Explained: Sector Guides

A 5 minute quick read

Sector guides are used by financial institutions to outline the Environmental, Social and Governance (ESG) standards that financial institutions expect of their corporate clients conducting business in sectors with a high risk of negative ESG impact.¹ For instance, such corporate clients could include companies in the oil & gas or agricultural industries.

The Association of Banks in Singapore has identified 8 such industries in their guidelines on responsible financing:²

• Agriculture
• Chemicals
• Defence
• Energy from fossil fuels
• Forestry
• Infrastructure
• Mining and metals
• Waste management

Sector guides aim to help companies in these certain sectors gain an understanding of how to become more responsible in routine business operations. They assist companies with translating ESG standards into practical action within their own systems and cultures.³

Sector guides also form part of the shift towards stakeholder engagement as a solution for sustainable finance instead of direct divestment,⁴ which has been argued to lack long-term impact since once divested, investors lose any say over the company’s actions, and their shares may be bought up by investors who are more indifferent to corporate responsibility. Instead, stakeholder engagement allows investors to put sustained pressure on companies to shift towards more sustainable practices, with sector guides providing counsel on the standards required of companies and how they can achieve them.

All three local banks in Singapore have developed sector guides,⁵ which are listed in their sustainability reports.

footnotes

¹ Felix Brill (2020), Shifting the focus towards sustainable finance, World Finance, https://www.worldfinance.com/wealth-management/shifting-the-focus-towards-sustainable-finance

² The Association of Banks in Singapore (2018), ABS Guidelines on Responsible Financing, https://www.abs.org.sg/docs/library/responsible-finance-guidelines-version-1-1.pdf

³ Shift (2012), European Commission Human Rights Sector Guides, https://shiftproject.org/resource/european-commission-human-rights-sector-guides/

⁴ Felix Brill (2020), Shifting the focus towards sustainable finance, World Finance, https://www.worldfinance.com/wealth-management/shifting-the-focus-towards-sustainable-finance

⁵ Kate Philp, Jeanne Stampe and Naomin Tan, Lee Shiau Ping, Lawrence Loh & Roderica Wynne (2018), Sustainable Banking in ASEAN, World Wide Fund for Nature, https://bschool.nus.edu.sg/cgio/wp-content/uploads/sites/7/2018/10/CGIO-WWF-Sustainable-Banking-in-ASEAN-Report-2018.pdf