Boards are often required to manage environmental, social and governance considerations throughout the decision-making process. Although the precise contours of the ESG landscape can vary significantly between regions, ideological shifts toward sustainable business practices are part of a broader global trend.

The intensification of the regulation of space, combined with broader adjustments in mentalities, is propelling a wave of change that continues to sweep across the world. Board members must keep abreast of developments and adapt to the changing terrain.

Global transformation

The threat of climate change is at the heart of this transformation. Entire cities and communities are devastated by extreme weather events. Sectors such as agriculture, sensitive to environmental changes, face the continuous onslaught of predictable and unpredictable weather conditions. Such erratic weather conditions lead to price fluctuations and disruptions in supply chains.

Companies most exposed to climate risks must be flexible to address the complexities of the threat. Leaders must assess climate-related risks in the geographies where they operate.

As many countries consolidate their commitment to a common goal of net zero emissions, governments are strengthening their legislation to help them achieve their decarbonization ambitions. This will pose new legal considerations for companies, non-compliance with which could result in a palpable financial impact.

Corporate governance regimes are also being strengthened in several jurisdictions. This promotes greater compliance, accountability and discipline. The improvements aim to complement the existing legal infrastructure, forming the glue between the “E” and the “S” in ESG.

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At the same time, new doors are opening, offering new economic prospects. The convergence of risks and rewards in this area requires companies to proactively structure their legal frameworks to ensure continued business viability in the new dynamic. Businesses will now need to guard against emerging risks while seizing opportunities on the horizon.

Stakeholder engagement

Boards of directors are in the driver’s seat to ensure the successful implementation of their companies’ environmental and social initiatives. They often need to integrate ESG considerations into their decision-making processes, to take into account the competing interests of a wide range of stakeholders, including suppliers, customers, employees and local communities.

These stakeholders increasingly expect directors to integrate sustainability into the company’s strategic planning, risk management processes and investments.

Supply chain problems, caused by what are sometimes called modern slavery laws, are another aspect of this growing connection. Workforce engagement and employment standards have also taken on new dimensions, especially in the post-pandemic era. Sustainability is therefore no longer simply a moral imperative, but is quickly becoming an essential business strategy.

Regulatory changes in Singapore

In this context, Singapore has been at the forefront of driving ESG policies and initiatives. Singaporean business leaders must also stay abreast of developments both domestically and internationally.

Some aspects of the environmental regulatory framework that Singapore administrators should monitor include:

• Sustainability reporting: The Singapore Exchange has rolled out the first phase of mandatory sustainability reporting, starting with listed issuers in specific sectors. This obligation will extend to other carbon-intensive industries next year. Other listed issuers will continue to report their obligations under the “comply or explain” method, but this may also evolve into a mandatory reporting regime in the future. This requires boards to work with experts and experienced legal teams to ensure accurate, transparent and meaningful disclosure. Neither extreme greenwashing nor greenhushing is desirable.

• Carbon pricing: Singapore has also implemented a phased approach to carbon pricing, imposing a tax on carbon that will increase over time. Companies exceeding emission limits will face the tax, encouraging them to explore cost control measures and business opportunities, particularly while the carbon market is in its infancy. Transition credits and investments in low-carbon technologies go hand in hand as new industries continue to take advantage of this growing area.

• Sustainable financing: As part of the government’s goal to develop a robust green finance ecosystem, the Monetary Authority of Singapore issued Environmental Risk Management (Banking) Guidelines in 2020. These guidelines essentially require a closer examination from an environmental point of view when banks grant credit or underwrite. capital market operations. In turn, businesses seeking financing should consider how best to mitigate their environmental risks.

Bridging and blended finance opportunities are also among the suite of options that boards can explore. Administrators seeking to leverage green finance must be equipped to operate effectively within their boundaries.

Financing challenges often remain, and boards must address them as financial considerations continue to be the centerpiece of the ongoing energy transition. The question that often remains is when renewable technologies will reach scalable levels.

The evolving roles and responsibilities of administrators

The roles and responsibilities of directors must continue to evolve in response to regulatory trends, ESG considerations and climate risks. In Singapore, directors have the primary responsibility to act in the best interests of the company. In today’s business world, their obligations now take on added complexity.

Although directors are still expected to deliver financial results, the equation broadens when broader concepts of corporate responsibility are incorporated.

The integration of ESG factors into corporate governance represents a paradigm shift in the more traditional role of directors. This requires a balanced business approach that takes into account financial objectives as well as broader societal and environmental considerations. It is here, on the board, where change must continue and, hopefully, where profit meets purpose.

The author is an attorney and co-heads the commercial litigation practice at Dentons Rodyk. He also represented PNG Sustainable Development Program Ltd in the action brought against the company. An earlier version of this article was first published in the Q4 2024 issue of SID Directors’ Newsletter published by the Institute of Directors of Singapore.