SMU Classification: Restricted

SMU257

CDL: CREATING VALUE THROUGH SUSTAINABILITY

In 1975 research showed that approximately 83% of the market value of the US S&P 500 could
be accounted for in company accounts. There was a high degree of visibility for investors. By
2010, just 20% of a company’s market value could be seen through the lens of the financial
statements. The majority of a company’s value is composed of capitals – including specifics
such as the patents, people, copyrights and trademarks that are not easily visible or accessible
through traditional financial reporting.

- International Integrated Reporting Council 1

It was January 2016, and Esther An, the chief sustainability officer (CSO) of City Developments
Limited (CDL), picked up a few copies of the company’s 2015 sustainability report as she walked
to the elevator on the 36th floor of Republic Plaza in Singapore’s financial district. The unique
double-deck elevator, which served two levels simultaneously, brought her to the Tower Club, a
premier business club that occupied the three highest floors of the 280-metre building. This
innovative double-deck design reduced wait times and maximised transportation efficiency. CDL’s
ability to combine creativity and functionality made it a market leader in the property sector. The
lofty club offered unblocked views of the Singapore skyline; An particularly liked to gaze at the
Gardens by the Bay on the other side of the Marina Bay area that showcased garden artistry. The
surrounding greenery broke up the concrete urban landscape and helped Singapore gain its
reputation as a garden city.

A property pioneer and market leader in Singapore, CDL was widely recognised as a champion of
green building and sustainable practices. The company understood that businesses could not keep
trading clean air and water for economic growth with impunity. Having begun its Corporate Social
Responsibility (CSR) efforts 21 years ago, CDL preserved its green tradition by incorporating
green philosophies into innovative architectural projects that reduced environmental impact. In
2014, CDL completed the development of its Tree House condominium which featured the world’s
largest vertical garden. CDL was committed to continually raising its CSR standards and providing
its stakeholders with regular updates of its practices and the latest developments in sustainability.
The company’s sustainability report had been positively received since its initial publication eight
years ago in 2008. Going forward, integrated reporting would be the future of corporate disclosure.
The accounting community was still debating its merits as governments pondered if integrated
reporting should be made mandatory. In this regard, An saw an opportunity for CDL to further its
leadership role.

Despite the current economic malaise, CDL ensured environmental and social issues were not
neglected. CDL’s latest sustainability report adopted an integrated reporting approach that
incorporated a more holistic form of reporting, linking the impact of the firm’s social and

1
KPMG Website, “Integrated Reporting: Addressing the reporting gap”, March 2013, http://www.kpmg.com, accessed July 2015.

This case was written by Professor Hwang Soo Chiat, Professor Khoo Teng Aun and CW Chan at the Singapore
Management University. The case was prepared solely to provide material for class discussion. The authors do not intend
to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names
and other identifying information to protect confidentiality.

Copyright © 2016, Singapore Management University Version: 2016-06-15

This document is authorized for use only in Mary Ho's MGMT3170 L1 Managing CSR at Hong Kong University of Science and Technology (HKUST) from Feb 2019 to May 2019.
 SMU Classification: Restricted

SMU-16-0019 CDL: Creating Value through Sustainability

environmental accomplishments to its financial performance. As An exited the elevator, she

greeted her investors with the report before starting the breakfast meeting. She was confident that
the new sustainability report was a more useful tool for communicating CDL’s sustainability-
centric business story. She would soon discover if CDL’s investors felt likewise.

Singapore Homebuilding Industry

Since gaining independence in 1965, Singapore had transformed its built environment from rural
villages into a modern metropolis and developed into a leading global financial hub. 2 The industry
was constrained by Singapore’s small size of roughly 700 square kilometres. Accordingly, most of
the island-state’s 5.4 million residents lived in high-rise buildings. 3 In 2013, the homebuilding
industry in Singapore generated revenues of S$4.4 (US$3.3) 4 billion 5 and accounted for as much
as 15% of Singapore's total electricity consumption in 2014. 6 However, the growth rate of the
sector was expected to be commensurate with slowing population growth. 7 The industry was
dominated by a few large companies such as CapitaLand, CDL and Far East Organization and they
competed through price, location and design differentiation. As a whole, Singapore had to rely on
technology to improve living standards and strive to become a Smart Nation, one that harnessed
information technology. 8 The core infrastructure, data centres, consumed a lot of energy and the
emphasis was to become a green data centre and promote energy efficiency. 9

