Singapore
Answer ... Listed issuers have continuing disclosure obligations under the Listing Rules of the Singapore Exchange Securities Trading Limited (SGX-ST) (‘Listing Rules’) to disclose material information that is necessary to avoid the establishment of a false market in the company’s securities or would be likely to materially affect the price or value of its securities, except in limited circumstances. The failure to comply with such continuous disclosure obligations or the disclosure of false or misleading statements may result in a breach of the Securities and Futures Act 2001. Specifically, in relation to ESG disclosure, listed issuers must publish an annual sustainability report for their financial year within the same timeframe as their annual report, although a longer timeframe is permitted if there is external assurance on the sustainability report.
The sustainability report must describe the sustainability practices with reference to certain primary components set out in the Listing Rules on a ‘comply or explain’ basis (although issuers in certain industries must publish a climate report aligned with the Task Force on Climate-Related Financial Disclosures (TCFD) Recommendations). These components include:
- material ESG factors;
- policies, practices and performance in relation to such factors;
- targets in relation to each factor;
- a sustainability reporting framework; and
- a board statement confirming that the board has considered sustainability issues as part of its strategic formulation, determined the material ESG factors and overseen the management and monitoring of these factors.
Further, the SGX-ST – recognising the difficulty faced by listed issuers in benchmarking ESG disclosures, due in part to the inconsistency and lack of comparability of ESG data disclosures – has distilled 27 ESG metrics commonly reported by listed issuers with each metric mapped against globally accepted reporting frameworks such as:
- the Global Reporting Initiative (GRI);
- the Sustainability Accounting Standards Board;
- the TCFD Recommendations; and
- the World Economic Forum’s recommended set of metrics and disclosures.
These ESG metrics serve as a baseline for reporting and are not intended to be exhaustive.
In terms of sectoral requirements, banks, insurers and asset managers are required under the Environmental Risk Management Guidelines to disclose their approach to managing environmental risk in a manner that is clear and meaningful to their stakeholders. They are also encouraged to disclose the potential impact of material environmental risk on the bank, including quantitative metrics such as exposures to sectors with higher environmental risk. The disclosure should be in accordance with well-regarded international reporting frameworks, such as the TCFD Recommendations.
There are also specific reporting and/or record-keeping obligations under the various environmental laws. For example:
- under the Environmental Protection and Management Act 1999, a register of the tests conducted to monitor the industrial emission of air impurities must be kept available for inspection;
- under the Carbon Pricing Act 2018, operators of business facilities with a carbon dioxide equivalence that attains the first emissions threshold must submit to the National Environment Agency (NEA) greenhouse gas emissions reports; and
- under the Resource Sustainability Act 2019, producers of specified packaging that fulfil prescribed threshold criteria must submit to NEA reports on information relating to such specified packaging and a plan to reduce, re-use or recycle packaging in Singapore (also known as the ‘3R plan’).
In July 2022, the Monetary Authority of Singapore published a circular on the Disclosure and Reporting Guidelines for Retail ESG Funds. The guidelines state that, effective from January 2023, fund managers must reveal:
- the investment’s ESG focus and relevant criteria, methodologies or metrics; and
- the sustainable investing strategies of retail funds being sold with an ESG label.
The guidelines specifically state that the funds must ensure that at least two-thirds of their net asset value are invested in accordance with their stated ESG investment strategy.
Singapore
Answer ... Unlike listed issuers, non-listed issuers are not subject to any mandatory ESG disclosure requirements in Singapore. However, with increasing evidence that integration of ESG policies into corporate strategy can yield a positive effect on their financial performance, there is a developing trend for non-listed issuers to make ESG disclosures on a voluntary basis. The Sustainability Reporting Advisory Committee has proposed that listed and large non-listed companies should be progressively required to report International Sustainability Standards Board (ISSB)-aligned climate-related disclosures from financial year 2025. The sustainability reports published by listed issuers serve as a good reference point for non-listed issuers.
