ESG Leadership: Questions from the upGrad Session

These questions were submitted during the KnowledgeHut upGrad Singapore masterclass on “ESG Leadership for the Modern Professional,” held in July 2023.  The session was hosted by KnowledgeHut upGrad Singapore, with Terence Nunis presenting in his capacity as Chief Executive Officer of Equinox GEMTZ and President of Red Sycamore Global.

In your experience, how does ESG market leadership contribute to achieving market dominance?

Start with the regulatory trajectory.  Legislation pertaining to climate change is tightening globally, and the compliance carbon credit market will grow proportionally.  There are not enough compliance credits to meet the demand that the tightening regulation will create.

The foundation of ESG market leadership is securing stakes in viable carbon sink projects — seagrass meadows, mangroves, forests, blue carbon ecosystems — before the compliance market matures.  Companies that hold compliance credits have something their competitors are legally required to acquire.  They can sell excess credits at a premium.  That premium is direct revenue generated at the direct expense of competitors who failed to position early.  This is not a sustainability strategy in the conventional sense.  This is competitive positioning through regulatory architecture.

Can you provide examples of companies that have successfully leveraged ESG practices to gain a competitive edge?

Tesla is the clearest case.  In 2022, Tesla’s automotive revenue was US$67.2 billion.  Its revenue from the sale of regulatory credits to other automakers was US$1.8 billion.  The automotive revenue required factories, supply chains, raw materials, labour, and capital deployed at industrial scale.  The regulatory credit revenue required Tesla to exist and operate as an EV company, which it was doing anyway.

The production cost of those credits is negligible relative to the revenue.  Almost all of that US$1.8 billion is effectively profit.  The same cannot be said for US$67.2 billion in automotive revenue.  More importantly, the buyers of those credits are Tesla’s automotive competitors.  Tesla is extracting revenue from the companies competing against it, depriving them of funds they would otherwise deploy into product development, marketing, and R&D.  It has strengthened itself financially at the direct expense of its competitors — legally, systematically, and continuously.  That is what market leadership through ESG positioning actually looks like.  It is not a charitable gesture.  It is a brilliant strategic position.

How does ESG market leadership impact market access for businesses?

As we approach 2030, countries will continue enacting legislation to meet their climate pledges.  This translates directly into higher carbon taxes and material incentives for companies demonstrating credible abatement.  Companies that fail to position themselves in advance face a compulsory cost increase on their operations — a direct impact on revenue and market access.

Consider also the political dimension.  Adverse weather events will intensify.  Rising sea levels will displace populations.  As these events accumulate, the public will require someone to blame.  Governments are in the business of winning elections.  The executive leadership of companies identified as primary contributors to the problem will be the first sacrifice.  No executive should want to be in that position.  The ones who will not be, are the ones who addressed the problem before the political pressure made it unavoidable.

Are there specific market segments or industries where ESG practices have a more significant influence on market entry or expansion?

Four industries will bear the primary burden: maritime transportation, aviation, mining, and oil and gas.  These are statistically the largest emitters with the biggest carbon footprints.  As the cap-and-trade compliance regime consolidates across jurisdictions, these industries will face the steepest carbon tax increases and the greatest regulatory exposure.

An airline that has not positioned itself in compliance credits is an airline that will be paying carbon taxes from operating margins that were already thin before the taxes arrived.  A shipping company that has not addressed its carbon footprint is a shipping company with a structurally rising cost base.  Neither position is sustainable.  The choice is not between ESG and operational continuity.  It is between proactive positioning that generates revenue and reactive compliance that generates costs.

From a personal perspective, how can individuals incorporate ESG market leadership principles into their own professional journey?

The executive leader is a strategic leader first and an operational leader second.  We hire management for operations.  We need visionaries for strategy.  Part of the strategic landscape is understanding where legislation and regulatory pressure are moving — and pre-empting them by advancing initiatives that address the underlying contentions before they become compulsory.  For major corporations, the primary contention is the carbon footprint.  International pressure will increase.  The executive who identifies this early and builds the corporate response before the regulatory demand arrives is exercising exactly the visionary leadership that separates strategic leaders from operational managers.  The same principles apply across domains: read the situation, identify the challenge, and address the underlying contention before it becomes a crisis.

What are some practical steps one can take to align personal values with corporate ESG initiatives?