The government controlled the property market through regulations and the approval of land sales.
The Urban Redevelopment Authority (URA) of Singapore was in charge of land use planning and
conservation. It analysed the trade-offs between various land zoning alternatives to optimise the
usage of scarce land and to ensure long-term sustainability. 10 The URA identified sites for
residential, commercial or hotel purposes before allowing competitive bidding for the land. The
Building and Construction Authority (BCA) in Singapore regulated the built environment, which
included buildings, structures and infrastructure in order to maintain high standards of safety and
promote quality excellence in sustainability. 11

As Singapore continued to urbanise, the focus shifted to improving energy efficiency. Many
initiatives were launched to encourage sustainable growth. In January 2005, BCA launched the
BCA Green Mark Scheme to direct the industry to become more ecologically responsible. The aim
was to increase sustainability and environmental awareness in the built environment from the
project conceptualisation stage through to the design and construction stages. 12 The Singapore
Green Building Council was launched in October 2009 to promote a world-class and sustainable

2
Singapore Infopedia, The national flag of Singapore, http://eresources.nlb.gov.sg/infopedia/articles/SIP_488_2004-12-18.html,
accessed April 2015.
3
The World Factbook, Singapore, https://www.cia.gov/library/publications/the-world-factbook/geos/sn.html, accessed July 2015.
4
US$1 = S$1.35 as at May 31, 2015.
5
Marketline, Homebuilding in Singapore, July 2014, EBSCOhost via SMU library, accessed June 2015..
6
Energy Market Authority, https://www.ema.gov.sg/cmsmedia/Publications_and_Statistics/Publications/ses/2015/energy-
consumption/index.html, accessed March 2016.
7
Marketline, Homebuilding in Singapore, July 2014, EBSCOhost via SMU library, accessed June 2015.
8
Loke Kok Fai, Singapore on its way to becoming a Smart Nation, “Channel News Asia”, December 30, 2014,
http://greenkoncepts.com/news-events/news/176-singapore-on-its-way-to-becoming-a-smart-nation, accessed July 2015.
9
https://www.ida.gov.sg/About-Us/Newsroom/Media-Releases/2015/IDA-Launches-First-in-Singapore-Green-Data-Centre-Innovation-
Programme-to-Explore-Green-Technologies-for-Data-Centres-in-a-Smart-Nation
10
Urban Redevelopment Authority, https://www.ura.gov.sg/uol/about-us/our-work/planning-long-term-sustainability.aspx, accessed
July 2015.
11
Building and Construction Authority, http://www.bca.gov.sg/AboutUs/about_bca.html, accessed July 2015.
12
Building & Construction Authority, About BCA Green Mark Scheme, http://www.bca.gov.sg/greenmark/green_mark_buildings.html,
accessed July 2015.

This document is authorized for use only in Mary Ho's MGMT3170 L1 Managing CSR at2/9
Hong Kong University of Science and Technology (HKUST) from Feb 2019 to May 2019.
 SMU Classification: Restricted

SMU-16-0019 CDL: Creating Value through Sustainability

built environment. 13 In addition, the Singapore government also released the Sustainable
Singapore Blueprint 2015, an action plan to foster a better living environment by incorporating
more smart technology in homes. 14

CDL

CDL, a Singapore company incorporated in 1963 that primarily engaged in property development,
had diversified operations that included hotel management and hospitality services. CDL’s
subsidiary Millennium & Copthorne Hotels (M&C), the first Singapore company listed on the
London Stock Exchange, operated over 120 hotels worldwide in 2015. Altogether, CDL and its
subsidiaries were listed on five different exchanges. For the financial year 2014, CDL recorded
revenue of S$3.76 (US$2.79) billion with a net profit of S$770 (US$570) million.

