Environmental, Social, and Governance (ESG) considerations are no longer peripheral discussions but central themes shaping boardroom agendas across Asia.
Deloitte’s senior executives joined Echelon and shared real-world examples of how other countries and corporations have benefited by integrating ESG principles into policy and financial decisions to manage risks, identify and exploit growth opportunities attract investments and finance for sustainable capital, or even build foreign currency reserves.
Shailesh Tyagi, Partner, Climate Change and Sustainability Leader, Deloitte South Asia, Ruvini Fernando, Head of Strategy, Risk and Transactions Services at Deloitte Sri Lanka and Maldives, and Zahra Cader, ESG, Government and Public Services Leader at Deloitte Sri Lanka and Maldives, talked about ESG’s growing influence in boardrooms and how it is enhancing business resilience, boosting productivity, and improving profitability, and how financial instruments like green bonds offer promising pathways for Sri Lanka’s sustainable finance, aiding in debt restructuring and fostering economic growth.
From an Asian perspective, what’s happening to the ESG conversation at the C-suite?
Shailesh: Sustainability is currently the hottest topic at every forum and not just in the boardroom. When considering sustainability, it’s crucial to move beyond the traditional environmental perspective. Instead, let’s view it through the lens of capital – not just financial capital, but also managing natural resources as well as relationships in the best possible manner.
Financial capital is the lifeblood of any organization. Effective management ensures stability, growth, and resilience. Robust governance systems and processes enable informed decision-making. Sustainable practices ensure the responsible use of natural resources making for waste minimization and maximizing resource efficiency. Strong relationships with customers, suppliers, employees, and communities enhance long-term success.
In short, sustainable business practices integrate financial, natural, and relationship capital. By doing so, organizations can thrive while safeguarding the planet and promoting social well-being. Integrating financial, environmental, and social aspects within your business requires a holistic approach. Sustainability reporting involves conveying progress on various sustainability parameters, including ESG (environmental, social, and governance) risks, and impacts, and requires a very clear strategy, sound policies and maybe a steering committee as well. You’ll want to link employee incentives to sustainability performance, implement targeted interventions and create roadmaps to achieve sustainability objectives ensuring these are measurable and actionable.
You’ll also want to understand your entire value chain, including suppliers, customers, and partners, collaborate to address shared sustainability challenges and even if certain impacts occur outside your direct control, report them transparently while attributing them accurately. Sustainability reporting isn’t just about compliance; it’s a strategic tool for driving positive change and demonstrating your commitment to a sustainable future.
Discussing ESG aspects at the CXO forum helps leaders stay informed about material aspects that impact their companies, industries, and the global landscape. In Sri Lanka, South Asia, and other middle-income countries, climate risks are particularly relevant. Physical impacts on installations, infrastructure, and critical sectors can affect capital availability and investment decisions. ESG-minded investors, including ETFs and mutual funds, increasingly consider environmental and social factors when allocating capital. They want companies to demonstrate responsible practices. So having an ESG lens into your investments is essential for attracting capital.
Finally, in a globalized world, companies operate across borders. Export markets demand transparency and responsible practices. Demonstrating ESG awareness and performance enhances your reputation and competitiveness in international markets. ESG discussions are now part of the boardroom agenda. Executives recognize that measuring and managing ESG metrics are critical for long-term success and by integrating ESG considerations, companies can drive positive impact, mitigate risks, and contribute to a sustainable future. The CXO forum catalyzes these conversations, fostering collaboration and driving positive change.
How is the boardroom agenda in Sri Lanka being driven around ESG?
Ruvini: Integration of ESG considerations into boardroom conversations is indeed gaining momentum. Boards recognize the role ESG plays in driving long-term value creation. As a result, more boards are focusing on and disclosing how their governance structures are evolving to consider ESG more intentionally. Enhancing ESG integration in boardroom conversations is crucial for Sri Lankan businesses to remain competitive and address the diverse aspects of sustainable growth.
