Opening Speech at the Institute of Internal Auditors Singapore Annual Conference - Ms Grace Fu
Opening Speech by Ms Grace Fu, Minister For Sustainability and the Environment, at the Institute of Internal Auditors Singapore Annual Conference on 2 November 2021
Mr Koh Chin Beng, President, Institute of Internal Auditors Singapore
Ladies and Gentlemen
2 It is a great pleasure to be here with you. Having started my career as an internal auditor, it feels a bit like home coming.
3 Chin Beng talked about the risks that are involved in the profession, and he highlighted the "G" in the ESG (Environment, Social and Governance). So, I am going to start by talking about the other alphabets, namely the "E" in the ESG. The role of internal auditors remains very important despite changes in the alphabets and acronyms on the board, but it must evolve with time as we know. There are three challenges of global scale facing mankind – COVID-19, climate change and income inequality. Across the world, governments are managing the twin effects of COVID - on public health as well as our economic health. Businesses, too, have faced significant disruptions from the pandemic. All of us have had to deal with a new virus of an unprecedented scale by mobilising significant resources. Everyone – businesses, individuals, families, governments, NGOs – we all have to dig deep into our pockets, find all resources that we can to help us manage this crisis. As we work towards recovery, business leaders have the task of transforming their organisations to be sustainable and agile in an increasingly volatile environment. In particular, businesses must prepare for the far-reaching impacts of climate change.
Addressing Climate Risks
4 Climate change presents both physical and transition risks to businesses and investors. Physical risks such as severe weather events can disrupt business operations and erode the value of assets. Hurricane Ida,for example, brought record rain and winds to New York this September, resulting in more than US$50 million worth in damages. Such extreme weather events will become much more frequent with climate change. In the tropics in Southeast Asia, we have already seen a lot more intense and frequent typhoons. With a 600 million population, many of them located around coastal areas, low-lying areas, and more frequent typhoons, you can imagine the amount of physical, financial risk that we will face as a community.
5 Businesses also face transition risks from changes in policy, technology or consumer preferences as the world shifts towards a low-carbon future. Companies that do not keep their eye on the horizon and adjust their business models and investments could incur stranded assets or become obsolete. According to the latest climate scenarios developed by the Network for Greening the Financial System, reaching net zero emissions by 2050 globally will require an ambitious transition across all sectors of the economy. Should transition fail, up to 13 per cent of global GDP could be at risk by the end of the century.
6 Businesses must future-proof themselves for a carbon and resource-constrained world. The ability to operate and produce sustainably will be a key attribute of successful enterprises. Consumers and corporate buyers increasingly place value on sustainable goods and services. Companies must embrace ESG imperatives in their business practices or run the risk of falling short of stakeholders' expectations.
Singapore Green Plan 2030
7 To ensure that Singapore will thrive and prosper in the low-carbon and sustainable future, we launched the Singapore Green Plan 2030 earlier this year. The Green Plan sets out ambitious and concrete targets over the next 10 years, strengthening Singapore's economic, climate and resource resilience, bringing us closer to achieving net-zero emissions.
8 Under Green Economy, one of five key pillars of the Green Plan, we will seek new investments that are among the best-in-class in terms of carbon and energy efficiency. Sustainability will be our new engine of jobs and growth, for example in carbon trading and services and Green Finance. We will transform Jurong Island into a sustainable energy and chemicals park, and turn island resort Sentosa into a carbon-neutral tourist destination.
9 We will help companies embrace sustainability and develop new capabilities in this area. The Enterprise Sustainability Programme was launched to support Singapore companies, especially our SMEs, in building capabilities and capturing new opportunities in a green economy. Enterprise Singapore will set aside up to S$180 million for the programme, expecting to benefit at least 6,000 enterprises over the next four years. The programme will support training workshops, capability and product development projects, and key enablers such as certifications and financing. Enterprise Singapore will also work with industry partners, including Trade Associations and Chambers, to develop sustainability initiatives and programmes for different sectors and strengthen the sustainability ecosystem.
10 As you know, the Government has also put in place GreenGov.SG, which is our plan to transform public service. One of the areas under the three main thrusts of GreenGov.SG is to make our procurement work for us. In our procurement framework, we will include more metrics of sustainability over the next few years to encourage our suppliers and service providers to adopt sustainability standards in their operations. If any of our companies are doing businesses with the public service, you should expect more sustainability standards to be incorporated in your business and your products in order to work with the public service.
Role of Businesses
11 Private enterprises have a huge part to play in our transition towards a low-carbon and climate-resilient economy. The climate transition will cause some industries to fade away and new ones to emerge in their place. For instance, the automobile industry is facing the electrification of vehicles. We have already said that we will phase out the current Internal Combustion Engines (ICE) by 2040 in Singapore, and newcomers are disrupting well-established companies that produce these ICE vehicles. Policies will shift to support the growth of more low-carbon businesses.
12 As agents of innovation, companies bring new solutions that deal with the climate challenge, optimising between multiple objectives and constraints. Companies can lead the green transformation and define the next phase of global economic growth. For example, German manufacturer Henkel, which has a global supply chain hub in Singapore, is driving a circular economy strategy by working with customers and suppliers to use less materials, more recycled materials, and experiment with plastic resin alternatives.
13 Shareholders are also asking for a more comprehensive set of metrics, beyond financials to cover ESG. The internal audit function will have to evolve with this trend. I am heartened that the Institute of Internal Audit (IIA) Singapore and the Singapore Exchange Regulation (SGX RegCo) are collaborating to raise the governance standards of listed companies through internal audit functions, by providing support and guidance to companies on adopting guidelines as required by regulators. I understand that IIA Singapore also participated in SGX RegCo's consultation on sustainability reporting requirements. With the growing importance of sustainability reporting, these efforts will help to build capability and capacity in the industry as we green our economy.
14 At an individual level, internal auditors also have a role to play in helping organisations address climate change. With the responsibility to anticipate risks, advise senior leaders and provide assurance, internal auditors can help to further an organisation's ESG goals. For example, they can evaluate whether data information on climate risk are reliable for disclosure in sustainability reporting. To play this role well, new skillsets on sustainability measurement, reporting and verification are needed. Professional training and continuing education are required for the profession to keep abreast with the need.
15 Let me conclude by relating a question asked of me by an undergraduate student recently. She asked "how can an accountant add value to a company in sustainability?". I answered her by drawing on my own corporate experience. I have been in various accounting and financial control functions – as an internal audit, accountant, CFO and CEO. In these functions, accounting and auditing professionals can serve the company's interest well by reporting on the past, establishing the present and securing the future.
16 We are all familiar with reporting requirements that ensure fair representation of what was in the past – what were transacted, assets that have been bought and utilised. What are the measures that provide management and shareholders a good mastering of the present strengths and weaknesses of the company, as well as controls that are in place to mitigate risks, that help make better decisions for the present. And perhaps the most valuable is the ability to help companies interpret the future and anticipate the changes to come, not limiting to risks but also opportunities ahead. Business leaders will be well served by the accounting and auditing professionals who can record the past, understand the present, and prepare for the future.
17 Thank you very much. I hope that you have a fruitful conference.