As environmental, social and governance (ESG) principles gain acceptance in venture investing and building sustainable businesses, SE Asian firms are taking steps to stay ahead of the curve.
Several SE Asian companies and investment firms, especially in Indonesia, have beefed up their ESG team and initiated the release of annual sustainability reports.
Indonesia-listed TBS Energi Utama (TOBA) appointed a sustainability advisor last December while AC Ventures hired Lauren Blasco as principal — head of ESG in April.
A number of listed companies including TOBA, GoTo, and Grab as well as private firms such as East Ventures and fintech sharia firm Alami released annual sustainability reports earlier this year.
The region is also seeing corporations and venture capital funds raising dedicated funds and deploying capital in startups building solutions to tackle environmental problems. For instance, Wavemaker Partners launched its climate tech venture builder Wavemaker Impact last October while Atlas Capital aims to raise a $10-million debut fund this year for its climate tech fund. Singapore-based Circulate Capital closed its second fund Circulate Capital Ocean Fund I-B (CCOF I-B) in July, bringing the vehicle’s total commitments to $53 million.
ESG investing provides a strong framework for analysing companies beyond traditional financial metrics. Companies that perform well on both these measures will be ones that create greater value for investors, in the long run, according to Adrian Li, founder and managing partner, AC Ventures.
“Measuring companies purely on financial performance neglect the negative impacts that a company may have on important aspects of our well-being and economy. Therefore, it is possible to have a company do well financially yet have severe negative consequences to the environment,” he told DealStreetAsia.
Some firms are incorporating ESG into their business model, changing the way they earn revenues. TBS Energi Utama, for instance, is shifting from its core business of coal mining, thermal power, and plantation to developing clean and renewable energy.
“The idea is to transition from fossil fuels energy. We are committed to achieving carbon neutrality by 2030 on the way to net zero. To reach that goal, we gradually shift [businesses] to renewable energy and electric vehicles (EV),” said Triana Krisandini, sustainability advisor, TBS Energi Utama.
In November 2021, the company decided to sell a 5% stake in Paiton Energy, one of the largest independent power producers in Indonesia. Proceeds from the sale will be allocated to build the firm’s sustainable projects, Krisandini added.
“We still have coal mining but it will be fully mined out in 2027. We aim to generate up to 70-80% of our revenue from EV and renewable energy in 2025,” she continued.
Last year, TOBA teamed up with Gojek to establish an EV joint venture Electrum. The JV’s key initiative is the EV pilot, which is being run in collaboration with Pertamina, as well as electric motorbike makers Gogoro and Gesits.
Over the last few years, ESG-focused projects are increasingly catching the attention of limited partners who view them as a core component of creating values in a portfolio. This trend is pushing fund managers to put in place ESG-based principles in their investing frameworks.
AC Ventures’ Li said both private companies and investors seek to create enduring companies with a lasting impact. “As such, they are all highly supportive of incorporating strong ESG measures for evaluating our companies and incorporating pro-active ESG strategies in running a business,” he said.
What has also accelerated adoption is regulatory pressure on companies to implement ESG components.
In 2017, Indonesia’s financial authority OJK required listed companies to release sustainability reports to show progress in this area. Nearly 54 companies released their reports in 2020 and that number increased to 135 companies last year.
“This encourages us to make frameworks and roadmaps for all subsidiaries which must be implemented properly. This way, we can monitor, track progress, and report these developments to the regulator and the public,” said Krisandini.
OJK has set up a number of metrics to measure ESG progress, but each firm can also incorporate its own measurements based on its industry.
“We conducted assessments and interviews with internal stakeholders including the field operations team as well as external stakeholders such as government and customers, regarding what issues should we address and what benchmarks make sense for us,” Krisandini explained. The operational side and sustainability plans must go hand in hand so that ESG can really work and does not end up as a public relations campaign only, she added.
ESG becomes especially critical for energy companies that have a big carbon footprint. “Industry players together with the government are constantly discussing how can we continue to provide energy to all cities in Indonesia but at the same time switch to more sustainable resources,” Krisandini said.
Meanwhile, AC Ventures said it works closely with potential and existing portfolio companies to identify and manage ESG opportunities and risks throughout the investment process.
“We take into account a list of factors when considering a company’s impact. This includes whether the business model allows the delivery of products in a resource-efficient way, and does it leverages technology to create value and transform the industry. Does the business create positive changes to customers and does the company measure and monitor its impact on the environment and society,” said AC Ventures principal – head of ESG Lauren Blasco.
Nonetheless, pushing ESG pressures on startups could be challenging, especially since for them, growth is a top priority and they typically do not have the same capacity and resources as a large and established company to enable full-scale ESG adoption.
“We need to educate portfolio companies on what data to track because if you can’t measure it you can’t manage it. [Despite the challenges], they still greatly benefit from putting the ESG framework in place,” said Blasco. Companies that perform well on both financial and ESG metrics will be ones that create greater value for investors in the long term, she added.
Going forward, more and more private and listed companies will inevitably integrate ESG plans into their business strategies to set a good precedent, industry players said.
“ESG investing is key to facilitating the greatest positive impact for all stakeholders while also informing better investment decisions that create more value in the long run,” said Blasco.
Foto: Renewable energy/Illustration/ Internet Archive