CSR Journey

CDL began its CSR journey in 1995 by adopting a vision of “Conserving as we Construct” in a
sector widely perceived to have a negative impact on the environment. Over time, it strengthened
its commitment to CSR and stakeholder engagement. In 2007, Merrill Lynch, an American
investment bank, had organised an Asian Investment Forum in Singapore, where it noticed CDL’s
CSR-focused strategy. After discussing global reporting trends, they suggested that CDL was well-
placed to feature its green accomplishments. CDL took their advice and published its first dedicated
sustainability report in 2008. It became the first Singaporean company to produce a sustainability
report with its application level reviewed by the Global Reporting Initiative (GRI), an independent
organisation that pioneered sustainability reporting and developed the most recognised global
reporting standard. However, gathering the necessary information required a lot of effort. An
described the initial difficulties in forming the sustainability initiative:

I had to engage all heads of department to explain why the company was embarking on this
sustainability reporting journey. Most of our colleagues accepted that sustainability reporting
was a natural progression from our CSR-focused strategy. From the second year onwards, we
started external assurance by independent auditors.

Since 2009, CDL engaged credible verification bodies to review the data and provide external
assurance. An believed the external assurance was a positive experience: “During the audit, we
identify the gaps in our processes and operations and the auditors help us make improvements.” An
believed that audited reports were more credible and CDL should adhere to the widely recognised
GRI framework: “We have been using GRI from day one. It is the global reporting standard by
default because it provides a very comprehensive framework with a focus on stakeholder
engagement.”

A commitment from top management was necessary to overcome the initial resistance; in the early
days it was not easy to gain internal acceptance, but the backing of the then managing director and
board of directors helped effect the change. The CSO role was elevated to the top management
level to reflect the importance of sustainability within the company. A company-wide CSR
committee was also formed to align CSR initiatives with the company’s business strategy in the
late 2000s. The committee comprised various levels of staff from senior management to line
officers, cutting across all key operational units. The committee was also responsible for choosing
13
Singapore Green Building Council, http://www.sgbc.sg/about-us/about-sgbc/introduction/, accessed July 2015.
15
Singapore Government, Sustainable Singapore, http://www.mewr.gov.sg/ssb/, accessed July 2015.

This document is authorized for use only in Mary Ho's MGMT3170 L1 Managing CSR at3/9
Hong Kong University of Science and Technology (HKUST) from Feb 2019 to May 2019.
 SMU Classification: Restricted

SMU-16-0019 CDL: Creating Value through Sustainability

CDL’s key performance indicators (KPIs) and targets for CSR activities.

CDL had become a sustainability leader in Singapore through consistent efforts to realise its vision
and transparent disclosure of its environmental, social and governance (ESG) performance. It won
various awards for its efforts, including the Green Mark Built Environmental Leadership (Platinum)
Award in 2009, the ‘Top Honour’ from the Singapore Business Forum Sustainability Awards for
Large Enterprises and the World Green Building Council Asia Pacific Regional Network
Leadership Awards in Green Building ‘Business Leadership in Sustainability’ award.

CDL had also been an advocate for environment, health and safety (EHS) standards. The scope of
its sustainability efforts extended to its external vendors. An said her team would conduct random
site visits to ensure vendors complied with the relevant EHS standards:

The other day we were on site at a construction site to ensure one of our main contractors
complied with our standards. We had to show that management actually cares about health and
safety standards. The contractors failed a Ministry of Manpower check on safety and received a
stop-work order. With hard hat and boots, we walked the whole site, even though the entire site
consisted of 17 towers and 12 blocks.

Through CDL’s influence, all of its contractors had established their own EHS management
systems and obtained certifications in environmental and safety management.

