The pressures facing small businesses when it comes to sustainability reporting, from time to resources, are evident – and platforms such as myCSO from Singapore-based Rimm Sustainability aim to fill the gap. But is there an invisible hand at work which puts more difficulties on businesses in emerging Asia? Sustainable Future News speaks with Rimm founder Ravi Chidambaram to find out.
Ravi Chidambaram, founder of Singapore-based Rimm Sustainability, admits that what he is about to say is controversial. “I think the EU taxonomy is by and large nonsense,” he says. “I don’t think it will make any of the companies more sustainable in the least bit.”
The EU taxonomy is a classification system for economic activities which can be considered environmentally sustainable in line with both the European Green Deal and the 2050 net zero trajectory. A study from EY at the start of 2023 found that 93% of companies analysed had disclosed initial eligibility for sustainable turnover under the taxonomy. The company added that, beyond reporting obligation, the disclosures are ‘designed to raise strategic questions about the future viability of a company’s business model.’
Chidambaram, however, is not convinced. “What will happen is [companies] will just become damn good at filling in forms, and then good at indicating that they meet the thresholds to be considered sustainable,” he says.
The flood of regulations coming from the EU can be seen as something of a pain for Asia-based companies with global supply chains. Some sticking points can be down to cultural differences. Chidambaram cites related-party transactions as an example, where greater stringency in the West may not take into account the fact that around 85% of businesses in the Asia-Pacific region are family firms. Third-party, independent suppliers are naturally more difficult to find. Chidambaram believes that ‘if managed responsibly’, the risk from related-party deals ‘may be benign.’
Others are more explicitly political. Take the production of palm oil in Southeast Asia. When the EU brought in restrictions on Asian palm oil biofuel imports in 2009, an op-ed appeared in the New York Times under the title ‘green neocolonialism.’ The author was Lim Keng Yaik, who served as Malaysia’s Minister of Primary Industries for 17 years until 2004.
Actions speak louder than words. In response to the Roundtable on Sustainable Palm Oil (RSPO), an initiative promoting sustainable production with Unilever and Nestlé among its members, Indonesia and Malaysia created their own national certification schemes, the ISPO and MSPO in 2011 and 2015 respectively. The row continues, with negotiations ongoing between the two countries and the EU around the Deforestation-Free Regulation (EUDR).
Tension is evident, as Chidambaram explains. “I think a lot of companies in emerging Asia view a lot of the regulations that they’re suddenly facing now in supply chain – EU taxonomy, CSRD, German supply chain law, pressure from Western customers to meet certain standards – they find it to be a nuisance and annoying,” he says.
“The general feeling is ‘oh, yet another rule imposed by some supranational bodies on us to make life difficult’ where, historically, a lot of the sustainability problems, especially around emissions and deforestation, have been caused primarily by Western companies,” adds Chidambaram. “Now, suddenly, we’re in on the game, and now we’re being punished for it.”
Being from a finance background, Chidambaram’s interest in sustainability came about initially through investing in purpose-driven social enterprises. Teaching followed; Chidambaram is adjunct professor of sustainability at Yale-NUS College in Singapore. Alongside founding Rimm, this has enabled Chidambaram to refine theories around how sustainability and finance can dovetail. As one article of his puts it, corporate sustainability is ‘inevitable and profitable.’ So what does this entail?
“The fundamental premise is that all organisations will be affected by sustainability in some way, at some point,” says Chidambaram. “I think it’s inevitable. Ultimately, ESG, sustainability and the bottom line are not disconnected, so fundamentally, I think finance and business will intersect with sustainability.
“Right now, that is not well acknowledged and well understood – I think ESG and sustainability is viewed as a nice to have, a CSR initiative,” he adds. “But in reality, that’s just window dressing. I think the honest truth – and companies will start to find this out – is that all of the externalities that affect the P&L and cash flow and balance sheet are all linked in some way to the way your company manages sustainability.
“If you don’t manage those externalities, I think it will come back to bite you in some form.”
Managing those externalities is not easy however – and this is where Rimm comes in. The company’s mission is that sustainability management ‘is best understood and practised like any other critical business function’, and that it needs to be accessible to all. Rimm’s primary platform, myCSO, is designed as an all-in-one offering to help SMEs manage, track, and report their sustainability performance, compatible with disclosures ranging from SFDR to SASB.
Chidambaram explains that the three pillars of myCSO are data science, ESG research and tech. The key principles for the solution are customisation, full-stack capability, and inclusivity.
“Sustainability today means many different things to many different organisations. There is no common definition of it,” Chidambaram says of the former. “It’s not like net profit margin, which is a commonly understood metric in finance. There is no ‘net sustainability margin.’ So in the absence of that, what we found, being out in the market, is that if you go to company one, they may tell you this is their interpretation of being a sustainable company, [but] if you go to company two, they may tell you something completely different.
“So you have to use the basic tools on the platform, but be able to tweak them and customise them to cater for all these heterogeneous cases.”
Reporting is arguably the most necessary aspect for organisations – and most understood, given its compliance-driven nature – but purely from a platform perspective, it does not provide much of a value-add. Chidambaram notes the importance of having what he calls the ‘action bit of ESG’, which myCSO provides in the form of accessing actionable insights, identifying risks, and curated recommendations which organisations can immediately implement into their sustainability strategies. “You need tools around the action part as well,” he notes.
Taking the extra steps when it comes to ESG is no good when the ladder is taken from under you, however. Chidambaram believes the answer to emerging market pain is around a more localised and contextualised ESG rating model – and it is something clients at Rimm want to see as well, with a local ESG rating system for Indonesia in the works.
“If the concept of an ESG score was something developed in New York or London, and it’s a one-size-fits-all model in terms of the criteria, how they’re evaluated and scored, the reality is emerging markets companies have historically scored lower, either because of incomplete disclosure or some of the practices are just not deemed as international standard,” explains Chidambaram.
“So when it comes down to companies being excluded from the MSCI index because of MSCI scoring policy, that hurts share price performance of Asian companies, it means they get a lower bond rating for green bonds, it could be they’re excluded from the supply chain and so on,” Chidambaram adds. “I think it is a bit of a tricky issue, and I think there is a need to acknowledge that there isn’t probably a one-size-fits-all system.”
Does more need to be done to make emerging Asian countries more equitable partners in this conversation? Chidambaram believes there has not been a lot of focus on that yet. “We may need to acknowledge that countries are on different timelines around adoption and business model,” he adds. “At the moment, there’s very little of that [discussion].”
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