Zahra: It’s a journey and something that boards are increasingly taking up. ESG is about investor relations, finance, and communication. You’re now bringing everyone together and also understanding it is part and parcel of your business strategy. The Colombo Stock Exchange is actively promoting ESG awareness, disclosure, and best practices among listed companies. By doing so, it contributes to a more sustainable and responsible business environment.
What are the factors driving this integration of ESG into the core strategy of a company?
Shailesh: Essentially, it’s about doing business without negatively affecting the environment, community or society as a whole. During my time at Deloitte Australia, I ran an idea incubation workshop called Greenhouse Lab for a leading cement company in South-Asia.It was a massive group that went on this pyramidical approach complying with the requirements of stock exchanges and voluntary requirements of GRI (global reporting initiative) standards on reporting with sound management systems in place. For value addition, they ran those workshops, and now they are moving towards cement polymers. One example of innovation taking R&D in a direction of financial gains and environmental impact reduction while creating a positive influence on products and processes.
Ruvini: Sri Lankan companies as a consequence of the economic crisis would be requiring more capital. When looking at sources of capital available, the sustainability-backed capital pools in the world are growing at a tremendous pace so access to capital is one of those value additions that many corporations would see. With many corporates attempting to be export-oriented and globally competitive there is a requirement for sustainability to be very much a part of the business agenda so therefore it makes sense to embed it into your strategy as well.
Another aspect is the emerging generation. When we look at our stakeholders, we know that Millennials and Gen Zs are much more conscious about this conversation, so we need to be sensitive and address what they see as important and what they will be looking at or expecting companies to be doing, if they are to engage with those companies. So, integrating sustainability into your business strategy not only benefits the planet but also your bottom line.
In Sri Lanka, three main drivers are shaping the sustainability conversation: growing pools of capital ready for sustainable investment, exporters needing to stay competitive and linked to value chains, and increasing consumer demand for sustainability. What do you think are the current gaps in this conversation?
Zahra: Companies often struggle to identify where to concentrate their sustainability efforts for maximum effect. Balancing short-term performance requirements with long-term sustainability goals can be tricky. Prioritizing initiatives that yield the most significant positive impact is essential. Also, from a regulatory perspective if you do not get on the bandwagon and make the change you will always be in a catching-up mode. These are some areas that people need to think about.
In a market like Sri Lanka, with large listed companies and medium-sized exporters linked to global supply chains, how can they effectively make ESG work?
Shailesh: I would like to answer this question with a spin. I got into this field because it’s not philanthropy only – that’s important no doubt, Corporate Social Responsibility- absolutely important, but for me, CSR is with an impact measure and the impact relates to the CSR activity. The same concept applies to businesses in Sri Lanka especially when we are on this journey of economic revival.
We mustn’t follow the track the West has taken, instead, we can be more efficient, and more impactful. When the revival is happening access to capital comes with certain conditions. Businesses should take measured steps and have clear policies and systems for sustainable growth, consider the impact of financial activities beyond profits and align with global sustainability goals for long-term viability. Developing a five-year sustainability plan helps integrate environmental, social, and economic aspects effectively. Sri Lanka’s economic revival can be both impactful and efficient, setting an example for other nations.
Sustainability reporting has become increasingly important for organizations worldwide. India has SEBI BRSR, Business Responsibility for Sustainability Reporting. Let’s look at what I refer to as the Bible of sustainability, the Global Reporting Initiative Standard, GRI. European countries under EU taxonomy, require companies to report both on the impact of their business on the world and the world’s impact on their business. Sustainability reporting is not only about compliance; it also helps organizations demonstrate their commitment to responsible business practices and transparency. By following these frameworks, companies can provide valuable information to stakeholders and contribute to a more sustainable future. Developing sustainable finance is crucial for any country, and Sri Lanka is no exception.