Revenue considerations aside, it is in the interest of every business to protect the environment and build a sustainable growth model.  No company grew by destroying its market.  Rising global temperatures are an existential threat to the civilisation that produces the consumers, the workers, the investors, and the infrastructure that every business depends on.  The executive who frames ESG purely as a cost or a compliance burden has confused immediate shareholder value with long-term business viability.  The wider society is the greater stakeholder.  When the wider society fails, the business fails with it.

How do companies integrate ESG market leadership into their overall corporate strategy?

Corporate strategy is about one thing: winning.  The market is fundamentally zero-sum.  For one company to win, a competitor must lose.  The three forms of market leadership — lowest overall cost, greatest innovation, and greatest customer intimacy — all require sustained market growth, which requires the continued functioning of some semblance of civilised society.  Climate change is a threat to that.  Any corporate strategy that does not account for this is a corporate strategy built on an assumption that will not hold.  The executive who internalises this at the strategy level will find that ESG initiatives are not a drain on competitive resources.  They are a component of the competitive strategy itself.

Are there any challenges or roadblocks they commonly encounter during the implementation process?

The greatest roadblock is myopia.  Specifically, the leadership failure of executives who succeeded within an existing operational framework and cannot imagine the framework changing.  They see their immediate results.  They forget that the process which produced those results took years to build — and that what brought them here will not bring them to the next peak.  Short-term thinking prioritises the current quarter’s margin over the regulatory reality arriving in 2030.  Every other challenge — legislation, tax exposure, political exposure, environmental disruption — is secondary to this, because the myopia prevents formulating an adequate response to any of them.  This is painting the deck instead of fixing the leak while the storm builds on the horizon.

Can you share any insights on how ESG market leadership affects investor perception and decision-making?

In the United States, ESG has been politicised to the point of absurdity.  The rest of the world is, mercifully, more rational.  There is a growing global movement of activist investors applying sustained pressure on oil majors, mining companies, and other high-emission businesses.  No company wants that scrutiny.  It affects market exposure, share price, and the cost of capital.  Institutional investors with ESG mandates are increasingly directing capital away from companies that cannot demonstrate credible climate commitments.  The company that has built a genuine ESG position — substantive, documented, and independently verifiable — attracts this capital.  The company that has not loses access to it.

How do investors evaluate companies’ ESG practices and incorporate them into their investment strategies?

There is a growing requirement for companies to report their carbon footprint as part of carbon tax exposure assessment.  The relevant data appears in audited reports: the quantity of carbon credits purchased, the provisions set aside for future credit purchases, and declared ESG projects and commitments.  This information is available to investors and increasingly forms part of standard investment analysis.  The company whose ESG position is substantive and verifiable has a different risk profile from the one whose position is cosmetic.  Investors are becoming better at distinguishing between the two.

In terms of sustainability reporting and disclosure, what are some best practices that companies should follow to effectively communicate their ESG market leadership to stakeholders?

Three things.

First, embed ESG in the mission statement.  Not as a rider or a footnote.  As a core statement of what the company is and what it is for.

Second, make it intrinsic to the brand.  ESG commitments that appear only in the annual report and nowhere in the company’s public identity are compliance theatre.  They signal to every stakeholder that ESG is a box-ticking exercise rather than a genuine strategic position.

Third, be visibly active in ESG initiatives that engage the community.  It is not sufficient to be heard.  The company must be seen as participating, investing, and demonstrating commitment through action rather than documentation.

What are some emerging trends or developments in the field of ESG market leadership that attendees should be aware of?

Three trends are accelerating simultaneously.

The first is the pivot from the voluntary carbon market to the compliance market.  Voluntary credits have faced credibility crises — Verra’s rainforest offset controversies being the most visible — that have damaged the voluntary market’s credibility with institutional buyers.  The compliance market does not depend on buyer confidence.  It depends on the regulatory mandate.  That mandate is strengthening.

The second is the global increase in carbon taxes.  As the regulatory framework consolidates into a binding international architecture, carbon credit prices will rise.  The companies positioned in compliance credits before this consolidation capture the upside.  Those positioned after it pay the market rate in a seller’s environment.

The third is the relative economics of carbon capture versus carbon sequestration.  Carbon capture — mechanical and chemical trapping of CO₂ — has technology costs that may decline with adoption but operational costs that will not.  Carbon sequestration through natural processes — seagrass, mangroves, forests — has a structurally more attractive cost profile.  Natural ecosystems sequester carbon at costs that no industrial process can match.  Blue carbon specifically — seagrass meadows, mangroves, tidal marshes — sequesters at rates per hectare that significantly exceed terrestrial forests.  This is where the long-term economics of carbon sequestration concentrate.