Singapore Regulations

As a listed company in Singapore, CDL was subject to the rules of the local bourse. The Singapore
Exchange (SGX) issued a policy statement on sustainability reporting in June 2011 to improve
disclosure guidelines on a company’s impact on environmental and social aspects of business. 15

In May 2012, the Monetary Authority of Singapore stated that sustainability should be considered
as part of corporate governance and directors ought to consider sustainability issues, such as
environmental and social factors, as part of their strategy formulation. 16

SGX had hinted at rule changes to incorporate environmental issues. It eventually introduced a
‘comply or explain’ regime in May 2015. A spokesman explained the change:

Expanding the coverage of reporting to include environmental and social aspects of businesses
will further enhance disclosure and transparency to investors. Sustainability reports
complement financial reports to give investors an appreciation of the long-term value of the
company. For example, companies that pollute the environment, or create products with
potentially negative effects on society, run the risk of incurring high remedial costs. 17

The cost of regulatory alignment would be higher for companies unfamiliar with sustainability
reporting. However, An was accustomed to how the regulators operated and spoke about how they

15
Singapore Exchange,
http://rulebook.sgx.com/net_file_store/new_rulebooks/s/g/SGX_Sustainability_Reporting_Guide_and_Policy_Statement_2011.pdf,
accessed July 2015.
16
CDL Website, http://www.cdl.com.sg/sustainabilityreport2013/mdm.html, accessed April 2016.
17
Kenneth Lim, SGX plans 'comply or explain' regime for sustainability reporting; seeks public feedback, “The Business Times”, May
6, 2015, http://www.businesstimes.com.sg/companies-markets/sgx-plans-comply-or-explain-regime-for-sustainability-reporting-seeks-
public, accessed July 2015.

This document is authorized for use only in Mary Ho's MGMT3170 L1 Managing CSR at4/9
Hong Kong University of Science and Technology (HKUST) from Feb 2019 to May 2019.
 SMU Classification: Restricted

SMU-16-0019 CDL: Creating Value through Sustainability

introduced rules gradually:

When Green Mark started in 2005, it was on a voluntary basis. It’s like dangling a carrot in
front of you. In 2008, the basic level became mandatory. If you want to develop a plot of land,
you must adhere to the Green Mark certification level because it is law. If you don’t comply,
you can’t build. SGX has talked about introducing sustainability guidelines before. The only
question was when.

In January 2016, SGX announced plans for sustainability reports to be published with effect from
financial year 2017. 18 An sensed that the pattern might be repeated and wanted to be prepared
should integrated reporting become compulsory. There were many similarities between integrated
reporting and sustainability reporting. Integrated reporting classified a firm’s assets into various
capitals. Using that approach, An prepared CDL for a possible integrated reporting regime (refer to
Exhibit 1 for CDL’s capitals).

Integrated Reporting

Integrated reporting was a new approach of reporting that aimed to provide more relevant, material
and holistic information to investors. As businesses became more complex, financial reports
became more voluminous but less informative. Integrated reporting was mooted as a way of linking
the company’s activities with financial impact. This form of narrative reporting would improve
traditional annual reports that relied on historical financial information. The report sought to show
providers of financial capital the firm’s value creation process. The principles-based approach used
certain guidelines and content elements (refer to Exhibit 2 for the framework outline) that allowed
flexibility for individual companies but still retained a degree of comparability. Providing more
relevant information would also increase transparency and reduce the uncertainty around the
company’s business prospects and prevent investors from making wrong assumptions. A
company’s resources would be classified as various stocks of value, or capitals, which contributed
to how the company created value.

The decision to transition to integrated reporting took a couple of years. In 2015, An prepared a
sustainability report with an integrated reporting approach to make stronger business sense of the
company’s ESG integration. Initially, when integrated reporting was required to include both
financial and non-financial reporting in a single document, An had reservations: “We were invited
by the International Integrated Reporting Council to be part of the pilot project. But I told them we
were not ready. I did not want to produce a ‘phone book’, which was just piling the sustainability
report on top of the annual report.”

