustainable climate resilient Singapore.

2. Energy Reset 

This pillar aims to push Singapore towards cleaner energy sources across all sectors. As one of the most solar-dense countries in the world, solar energy will be vital to powering the nation in a much more sustainable way. In addition to HDB rooftops, much larger solar farms have been implemented, for example in Tengeh Reservoir and Lower Seletar Reservoir. 

3. Sustainable Living 

The Sustainable Living pillar aims to reduce carbon emissions and overall promote more sustainable living habits such as recycling more, taking public transportation and being mindful of our everyday consumption. 

There are several initiatives already in place to rally entire communities towards more mindful consumption and creating recycling habits to move towards a zero waste and a circular economy model for the whole nation. This includes for example, e-waste recycling bins and fashion or textiles recycling bins around community centres and HDBs. 

4. Green Economy 

This rapid acceleration towards a green(er) economy will also transform the workplace. This pillar seeks to inform green growth by creating new jobs and upskilling workers to “harness sustainability” across all industries. 

The shift towards creating a more sustainable future poses new opportunities in areas such as green finance, carbon services and trading, and sustainable tourism (The Green Economy Explained: Trends, Skills & Jobs You Need to Know About | Myskillsfuture.gov.sg, n.d.).  Supporting workers and youths is essential in order to allow them to be equipped with the appropriate skills to take advantage of these opportunities. 

5. Resilient Future 

While arguably the other four pillars help to mitigate and reduce the effects of climate change, the fifth and final pillar focuses more on adaptation measures to prepare for long lasting impacts of climate change, building national resilience. 

Efforts towards building a more resilient Singapore includes developing measures to protect coastlines from rising sea levels, such as the development of engineering solutions such as seawalls and mangroves (Singapore Green Plan 2030, n.d.). 

Furthermore, as a nation that imports most of the food we consume, strengthening our food supply and therefore food security is important. Efforts include expanding local fish farming, as investing in local production to expand capabilities and capacities. 

Summary 

In sum, while Singapore may seem far away from the impacts of climate change, its consequences very much hit home. Effects such as rising temperatures, rising sea levels and food insecurity are likely to exacerbate without proper efforts to counter, mitigate and adapt. The Singapore Green Plan 2030 is a reflection of this urgency - a nation-wide effort that crosses industries, ministries, corporates and individuals, galvanising collective efforts to help Singapore become more resilient in the future, and ensure more sustainable living for our citizens today. This effort includes you! While we have summarised some large scale projects the government is undertaking to tackle climate change, the five pillars of the Green Plan can be reflected in our households with the ‘little things’. Whether that be making more of a conscious effort to recycle (and recycle properly), being mindful of our consumption and waste, to conserving energy, we can all play our part. 

References

Don't Let the Heat Get to You: The Surprising Ways Rising Temperatures in Singapore Affect You. (2023, March 15). Singapore First Aid Training Centre. Retrieved September 1, 2023, from https://www.firstaidtraining.com.sg/don-t-let-the-heat-get-to-you-the-surprising-ways-rising-temperatures-in-singapore-affect-you

The Green Economy Explained: Trends, Skills & Jobs You Need to Know About | Myskillsfuture.gov.sg. (n.d.). MySkillsFuture. Retrieved September 1, 2023, from https://www.myskillsfuture.gov.sg/content/portal/en/career-resources/career-resources/job-skills-insights/the-green-economy-explained--trends--skills---jobs-you-need-to-k.html

Impact Of Climate Change In Singapore - Singapore's Climate Targets. (n.d.). National Climate Change Secretariat. Retrieved September 1, 2023, from https://www.nccs.gov.sg/singapores-climate-action/impact-of-climate-change-in-singapore/

Koons, E. (2023, July 26). Heat Waves Become Singapore's Scorching Reality. CITA. Retrieved September 3, 2023, from https://www.climateimpactstracker.com/heat-wave-singapore/

Ming, L. C. (2023, March 23). A wet 2022 for Singapore, even as temperatures soared. CNA. Retrieved September 1, 2023, from https://www.channelnewsasia.com/singapore/nearly-20-higher-average-total-rainfall-2022-singapore-tenth-warmest-year-met-service-weather-3368901

Singapore Green Plan 2030. (n.d.). Singapore Green Plan 2030. Retrieved September 1, 2023, from https://www.greenplan.gov.sg/

Plastic is undoubtedly one of humanity's most widely utilized inventions. It can readily be produced, for many applications across different industries for a low manufacturing cost. However, the lack of a proper recycling and disposal system for plastics makes it detrimental to the environment as it can take up to 1000 years for plastics to disintegrate. In 2021, Singapore produced a whopping 982,000 tons of plastic trash with this number set to increase. According to Today (2021),  the recycling rate for plastic was just 4% for 2019 and 2020 falling short of the global average of 16% (OECD,2021). While the government is pushing for a zero waste future, we will never reach our target as long as the recycling rate is not dealt with. Therefore, it is crucial that we comprehend the reasons behind the country's low plastic recycling rate  and raise the rate of plastic recycling in Singapore.