Do a robust materiality assessment and focus on what matters. Then think about the challenges, do we have the right people with a solid understanding of a field which is new and evolving, in-house or in the country? Do we understand the financial instruments required? Understanding financial instruments like blended finance and learning from other countries’ experiences can enhance Sri Lanka’s capacity for sustainable finance. Sri Lanka can learn from countries like Bangladesh, the Philippines, Vietnam, and Kenya, which have relevant experiences in financing green projects. Exploring global funds and understanding their conditions and requirements can provide valuable insights for sustainable finance initiatives. Focusing on capacity building, learning from global experiences, and adopting sustainable practices will contribute to faster and more efficient growth in sustainability.
In which sectors do you think, in a Sri Lankan context, sustainable finance would work best given the lay of the land currently?
Ruvini: When it comes to sustainable finance, there are many examples both globally and closer to home that we can emulate and learn from. But Sri Lanka has its challenges as well when it comes to accessing finance globally. Restoring Sri Lanka’s country rating is crucial. Investors will closely monitor this rating to assess risk and stability. External debt restructuring completion will play a pivotal role in rebuilding investor confidence. We need consistent policies because these are long-term financing instruments.
And then of course comes the all-important question of what would be the cost of that finance. Determining the cost of finance when that financing comes from foreign sources involves assessing country risk which considers factors like political stability, economic performance, and legal framework and currency risk which accounts for exchange rate fluctuations. There are also options of blended finance where you have a grant component as well as commercial financing, and blending these can also be a solution for Sri Lanka which is looking for cost-effective financing solutions. Within the domestic market the financing cost would be determined in a market based manner.
Having said that, there are two sectors where this would be most attractive at present. One is the transition to renewable energy. Sri Lanka’s shift towards renewable energy is essential for reducing dependence on fossil fuels. Blended finance can support renewable energy projects by providing cost-effective financing options for developers. Projects like solar, wind, and other cleaner sources of power can benefit from this approach. Another is public transport which contributes significantly to emissions.
Blended finance can help upgrade public transport fleets, promoting cleaner technologies like electric vehicles (EVs) and deployment of infrastructure for e-mobility solutions. India’s successful e-mobility financing models serve as an example for Sri Lanka. Sustainable financing can also enhance Sri Lanka’s tourism and agriculture sectors. In tourism, investments in eco-friendly infrastructures and community-based initiatives can thrive with blended finance. For agriculture, projects related to sustainable farming practices, irrigation systems, and value chain development can benefit. Structuring effective blended finance solutions tailored to each sector’s commercial viability is crucial for sustainable development in Sri Lanka.
Considering the laws and regulations surrounding sustainability that might impact financing, what upcoming changes should organizations start preparing for?
Zahra: The sustainability landscape is evolving and in Sri Lanka, a lot is happening on the sustainable finance side. The central bank has come up with a roadmap, and directives to banks on how to report sustainability risks. In addition, the Stock Exchange has come up with voluntary reporting standards based on GRI and more recently with guidelines on issuance of corporate bonds. In Sri Lanka at the moment, it’s a voluntary reporting mechanism, but from 2025 onwards this will transition to mandatory reporting for the top 100 listed companies on the Stock Exchange.
What it means is that Sri Lanka Accounting Standard SLFRS S1 and S2 are coming into play. S1 refers to sustainability-related financial reporting and S2 delves into climate reporting. While corporates have been voluntarily reporting for some time, deeper climate reporting—especially regarding scope 3 emissions (those from the value chain)—is an area that requires attention. The transition from voluntary to mandatory reporting signals a positive shift towards a more sustainable future for businesses in the country.
With upcoming regulatory changes, what do you anticipate will happen with sustainability finance in Sri Lanka?
Ruvini: As the regulatory framework steps up, companies will be required to disclose their sustainability efforts, impacts, and goals by tracking and measuring ESG performance, to demonstrate their commitment to sustainable practices and transparency making their access to sustainable finance easier. With investors and lenders being increasingly interested in financing projects aligned with sustainability goals they may offer preferential terms to companies that meet ESG criteria.
Companies that proactively address ESG considerations are better positioned to access capital, manage risks, and drive positive change. Integrating sustainability into financial decision-making benefits not only the company but also the broader ecosystem. It encourages responsible practices and contributes to a more sustainable future and the future of financing will increasingly be sustainability linked.
