Keynote Address by SM Tharman Shanmugaratnam at the Inaugural RaiSE Conference on The PurpoSE Agenda

Mr Gautam Banerjee: Once again, thank you for being with us this morning, SM. You’ve been a great supporter of raiSE right from the very start. As you said, we started this journey not that long back, in 2015. Two years later, when we had our first event, you were there as our keynote speaker, and you encouraged us and have given us a lot of support over the years. As you said, raiSE has come some way but it is still very early on in this journey.

When we first started, raiSE, we just had a few individuals. For many of you might not know, social enterprise is not a new thing, a new concept. We were doing this within the Ministry of Family and Social Development. This was being done. But then it was felt that maybe we split it out into a company limited with guarantee outside of the government department and see if we get some private sector board members and that is how I got involved. Fu Hua, who was then NCSS’s Chairman convinced me that it is a good thing to do and I really appreciated that he thought of me because this is one of the really fulfilling parts of my journey. When you work for a private equity firm, you need to have some good karma, and this is certainly helping me in that sort of quest. I think John is laughing and nodding his head as a GIC man. I think it has really been, as you said, SM, you gave a very good summary of where we are and the need for stakeholders and not just shareholder returns and the need to really work at those intersections of social and corporate objectives.

One of the first things I did was to rope in quite a few members from the private sector to join the board. Alfie, my CEO, kept saying that the board will be bigger than the employees, but it was alright because we didn't need to pay the board members and we would get great ideas, great networks, which is important. When you bring these people on to your board, they all have very strong ideas and strong views. When we were starting off with an open canvas, in a completely empty canvas, and we had to come up with the vision and mission. There was a big argument as to what our vision should be as a sector developer. Many of my board members were a little, I would say they felt that we were not bold enough in our vision because our vision is basically to build a caring and inclusive society by developing social enterprise. That was our vision and our mission was to raise awareness of social enterprises, build capacity in social enterprises, see new social enterprises be networked with SEs both in the region and outside. Some of my board members who were running big companies were, ‘well, that's not good enough’. And I think Teresa, in her opening speech said, every enterprise is social enterprise, because, as you have said SM, we have had reasonable success in our journey so far. But if you look at it very critically, I think the main challenge has been that we have worked with social enterprises and social enterprises are mainly start-ups, SMEs, they are very small, employing maybe 20 to 30 people, sometimes a bit more, and some from the disadvantaged sectors. So the impact they make on society is limited. It is good, and it is a good start. We learn a lot of things, but I think it is limited. You said in your speech, the only way we will make an impact is if the big companies take on this and realize that they need to do more. They need to be more socially minded. They need to really get into this whole area of how do they work to wider stakeholders, and I think you said it very well.

So I just wanted to ask your advice and views on this change of what we are trying to do, trying to change our thinking and our mind-set to ‘every return to social enterprise’. I think, for myself, that is not that radical change. It is actually incremental, but it is a mind-set, more of a mind-set than a big change. What do you think?

SM Tharman Shanmugaratnam: It’s a very good question. We have to encourage every company to start thinking about its mission in broader terms, which means not sacrificing its business mission - the need for sustainable profits - but finding that intersection between making profit and doing good. But while we want to encourage everyone to get on that journey, it should not be too easy for every company to start calling itself a social enterprise. You need standards. You need some norms that companies need to be performing up to. That requires some scrutiny. Scrutiny, very importantly, on the part of investors, and scrutiny on the part of consumers and employees. So don’t make it too easy for every company to start branding itself as a social enterprise. Just like it mustn’t be too easy for companies to say that we are investing in environmental sustainability. We know that much of that today involves greenwashing.

We need better metrics, and we need a culture where employees, consumers and investors are looking not just at the metrics, but are evaluating companies qualitatively as well.

There is a lot of discussion taking place on this with regard to the environment - getting better metrics. This is a huge challenge. But we are even further behind when it comes to the ‘S’ in the ESG, which is intrinsically less quantifiable. I don’t think we want to make it a mere checklist. Some things may have to be in a checklist, but it has to go beyond that. We need to develop norms, some way of recognizing leaders and role models, and some way of embarrassing those that are staying out egregiously.

It requires investors, especially, to take the lead. An interesting fact, if you look at surveys of family offices, foundations, high net worth individuals, there was a survey done by Campden Wealth Research for example, there has been a very significant increase in the percentage of the portfolios of these players that is now aimed at social impact. The desire is there. They recognize that you can achieve social impact with a decent and sustainable return over time. So, I think investors are going to be very important in taking the lead, and working actively with the senior management of companies. We need better metrics, but we also need this culture.

The World Economic Forum (WEF) has embarked on this in a systematic way. It has an International Business Council, which is comprised, roughly speaking, the leading companies in each sector. It has worked together with the Big Four accountancy firms, to develop meaningful metrics. Core metrics, such as how inclusive your workplace practices are, how you treat your lowest paid employees, and the health and safety of your employees, and expanded metrics like how well you work with unions. And there are broader prosperity metrics, because we should never take our eyes off the fact that if a company does well in innovation, raising productivity and enhancing economic growth, that’s a big asset for society as well. So, there is a range of metrics. None of them to be taken too literally. But we need metrics. We need some way of scrutinizing companies and highlighting the positive role models and letting consumers and markets do their work on those that are the opposite.

