On 26 August, the Singapore Exchange (SGX) released two consultation papers on its plans for enhancing its current sustainability reporting regime. It is proposed that these enhancements be adopted by its issuers for their sustainability reports and annual reports for financial years beginning on or after 1 January 2022.
Proposals
In summary, SGX's proposals are:
Climate Reporting
In line with the push by securities regulators elsewhere towards the adoption of the Task Force on Climate-related Financial Disclosures ("TCFD") for climate-related disclosures reporting, SGX proposes a phased approach towards requiring issuers to move towards mandatory disclosures consistent with the recommendations of the TCFD, with priority for mandatory reporting accorded to the sectors with the highest climate-related risks, such as the financial, agriculture and forestry/land use, energy (including upstream), construction/real estate, transportation and fuel, and industrial sectors:
- All issuers are to adopt climate reporting on a 'comply or explain' basis for their financial year ("FY") commencing in 2022 (reports published in 2023);
- From the FY commencing in 2023 onwards, climate- reporting will be mandatory for some sectors of issuers while remaining 'comply or explain' for the others; and
- From the FY commencing in 2024 onwards, more sectors of issuers will adopt mandatory climate reporting with the rest doing so on a 'comply or explain' basis.
Sustainability Reporting Frameworks and ESG Indicators
SGX proposes not prescribing a specific sustainability framework for now, other than the TCFD recommendations for climate reporting, observing that the landscape for such frameworks continues to evolve rapidly, and work to develop global baseline reporting standards is ongoing.
Nevertheless, it recognises the need for a "basic level of convergence on data definition", and proposes a list of 27 commonly used environmental, social, and governance ("ESG") metrics as a guidance for issuers to consider reporting against, as a baseline. Issuers should still conduct a materiality assessment to ensure the relevance of reported metrics. The topics covered by these metrics are greenhouse gas emissions, energy consumption, water consumption, waste generation, gender diversity, age-based diversity, employment, development and training, occupational health and safety, board composition, management diversity, ethical behaviour, certifications, alignment with frameworks, and assurance.
Assurance of Sustainability Reports
SGX proposes to require issuers to subject their sustainability reports to assurance by their internal auditors, with the reporting process incorporated in the internal audit plan, and assurance taking place over a few audit cycles. The scope should minimally include assurance on whether the data being reported is accurate and complete. Alternatively, issuers may choose to have their sustainability reports externally assured through external auditors or an independent assurance services provider, with the scope of assurance covering different aspects of the sustainability report, including data and its associated data collection process, narratives, compliance with the specified sustainability reporting framework, process to identify sustainability information reported and compliance with the Listing Rules. Assurances should preferably be performed in accordance with recognised assurance standards.
Guideline on Materiality
SGX proposes retaining its working guideline on materiality, as relating to "the most important ESG risks and opportunities that will act as barriers or enablers to achieving business goals in the short, medium and long term; the omission or misstatement of these risks or opportunities could influence the decisions of investors", noting that this guideline serves as a common baseline to focus all issuers on the business and investors' decisions. Acknowledging that this (outside-in) view of materiality does not necessarily consider the issuer's material (inside-out) ESG impacts on society per se, SGX considers it adequate for now to adopt outside-in materiality as the baseline, because across a longer time horizon, an issuer's ESG impacts on society may well affect the issuer as well, and thereby also be 'outside-in' material to the issuer. The guideline does not prevent issuers from applying an additional standard of inside-out materiality over and above the outside-in standard, if they consider that this will serve their stakeholders' needs.
Sustainability Training for Directors
SGX is seeking views as to whether a component on sustainability should be included in the training for first-time directors, and the topics to be covered in such training. Additionally, it is proposed that all directors attend a one-time prescribed training on sustainability. Issuers should provide a confirmation in their first sustainability report following the amendments to the Listing Rules that all their directors have attended the mandatory training.
Reporting Timeframe
Currently, issuers may either embed the sustainability report within its annual report, which must be issued within four months of the end of the financial year, or issue a full standalone sustainability report within five months of the end of the financial year, with a summary included in the annual report. SGX is consulting on whether issuers issuing standalone sustainability reports should also do within four months of the end of issuers' financial year. It is also consulting on whether, nevertheless, issuers who conduct external assurance may follow the existing reporting timeline and continue to have the option of issuing a full standalone sustainability report within five months of the end of the financial year, with a summary included in the annual report.
Board Diversity Policy
SGX proposes to require issuers to have a board diversity policy, and to disclose in annual reports:
- their board diversity policy including targets, accompanying plans and timeline for achieving the stipulated diversity on their board; and
- how the combination of skills, talents, experience and diversity of directors in the board serves the needs and plans of the issuers.
Additionally, it is consulting on whether gender diversity should be made a mandatory component in the board diversity policy, and whether issuers should be required to disclose the proportion of women in senior management.
ESG Data Portal
SGX is consulting on a proposed data portal with selected functionalities such that investors can access ESG data in a structured format as reported by issuers in accordance with aligned metrics and disclosure requirements. Issuers would be required to submit ESG data in widely used digital formats via the data portal.
Responding to the Consultation
The consultation papers can be found here. Consultation on the proposals closes on 27 September 2021.
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