In the context of Sri Lanka’s sovereign debt restructuring, we see parallels with economic performance and growth. It’s promising that these options are available. For a Sri Lankan company, this sounds great, but is it realistic? Can a company commit to sustainability targets, raise financial capital, and then benefit from a lower cost of funds?
Shailesh: It’s happening all around us, the issuance of green bonds. In Southeast Asia, Indonesia issued the largest number of green bonds, US$5 billion with India and the Philippines coming up close. To understand this landscape of sustainable finance or impact investing we first need to know why it’s needed. Sustainable finance is about channelling capital towards solutions that address pressing global challenges such as climate change, poverty, and inequality. Impact investing targets investments that generate measurable social or environmental benefits alongside financial returns and covers sectors like renewable energy, sustainable agriculture, healthcare and education.
A 2022 report I read states that of the US$60 billion that has come in around US$40 billion has gone into mitigation. The rest has gone into adaptation, both are important for these countries.
If there are nationally determined commitments (NDCs) those emissions have to be managed and the impact understood. While mitigation is crucial, adaptation is equally important. Countries need to manage physical assets, ecosystems, and critical sectors to reduce risks from events like cyclones and hurricanes.
Sustainable finance provides funding for both mitigation and adaptation efforts, so it’s important to understand the types of funding available. Impact investing actively seeks to create positive social and environmental outcomes and supports clean technology enterprises, nonprofits benefiting communities, and microfinance loans for small-business owners in emerging nations. Beyond climate impact, we must consider social bonds and inclusion. Infrastructure investments matter. India’s FAME2 initiative for electric vehicles (EVs) is a positive step. Amazon’s climate pledge encourages participants to adopt EV charging stations, promoting sustainable transportation.
Ruvini: We’ve spoken a lot about the climate aspect itself, but when looking at sustainability, financial and gender disparities at the bottom of the pyramid also need to be addressed. Impact investing can benefit the agriculture sector, women entrepreneurs, tourism and communities engaged in MSME. Sustainable finance and impact investing go hand in hand, creating a better world while ensuring financial viability. By considering both environmental and social aspects, we can build a more resilient and inclusive future.
What strategies can businesses adopt to mitigate the impacts of climate vulnerability, given that Sri Lanka is a country with a high exposure to climate risk?
Zahra: Sri Lanka, being a tropical island in the Indian Ocean, faces significant climate vulnerabilities. It has consistently ranked among the top ten countries at risk of extreme weather conditions according to the Global Climate Risk Index. What is it that companies can do? Companies should actively reduce their carbon footprint by adopting energy-efficient practices, transitioning to renewable energy sources, and optimizing resource use. Commitments like the government’s target of reducing 14.5% of carbon emissions are essential for collective progress. Increasing the share of renewable energy in the energy mix is crucial.
While Sri Lanka aims for 70% renewable energy, companies can set their ambitious targets. Investing in solar, wind, and hydroelectric power can contribute significantly to reducing reliance on fossil fuels. Corporations should develop comprehensive decarbonization plans that outline specific actions to reduce emissions across their operations. These include improving energy efficiency, promoting sustainable transportation, and minimizing waste. Complex climate challenges require collaboration.
Companies should engage with stakeholders, including local communities, NGOs, and government bodies. Joint efforts can lead to innovative solutions and better outcomes. Striving for net-zero emissions is critical. Companies can set ambitious targets aligned with the national commitment to combat climate change. Addressing climate vulnerabilities is a shared responsibility. By integrating sustainability into business practices, companies can contribute significantly to Sri Lanka’s resilience and global climate action.
For clarity, when a sovereign commits to impact reduction targets, are usually corporate net zero targets regulated or have these always been involuntary?
