As sustainability reporting gains a foothold in the capital markets, companies in certain pollutive industries like agriculture, mining and real estate development have appointed chief sustainability officers (CSOs) to create decarbonisation strategies and keep firms clear of trouble.
Banks have done the same, given the stringent regulations placed on the financial services sector, and CSOs there are often focused on lowering the lender’s financed emissions — or emissions arising from projects or firms that they fund.
But why does a brokerage like CGS International (CGSI) need a sustainability head? Kevin Lee joined CGSI in February 2023 after close to 15 years at YTL PowerSeraya, the electricity producer formerly part of Temasek Holdings.
As CGSI’s group head of sustainability, Lee was tasked with creating a strategy for the company to chart its sustainability journey while familiarising himself with the business. “It’s important because I didn’t come from the finance industry; I came from the energy industry. To me, [the challenge was:] ‘How do you practise sustainability in a finance setting? How do you contextualise a strategy for the company?’”
Under group CEO Carol Fong, CGSI has grown into more than just a brokerage. Speaking to The Edge Singapore, Lee clarifies that CGSI has “transformed into an integrated financial services provider”. “In fact, our aspiration is to become a world-class investment bank in Asia.”
In addition to CGSI’s brokerage services, he adds that the firm now offers investment banking services. “We have started to pivot into other areas by offering wealth, investment banking and investment management solutions.”
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CGSI’s many “finance-related activities” carry a carbon footprint, and Lee sees an opportunity to advise clients to make more sustainable investments. “People are very familiar with banks; a classic example is financing a coal plant versus a solar plant. For us, as a brokerage, it’s more about advising a client on a stock pick or a portfolio of assets.”
Inaugural report
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In June, CGSI published its inaugural sustainability report, disclosing Scope 1 and 2 emissions, along with Scope 3 emissions from business travel. Perhaps the most tangible result of Lee’s work, the independently assured report aligns with the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB) standards.
In an unusual but welcome move, CGSI also chose to disclose their greenhouse gas (GHG) emissions by market across Malaysia, Singapore, Thailand, Indonesia and South Korea.
Overall, compared to businesses in the manufacturing or extractive sectors, CGSI’s operations appear much “cleaner”. CGSI has identified its Scope 1 emissions to “wholly arise from mobile combustion sources” in the use of company-owned vehicles. The firm has six, four and two cars in Malaysia, Thailand and Singapore respectively. It has no company-owned vehicles in the two remaining markets.
Meanwhile, Scope 2 emissions from purchased energy were higher in certain markets. “Indonesia and [South] Korea have data servers located within their offices, which contribute to their total Scope 2 GHG emissions as compared to other offices, which have their data needs met by third-party data centres,” reads the report.
Finally, among the 15 categories of Scope 3 emissions, CGSI has chosen to begin by disclosing emissions from third-party data centres and cloud-based servers. These indirect emissions are considered emissions from “purchased goods and services”.
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CGSI has committed to measure more Scope 3 emissions categories in the future, starting with business travel in 2024.
“The upcoming years will focus on target setting for GHG emissions, managing climate risks, implementing governance mechanisms and developing a climate strategy to manage the company’s emissions,” says Fong in her remarks for the report.
Last year, CGSI set targets for eight sustainability focus (8SF) areas, to be achieved over a five-year period. They include climate change and decarbonisation, biodiversity and nature-based investments, research for low-carbon, socio-economic growth and sustainable finance.
Rounding out CGSI’s 8SF are inclusive growth, sustainability disclosures, cybersecurity and digitalisation and social responsibility.
Having eight focus areas is “quite a lot to chew on”, says Lee. “We looked at the external drivers of sustainability, [such as] ESG investing, decarbonisation, ESG risks. We look at external reports like those from the World Economic Forum, which informs us that ESG risks comprise a sizeable chunk of the top 10 risks faced by the world now and in the next decade. So, that tells you something.”
Sending a signal
Lee says investors keen on ESG are no longer investing purely for profit. Third-party reports claim the trend is “pointing towards greater awareness”, but “not all asset managers have caught on to it” in Singapore.
Society has a role in shaping business, adds Lee, and the sustainable investing megatrend will “only continue”. “There’s actually a lot of space for financial institutions to operate, and [that is] why disclosure is important. For the capital markets to function properly, they need ESG data.”
Sustainability disclosures is one of CGSI’s 8SF areas, Lee points out. “We believe very strongly [in that]. If we believe that ESG investment is a trend that is here to stay, then we better set an example. I think that helps the capital markets to be more informed [about] where they should take their money.”
Not all institutional investors will review such reports and disclosures in detail, but Lee says they “send a signal”.
By FY2025, Singapore’s listed issuers will be required to use the International Sustainability Standards Board’s (ISSB) standards for climate-related disclosures. Some non-listed companies — those with annual revenue of at least $1 billion and with total assets of at least $500 million — will be required to do the same starting FY2027. “So, you can see that the Singapore government is pushing [for this],” says Lee.
In February, Malaysia also published its draft proposal on adopting mandatory ISSB standards in sustainability reporting. “Thailand [and] Indonesia may not be at the stage where Singapore is, but you know that they are looking at it,” he adds.
In July, the Stock Exchange of Thailand (SET) announced a partnership with FTSE Russell to provide a sustainability scoring framework for listed corporates, ending a search that began in 2022. The new scoring framework will replace the current SET ESG Ratings from 2026.
As CGSI expands its suite of services, Lee believes the firm’s expertise in sustainability reporting will come in handy when serving high-net-worth clients. “So far, we haven’t seen strong interest [for sustainable investing advice]. It is really what we aspire to [and] what we believe in. We believe that we can lead, influence and be the thought leader. We may possibly be the first brokerage that aspires to have a strong sustainability focus.”
Lee and his team are developing an “ESG cooperation framework” this year to guide CGSI’s various business units on sustainability issues.
For example, relationship managers may need guidance when constructing a portfolio with ESG attributes. “There will be education; there will be a lot of hand-holding. It’s a learning process,” he adds. “It’s really about preparing yourself. You don’t wait for the trend to come at you and then you react to it. We want to take a more proactive approach.”
Thought leadership
CGSI is also thinking outside the firm. Along with its sustainability report, CGSI announced the launch of the Asean Institute of Carbon Neutrality (AICN), which has already hosted one webinar on sustainable financing.
AICN aims to enable climate mitigation and adaptation action through developing thought leadership for capital markets.
CGSI signed a memorandum of understanding with the National University of Singapore (NUS) in December 2023, making NUS the first partner of AICN. According to Lee, CGSI is in talks with other universities and associations across the region for potential partnerships.
AICN and NUS’s Sustainable and Green Finance Institute (SGFIN) are collaborating on research projects on topics such as renewable energy and the just transition in Southeast Asia, with research findings targeted to be made available in 4Q2024.
“We deliberately frame the topics so that somebody in the finance sector [may] find that it’s meaningful; it’s not a pure academic exercise,” says Lee.
The target audience for these findings are corporates and investors, he adds. “What would be meaningful is if we partner with a local academic institution, a university, an industry association or even an expert; but we do a decarbonisation topic that is meaningful for that country, and we get the finance committee of that country to read the report, and it gains more traction. That’s our working model for the AICN.”
The response so far has been “encouraging”, says Lee, and institutions “welcome” such partnerships. “I would say the CGSI brand name is still very young right now… Universities, especially, feel that they need more market knowledge, and they want to bridge the gap, which is exactly what we want to do.”
Photos: Albert Chua/The Edge Singapore
Infographics: CGSI