Source: Singapore's Overall Plastic Waste Generation, Statista

Inconvenience

Commentary by CNA (2021) cited that rubbish is disposed of from the comfort of their homes using the centralized refuse chute (CRC), which is a standard feature of most HDB flats and high-rise condominiums in Singapore. It enables ease of waste disposal without sorting rather than going through the hassle of  washing and drying the recyclables plastic items before disposing them at the blue recycle bins. 

Source: Central Refuse Chute, Homeanddecor (Left) and Bright Blue Recycling Bin, CNA (Right)

Lack of Infrastructure

Another reason is that Singapore lacks the proper infrastructure to recycle plastics. China for many years has been the largest importer of recycled materials like plastic for the world. As such Singapore relies heavily on exporting its non-recycled plastic to China, which has been an easy fix to solve our plastic disposal. However with China's “National Sword” policy - the banning of importing of waste plastic -  being effective since 1st January 2018, there have been limitations on recyclable materials that can be imported in effect. Due to the significant constraints, infrastructure yet to be in place for recycling and nowhere to send recyclables to, Singapore’s recycling rate remains low.

Lack of knowledge

Have you ever held a plastic container, confused on what can or cannot be recycled? Then you looked at the labels but you became more confused? You are not alone. Many consumers are not aware that there are many different types of plastics, and not all of them can be recycled. This causes plastics waste to be disposed wrongly, increasing the cost of recycling. To discover if a product is recyclable, look for the triangular plastic code (often known as the "chasing arrows"), which ranges from 1 to 7. Not every number can be recycled. Plastics with hard surfaces (numbers 1 and 2) are always recyclable.

Source: Plastic Resin Identification Code, Greenpeace  

Source: Singapore Recycling Collection Process, Towardszerowaste

Economically Unattractive  

When it comes to waste disposal, Singapore has always been reliant on one simple solution - incinerate. It does not require the extra steps such as sorting or bundling, we can recover energy and the ash is sent to a landfill. Compared to recycling, incineration is the more efficient solution. The lack of understanding of how to recycle and a strict criteria for what can be recycled, much of what goes into recycle bins are sent to the incineration plant. Take for example, plastic packaging that has not been washed and still has food leftovers on it or a piece of trash thrown mistakenly into the wrong bin, the whole batch in the waste bin is rendered unrecyclable. Scale that by a whole nation, coupled with a more expensive process and a lower than expected volume of recyclable material, what is finally recycled may not be economically viable.

Source: Plastic Recycling, The Guardian

All hope is not lost, everyone has a part to play in making recycling more viable, individuals need to understand better recycling practices to reduce the need for sorting and rejection at the recycling facilities while more can be done by governments offering aid in setting up a recycling plant. You can play a part too! Contact us below to find out more about how we can help you to increase your company recycling rate and play a part in Singapore's zero waste vision. With the aim of raising Singapore's recycling rate, Green Doctors Programme (GDP) has successfully achieved separation for pharmaceutical blister foil packaging using our technology.

References:

• Commentary: Why does Singapore still lack a recycling ethos? (n.d.). CNA. Retrieved September 20, 2023, from https://www.channelnewsasia.com/commentary/singapore-low-recycling-rates-reasons-why-368996

• Data point: Rethinking recycling. (n.d.). Retrieved September 20, 2023, from https://impact.economist.com/sustainability/circular-economies/data-point-rethinking-recycling

• Explainer: Why Singapore’s plastic recycling rate is so low and what can be done to raise it. (n.d.). TODAY. Retrieved September 20, 2023, from https://www.todayonline.com/singapore/explainer-why-singapores-plastic-recycling-rate-so-low-and-what-can-be-done-raise-it

• The Big Read: Why household recycling rate has been falling despite greater eco-consciousness, Govt push. (n.d.). TODAY. Retrieved September 21, 2023, from https://www.todayonline.com/big-read/big-read-why-household-recycling-rate-has-been-falling-despite-greater-eco-consciousness-govt-push-2169991

• Waste statistics and overall recycling. (n.d.). Retrieved September 20, 2023, from https://www.nea.gov.sg/our-services/waste-management/waste-statistics-and-overall-recycling