Shailesh: When I started my career, everything was voluntary except pollution. As the world evolved, there came a focus on environment, health and safety management systems. And if the World Bank was financing a project, they needed to see its impact and so came the IFC performance standards. These standards, part of the IFC Sustainability Framework, guide how to identify and manage environmental and social risks and impacts and are designed to help avoid, mitigate, and sustainably manage risks. The GRI framework is widely used for sustainability reporting, helping organizations communicate their impacts on the environment, economy, and people and provides a standardized way to report on various sustainability metrics, making it easier for stakeholders to compare and assess company performance.
Stock exchanges required that reporting be on a comply or explain basis. In India, the top 1,000 listed companies are required to report on their sustainability practices, while Sri Lanka will make it mandatory for its top 100 listed companies starting January 1, 2025. This mandatory reporting helps create a level playing field for investors to compare companies. The credibility and verifiability of these reports are crucial, which is where assurance comes in. In Europe, limited assurance is common, while in India, a full financial audit with reasonable assurance is often required.
To ensure credible non-financial information robust governance and advanced technology to track and verify data across the supply chain is crucial. Europe has stringent requirements for supply chain transparency. The Carbon Border Adjustment Mechanism (CBAM) is a significant part of this framework which aims to put a fair price on the carbon emitted during the production of goods imported into the EU, encouraging cleaner industrial practices globally.
For sectors like steel and cement, understanding and managing internal carbon pricing is essential as this helps companies prepare for potential penalties and align with international standards, ensuring competitiveness and compliance. In emerging markets, the challenge is to balance green energy with affordability and reliability. Phasing out coal is a complex issue that requires careful planning and consideration of local conditions. The transition to sustainable energy sources must be gradual and well-supported to avoid economic disruptions.
The EU has just announced a new regulation for tracking sustainability across supply chains. Are Sri Lankan companies ready for this? What’s the likely impact of this new law?
Ruvini: Sri Lankan companies are gearing up for significant changes in export regulations, particularly focusing on traceability and supply chain visibility. This is indeed a complex challenge, especially when it involves tracking raw materials from suppliers to ensure compliance with new standards. Ensuring traceability means having a clear view of the entire supply chain, from raw materials to finished products. Adopting international standards and best practices can help in meeting regulatory requirements. These include due diligence and risk assessment to minimize supply chain related risks. I think a lot of the techniques, standards, and processes that Shailesh was speaking about will become important starting with the export companies as they will be the ones most challenged in the immediate future.
What role does diversity and inclusion play in the ESG strategies of Sri Lankan companies? While we’ve discussed supply chains and financing, how do internal diversity and inclusion policies fit in? Are these policies visible to customers and the supply chain?
Zahra: When it comes to companies that are reporting, most of them do because it is the requirement of GRI and other frameworks. But looking at Sri Lanka, there exist some critical issues regarding women’s participation in the workforce. While women make up a significant portion of university graduates, and educated individuals, their representation in the workforce remains disproportionately low at around 35%. This gap is even more pronounced in higher management roles and board positions where women hold around 10% of the seats. Several studies show diversity and inclusion have a significant impact on corporate returns. In Sri Lanka, more women are getting into board positions, but there’s still room for improvement.
You mentioned Indonesia issuing $5 billion in green bonds. With Sri Lanka needing to restructure about $12 billion in debt, how viable is it for Sri Lanka to explore green bonds as part of a long-term strategy?
Shailesh: Planning for a sustainable future involves a multifaceted approach, especially when it comes to finance. Engaging with experts in sustainable finance is crucial. This includes understanding how to integrate ESG criteria into financial decisions. Sustainable finance aims to support economic growth while reducing pressures on the environment and taking social aspects into account. PPPs can be a powerful tool for financing sustainable projects. They combine the strengths of both public and private sectors to deliver infrastructure and services. Taking stock of current projects and learning from them is vital.
Many successful initiatives can serve as models for future projects. By analyzing what has worked and what hasn’t, we can plan more effectively for the future. It’s essential for companies to not only engage in sustainable practices but also to report them transparently. This helps in building trust and accountability. Companies that are already doing a lot on sustainability need to improve their reporting, while those that need to do more should start by setting clear, measurable goals and tracking their progress.