How do these trends impact businesses and their competitiveness?

Directly.  The cost of carbon tax compliance raises the cost of doing business for every company in the highest-emission sectors.  This is a margin impact — direct, measurable, and compulsory.  The longer-term risk is more severe.  If these measures fail and climate change continues unchecked, the productivity losses from extreme heat, disrupted agriculture, sea-level displacement, and infrastructure damage will impose costs on the broader economy that dwarf the current cost of compliance.  Either scenario — successful climate regulation or failed regulation — produces an environment of rising costs and uncertain revenue for companies that have not positioned themselves in advance.

What are some potential risks or pitfalls companies should be mindful of when pursuing ESG market leadership?

The primary pitfall is the indiscriminate deployment of capital into anything bearing the “ESG” label without assessing what it actually does or whether it generates the credits, the regulatory compliance, or the competitive positioning the company needs.  This produces three simultaneous failures: a short-term cost with no return, a medium-term credibility problem when the ineffective spending becomes visible to stakeholders, and a long-term competitive disadvantage when the 2030 and 2050 regulatory deadlines arrive, and the company has neither the credits nor the strategy to meet them.  ESG greenwashing is not merely an ethical problem.  It is a strategic failure that compounds over time.

How can they mitigate these risks and ensure long-term sustainability?

Start with a genuine ESG strategy developed with expert consultation — people who understand the carbon tax framework, the regulatory direction in the relevant jurisdictions, and whether abatement or cap-and-trade positioning is the appropriate response for the specific business.

For most businesses, the most economically rational approach is carbon sequestration through carbon sinks — investing in natural ecosystem restoration that generates compliance-grade credits — combined with positioning in the compliance market rather than the volatile voluntary market.

Deploying capital in the wrong direction is not merely wasteful.  It actively sets the company back in the race to meet climate pledges whose deadline does not move.

How can organisations foster a culture of ESG market leadership among employees and stakeholders?

Two things, in sequence.

First, education.  There is extensive discussion of ESG and minimal genuine understanding of what it is, what the regulatory trajectory looks like, and what is actually at stake.  Without that understanding, corporate leadership cannot build a coherent strategy, and employees cannot align with one.

Second, translation of that understanding into a concrete strategy — one that secures carbon credits, addresses the regulatory exposure, and establishes a competitive position in the compliance market.  The strategy must be specific, measurable, and connected to the actual regulatory deadlines that will determine whether the company is ahead of the curve or behind it.

First movers carry financial risk.  Late movers carry all of that risk, plus compounding regulatory exposure and the political liability of being identified as the laggard when governments need examples.

Are there any specific initiatives or programmes that can help drive this cultural shift?

I founded Red Sycamore specifically to operate in this space.  Red Sycamore creates carbon sinks through coastal ecosystem restoration — seagrass, mangroves, and related blue carbon ecosystems — generating investment-grade blue carbon credits for trade on compliance exchanges.  The objective is not only to create credits but to build the secondary market infrastructure that normalises carbon credits as a financial instrument class alongside equities, bonds, and commodities.

Commodification creates price discovery.  Price discovery creates investment flows.  Investment flows fund further restoration.  The cycle is self-sustaining at scale — and the scale required to address the climate challenge is one that only functioning financial markets can mobilise.

From a global perspective, how does ESG market leadership vary across different regions and markets?

Significantly — and not only by region but by industry.  Different sectors generate different credit types, most currently in the voluntary market.  Even compliance credits cannot be traded across exchanges, because a genuinely global clearing house does not yet exist.  The result is material price discrepancies between jurisdictions and quality inconsistencies across credit types.

The national emphasis on ESG — driven by the specific commitments each government has made under the Paris Agreement and subsequent frameworks — partially explains these discrepancies.  As the international framework consolidates and the compliance architecture matures, these discrepancies will narrow.  The companies that positioned themselves before that consolidation will hold credits whose value is established in a maturing market.  The ones that position afterward will pay the market rate.  The window for advantageous positioning is open.  It will not remain open indefinitely.

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Terence Nunis | Executive Chairman, Equinox Zenith & Red Sycamore | Author, The 1% Playbook: The Billionaire Cheat Code