Eventually, An felt that taking steps toward integrated reporting was a natural progression. She
decided to adopt the integrated reporting concept when IIRC changed the requirements and allowed
for the integrated report covering the sustainability content to be a separate document from the
financial report. An understood that she would have to help forecast the future-looking features of
the report. She would also have to assess how external stakeholder relationships would contribute
to value creation. Determining which KPIs to use would also have to be a dynamic process. Even
though it was not mandatory at the moment, the time was right to produce a sustainability report
using the integrated reporting approach. However, she acknowledged that the financial
considerations were still paramount: “An integrated report is a more holistic report. The three
components (financial, environmental and social) cannot stand alone but have to be well connected

18
SGX Website, Sustainability Reporting: Comply or Explain, January 5, 2016, http://www.sgx.com/wps/wcm/connect/02c040ac-4749-
4bee-aeab-3591e2b099fb/Sustainability+PC+-+20160105+%281100H%29.pdf?MOD=AJPERES, accessed April 2016.

This document is authorized for use only in Mary Ho's MGMT3170 L1 Managing CSR at5/9
Hong Kong University of Science and Technology (HKUST) from Feb 2019 to May 2019.
 SMU Classification: Restricted

SMU-16-0019 CDL: Creating Value through Sustainability

to achieve the company’s business and corporate objectives. You still need to be profitable. If your
company goes bust, you can’t do any good for the community or the environment.”

Creating Value for CDL

As part of its value creation framework, CDL defined six interconnected capitals (financial,
manufactured, organisational, social and relationship, human and natural). The integrated reporting
approach would help the company link its use of these capitals to its strategy and explain how they
were being managed to generate value from its business activities.

CDL’s financial capital was boosted by record revenues. Due to cooling measures by the
government and the weak market sentiment in Singapore, the management decided to step up
geographic and portfolio diversification. It would also slow investments and make use of its strong
capital base to wait for acquisition opportunities.

CDL’s green building developments – a core business – represented its manufactured capital.
Developing quality and environmentally sustainable properties helped differentiate CDL’s projects
while reducing its operating expenses. It had also improved its construction productivity through
the adoption of prefabricated bathroom units from the early 2000s to reduce construction waste.
With an innovative spirit, CDL continued to explore larger scale prefabrications, as it has done with
The Brownstone Executive Condominium – likely the world’s largest application of advanced
Prefabricated, Prefinished, Volumetric Construction technology for a residential development,
consisted of around 5,000 modules and built on the principles of smart building management to
achieve resource efficiency. This was set to raise productivity by 40% and save 55,000 man days.

CDL had always prioritised landscaping in its condominium developments. The construction of its
Tree House condominium included almost 2,300 square metres of greenery. Despite the lack of
ground space, the company raised the bar by planting flora on the building walls, leading to the
development of the world’s largest vertical garden in 2014 (refer to Exhibit 3 for an illustration of
the Tree House). The innovative garden was not only aesthetically pleasing but also reduced heat
absorption, saving up to 30% of air-conditioning energy consumption. The plants also helped
reduce its carbon footprint by filtering carbon dioxide and improving air quality.

Organisational capital at CDL involved strong review and communication of policies and processes
to facilitate employee engagement. Evidence for that culture could be glimpsed by receiving
recognition in the form of Dow Jones Sustainability Indices, MSCI Environmental, Social and
Governance indices, FTSE4Good Indices and Global Real Estate Sustainability Benchmark. It also
set high standards for suppliers by installing green procurement guidelines, which were reviewed
on an on-going basis.

The social and relationship capital involved the multiple connections and goodwill it had
established with stakeholders over time. CDL promoted work-life balance for its employees,
provided high standards for customer experience and had set high compliance standards for its
suppliers. CDL also participated in regular consultations with regulators and the media. As CDL
improved its efforts to communicate with customers, its customer satisfaction rate increased from
60% in 2013 to 65% in 2014.

For its human capital, CDL ensured good remuneration and benefits for its employees. It provided
good learning and development programmes that resulted in an employee turnover rate of 15.9%

This document is authorized for use only in Mary Ho's MGMT3170 L1 Managing CSR at6/9
Hong Kong University of Science and Technology (HKUST) from Feb 2019 to May 2019.
 SMU Classification: Restricted

SMU-16-0019 CDL: Creating Value through Sustainability

compared to the national average of 24.3% in 2014. Its commitment to EHS issues also resulted in
CDL having accident frequency and workplace injury rates that were less than half the industry
average.