Many organizations have made significant strides in reducing carbon footprints, adopting renewable energy, and implementing sustainable practices. Progress includes initiatives to improve workplace diversity, equity, and inclusion (DEI). Collaborating with organizations and experts who have successfully implemented ESG strategies is the best way to learn and plan financing needs. By leveraging these strategies, you can enhance your ESG initiatives and align them with your financial goals.
The impact of financial services on sustainability and emissions is great but are we capitalizing on it? By linking financial investments to ESG performance or green performance, banks and financial institutions can significantly influence the future sustainability of the economy. By focusing on reducing these emissions, banks can play a crucial role in the transition to a low-carbon economy. This involves prioritizing investments in sectors that are aligned with sustainability goals and reducing support for high-emission industries.
Integrating ESG performance into financial decisions can help manage risks and identify growth opportunities. This approach not only supports environmental goals but also enhances the overall financial health of the economy. How can we learn from one country, and one region and bring that capacity and capability to Sri Lanka? There is a lot of capacity and capability available in the region in terms of knowledge. Establishing partnerships with firms like Deloitte and other regional experts can significantly enhance these efforts. Learn from successful sustainability initiatives in other countries.
Can Sri Lankan companies tap international support both in terms of strategizing and also reporting around the ESG agenda?
Ruvini: Leveraging existing knowledge and expertise, especially from firms with global experience like Deloitte can help companies avoid repeating past mistakes and benefit from tried and tested processes. This approach can be particularly valuable when accessing finance, as it ensures compliance and efficiency by learning from regional and global case studies.
Considering the importance of leveraging expertise and networks to locate finance, which sectors have shown the greatest movement in sustainability over the past few years, from your vantage point at Deloitte?
Zahra: At the moment, the financial sector is experiencing significant traction, driven by new regulations both in Sri Lanka and globally. These regulations aim to enhance transparency, fairness, and consumer confidence in financial services. Corporations are increasingly recognizing the importance of integrating their Corporate Social Responsibility (CSR) efforts into a cohesive strategy. By aligning various CSR initiatives, companies can create more impactful and sustainable outcomes. This integrated approach not only benefits the community but also strengthens the company’s brand and stakeholder relationships.
Ruvini: The SME sector in Sri Lanka is indeed a crucial part of the economy, contributing significantly to GDP and employment. Given their importance, it’s essential to support them, especially after the recent economic crisis and technology plays a pivotal role in this support. By leveraging digital platforms, financial institutions can streamline data management, making it easier to track and analyse the fragmented parts of the MSME framework. This includes monitoring supply chains, end markets and various stakeholders involved. Using technology not only simplifies data handling but also enhances transparency and accessibility, enabling better decision-making and more efficient operations for sectors like MSME.
To round this discussion off what will be your final words?
Shailesh: There’s a lot of information available. How is technology being used to leverage that information to improve agriculture and supply chains, especially in regions impacted by weather patterns, and how are these technologies transforming the agriculture sector by making it more resilient, efficient, and sustainable? Several organizations and technologies specialize in this area.
Thai CPG Group, is one example. They have done a climate risk assessment. In Japan, companies like RICOH are also actively involved in climate risk assessment and management. They use advanced technologies and adhere to guidelines such as the Task Force on Climate-related Financial Disclosures (TCFD) to assess physical and transition impacts on their physical assets.
The company is doing extremely well when it comes to circular economy, tracking the life cycle of its waste using technology. In India, life cycle assessment is very much part of the regulations. Singapore National Water Agency, PUB uses IoT and sensors to monitor and manage water usage efficiently. Finally, on the decarbonization pathway, implementing measures to reduce energy consumption can help reduce their carbon footprint and contribute to global sustainability goals.
Sustainability needs to make sense to a business. I always say, let’s make sustainability work for businesses and businesses work for sustainability. It’s not one way. I never preach to clients to plant five trees. I say plant five billion. Let’s make a business case of it. I think that’s what it all comes down to.