It’s the doing that will be important. We know roughly what we want to do, but how we go about it is going to be important.

Mr Banerjee: I think those are really excellent points. These are points which we have also mulled over. For example, raiSE is a membership body. We have had this issue of some of us social enterprises saying that they are social enterprises, but not quite there. In our initial few years, we have kept it a little bit light. We want a thousand flowers to bloom and then give them a bit of a chance and see whether they can get there, rather than be very prescriptive. But I think the time has come, as you said, especially if you want to move it to the enterprise level, there must be some criteria. So we have been in been engaging, essentially, the stock exchange, because I do feel that this ESG agenda, which now everyone has had to do it. It is something which no listed company can ignore because it is something which is in the listing. But it is the ‘S’ of the ESG is the more difficult one. I think there are now, as you said, standards on environment and governance is quite well regulated. But the ‘S’ is the one which is challenging. I think we are in engagement with the with the stock exchange, Sim Boon Ann, who is one of my directors, is actually speaking to them to see how we how we can bring on this. I think, as you said, that is the key.

I agree with you; I think it cannot be too prescriptive. It must be by encouragement, highlight companies that are doing well. The Conference Board has taken a lead in this in the US where they are highlighting companies who have done really well in the ‘S’ part of ESG and just sharing that so that then can lift others. Companies like Unilever, which has a lot of suppliers, but how to bring onto your supply chain, social enterprises. Great examples, instead of just giving things away, training people in IT, training people and giving them jobs in your suppliers. Those are the things that we have to work on.

raiSE also has a bit of an issue as a sector developer, we cannot also be the regulator. There are some of these issues that I will have to come back to our Ministry, MSF, and maybe the Finance Ministry as well, to take this to the next step.

I think we talked about the presence of family offices and foundations in Singapore. That has really taken off, SM. We have encouraged global family offices to be here and some of them are in the room here today. I believe that they will really add to this ecosystem. Any advice you have for them on the social impact bonds, how do we de-risk some of these investment areas? I think what we find sometimes challenging to mobilize capital in areas where there is a big social need but the return can be a bit challenging. You can refer to the social impact bond; it took us an eternity to get there. We had great supporters from Johnson & Johnson. But just feeling a bit impatient that we are not doing enough of this.

SM: You are right. We’ve started. We need to make it something that is common in the minds of investors. But you do need catalysts. Like the social impact bond we were talking about, focused on jobs for persons in recovery from mental illness.

Typically, I think the foundations and family officers can play a very useful role as catalyst, coming in to de-risk the investment, either by providing first loss capital or by sharing in profit but with a cap on their own share. It’s taking place.

There is another good example, listed recently in the Singapore Stock Exchange - the Women's Livelihood Bond for Climate. It essentially raises money that is on-lent in the form of microcredits to underserved women in Cambodia, India, Indonesia and the Philippines. The de-risking was done by the Women's Catalyst Fund, that came in to provide a first loss guarantee, in order that more investors came in to subscribe.

So, there are ways in which the philanthropies and family offices, investors with greater risk absorption capacity, can come in to de-risk investments and crowd in a lot more private capital. We need more examples like that.

If you look around the region, start by thinking: about what are the big problems? The big problems have to do with underinvestment in public goods - in education, health care, water and sanitation, and biodiversity. Public goods are greatly under invested in, across the world, but certainly in the world around us in Asia. Public sector balance sheets are not going to be able to deal with this adequately. They are already quite stretched in many countries. Debt levels are already on the high side. So, you need a way to mobilize private capital for investment in public goods. That requires of course clear regulation on the part of government, so that if someone is investing in water or irrigation projects for example, they are fairly certain that the rules on pricing are not going to change midway through the life of the project. But apart from clear regulation, it requires de-risking. The multilateral development banks, national agencies, plus the foundations and philanthropies can play a very useful role in de-risking investments.

All this is doable; it requires catalysts and leadership. It requires that people see success on the ground, because success spawns more success. We have to get on with this because the underinvestment in critical public goods - education, health care, water and sanitation - an often ignored but critical challenge - and biodiversity and holding climate change at bay is in everyone’s interest. It is Singapore's interests that the rest of Asia sees more investment in these areas. We should be a catalyst.

Mr Banerjee: Those are very good points. In Singapore, I should mention that Temasek and the Temasek stable of companies are doing a lot in this area. In the panel discussions which are going to follow, we are going to have a little bit more discussion and engagement on exactly the subjects that you brought up. But I fully agree with you that this is something which requires cooperation between various groups, whether it is with the regulators, the companies, the public sector. But there are large areas of work that needs to be done, as you pointed out, those sectors which are underserved, not getting enough capital. Certainly, some of the are in Singapore. Perhaps the infrastructure in Singapore is great, we do not have issues like water and sanitation, but inequality, people with issues which prevent them from going straight to employment. All of those things are enough issues for us to be involved in. I think raiSE will work with these organizations which are already very much committed to moving the agenda and also in partnership with the family offices and foundations. Thank you very much for being with us, SM, and hopefully, we can build on what we have done in these few years.

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