Generally, the most commonly adopted sustainability reporting framework is the GRI Standards. An increasing number of entities include climate-related disclosures made against the TCFD Recommendations, which have also been fully incorporated in the disclosure standards of the ISSB (ie, International Financial Reporting Standards S1 and S2). Other international frameworks and industry specific guidelines used by local entities are the United Nations Sustainable Development Goals and the Carbon Disclosure Project.
Based on the SGX-Centre for Governance and Sustainability (CGS) Sustainability Reporting Review Report 2021 issued pursuant to a joint review by the SGX-ST and the CGS at the National University of Singapore Business School, the 10 most commonly disclosed material factors are those of a social and environmental nature. The most commonly disclosed are:
- occupational health and safety;
- employment practices;
- training and education;
- diversity and equal opportunities;
- local community involvement; and
- product, safety and marketing;
- for governance factors, anti-corruption; and
- for environment factors, energy and effluents and waste.
Other voluntary disclosures, as per the Sustainability Reporting Review Report 2021, include:
- the management’s role in preparing the report;
- the company’s sustainability targets, whether short term or longer term; and
- the relationship between those targets and the company’s overall corporate strategy (ie, business strategy and financial performance).
Additionally, some entities will disclose performance data in the context of previously disclosed targets, with some linking top executive remuneration to performance.
Singapore
Answer ... ESG disclosure is a tenet of good governance and promotes the accountability and transparency of a company. In this regard, the board of a company has the dual role of determining the company’s strategic direction and conceptualising its approach to governance. The SGX-ST’s Sustainability Reporting Guide states that the board’s role includes setting strategic objectives with an appropriate focus on sustainability. The board should determine the ESG factors that are material to the company’s business and ensure that those factors are monitored and managed, which translates into the board bearing ultimate responsibility for the company’s sustainability reporting. To this end, the board should put in place through the various levels of management an appropriate sustainability governance structure.
The board is usually supported by a sustainability committee, which may comprise members of the board and/or senior management. The committee will provide the board with specific oversight on strategic and investment decisions related to sustainability, and assist with the implementation and communication of the company’s sustainability activities to its stakeholders. Some companies have also created the executive role of a chief sustainability officer (CSO) to spearhead the formulation and execution of the company’s sustainability strategy and efforts. CSOs face an evolving mandate due to the business resilience pressures of the COVID-19 pandemic, but their main role remains that of ascertaining transparent ways to integrate sustainability into the company’s business functions and processes.
Singapore
Answer ... The SGX-ST recommends that listed issuers adopt globally recognised frameworks and international disclosure standards to guide their reporting, since this allows for improved quality and comparability of ESG data. An example of such a framework is the GRI Standards, which allow organisations to transparently depict the impact of their activities in a structured manner. These disclosure standards are the global baseline for sustainability disclosures in the financial markets.
It is important for a company to:
- disclose the proper governance structure and operational arrangements that are in place to manage ESG issues within the company; and
- demonstrate that ESG issues have been integrated into its existing strategy and risk management processes.
Such disclosures should set out:
- the roles and responsibilities of the board and at each level beyond the board;
- the frequency of reporting and discussions; and
- how progress against climate-related or other metrics and targets is tracked.
Companies should also provide internal or external assurance to enhance the accuracy and credibility of their disclosures, and to confirm that the information provided presents a true and balanced picture of their sustainability efforts and their underlying processes. With effect from 1 January 2022, listed issuers must subject their sustainability reporting process to internal review and may additionally commission an independent external assurance on the sustainability report.
The SGX-CGS Sustainability Reporting Review Report 2021 also identified various best practices in reporting and disclosure, including:
- identifying the relevant climate/environmental risks and opportunities;
- reporting based on consistent indicators and cross-references against targets;
- reporting performance data for all material topics with multi-year performance data to provide more context;
- disclosing short-term and long-term targets that are specific and measurable for all material topics; and
- reporting on clear linkages between performance and business strategy and financial performance.
These best practices aim to increase the confidence of stakeholders and other interested parties in the credibility of the reporting and disclosure.