For natural capital, CDL’s consistent conservation efforts over the years resulted in a reduction of
greenhouse gas emissions across its operations by 21% in comparison to 2007. Furthermore, it had
committed to environmental conservation and aspired to reduce the intensity of its energy and
water usage by 22% by 2020 and 25% by 2030, against its baseline year of 2007. Between 2008
and 2014, CDL’s 57 BCA Green Mark awarded developments saved $36.5 million from reductions
in electricity consumption. This contributed to a lower carbon footprint by both CDL and its
customers.

What Next?

CDL reached a significant milestone in its sustainability journey; it was ranked 10th in the Global
100 Most Sustainable Corporations in the World in 2016 and top amongst all listed real estate
companies. 19 An believed that with the unprecedented global commitment at the Paris climate
conference to combat climate change in December 2015 20, sustainability issues would become a
more important factor in investors’ decisions. Listed companies would need to hasten their efforts
to adopt a sustainability strategy as SGX increased its disclosure requirements. For CDL, An was
confident that the company would continue its sustainability journey with greater vigour and
conviction. She felt positive that the company’s investment in sustainability over the last two
decades would soon yield greater returns and create value for the company and its stakeholders.
The integrated reporting approach helped the company connect more clearly its ESG performance
with financial impact and value creation. An was hopeful that CDL’s sustainability efforts would
lead the industry to complement Singapore’s broader vision to build a clean, green and low-carbon
environment.

19
Corporate Knights, 2016 Global 100 results, January 20, 2016, http://www.corporateknights.com/magazines/2016-global-100-
issue/2016-global-100-results-14533333/, accessed March 2016.
20
Sustainable Innovation Forum 2015, COP21, http://www.cop21paris.org/about/cop21, accessed March 2016.

This document is authorized for use only in Mary Ho's MGMT3170 L1 Managing CSR at7/9
Hong Kong University of Science and Technology (HKUST) from Feb 2019 to May 2019.
 SMU Classification: Restricted

SMU-16-0019 CDL: Creating Value through Sustainability

EXHIBIT 1: CDL’S CAPITALS

• Earnings
• Equity
FINANCIAL • Investments
• Assets

• Green building and innovation

MANUFACTURED • Quality developments
• Sustainable construction methods and technologies

• Leadership and culture

• Corporate governance
ORGANISATIONAL • Policies and practices
• Risk management

• Stakeholder relations
SOCIAL & • Partnerships
RELATIONSHIP • Social licence to operate
• Community development

• Health and safety

• Benefits and remuneration
HUMAN • Learning and development
• Job creation and security

• Carbon emissions
• Energy management
NATURAL • Water stewardship
• Waste and resource management

Source: CDL, Sustainability Report 2015, http://www.cdl.com.sg/sustainabilityreport2015/pdf/cdl_sr_2015.pdf,

accessed October 2015.

This document is authorized for use only in Mary Ho's MGMT3170 L1 Managing CSR at8/9
Hong Kong University of Science and Technology (HKUST) from Feb 2019 to May 2019.
 SMU Classification: Restricted

SMU-16-0019 CDL: Creating Value through Sustainability

EXHIBIT 2: IR FRAMEWORK

Guiding Principles Content Elements

Strategic focus and future Organizational overview and
orientation external environment
Connectivity of information Governance
Stakeholder relationships Business model
Materiality Risks and opportunities
Conciseness Strategy and resource allocation
Reliability and completeness Performance
Consistency and comparability Outlook
Basis of presentation

Source: The International <IR> Framework, http://integratedreporting.org/wp-content/uploads/2013/12/13-12-08-

THE-INTERNATIONAL-IR-FRAMEWORK-2-1.pdf, accessed October 2015.

EXHIBIT 3: TREE HOUSE CONDOMINIUM

Source: Provided by CDL

This document is authorized for use only in Mary Ho's MGMT3170 L1 Managing CSR at9/9
Hong Kong University of Science and Technology (HKUST) from Feb 2019 to May 2019.