Executive Summary

Since 2016, issuers listed on the Singapore Exchange Securities Trading Limited ("SGX-ST") have been required to issue a sustainability report for each financial year ("FY"). Currently, the issuers must describe in their sustainability reports their sustainability practices on a "comply or explain" basis with reference to six primary components set out in the rules under the Listing Manual of the SGX-ST ("Mainboard Rules") and Section B: Rules of Catalist of the Listing Manual of the SGX-ST ("Catalist Rules") (collectively, "Listing Rules"), including the Sustainability Reporting Guide set out thereunder ("SR Guide"). 1

With effect from 1 January 2022, an issuer is required under the Listing Rules to subject its sustainability reporting process to internal review by the internal audit function. As mentioned in the SR Guide, the internal review should be conducted in accordance with the International Standards for the Professional Practice of Internal Auditing ("Standards") issued by The Institute of Internal Auditors.

To provide a "navigating map" on conducting an internal review of sustainability reports, the Institute of Internal Auditors Singapore ("IIA Singapore") published on 4 November 2022 the Guide to Internal Review of Sustainability Report ("Guide"), co-developed with Ernst & Young LLP (EY). It is built on the requirements of the sustainability report set out in Rules 711A and 711B of the Listing Rules, the SR Guide and the guide on implementing the Recommendations of the Task Force on Climate-related Financial Disclosures ("TCFD"). The Guide is not meant to be construed as the definitive manner to conduct the internal review of sustainability reports in Singapore.

The Guide aims to provide easy reference for its users in preparation for the conduct of an internal review of a sustainability report. Its key aspects include:

  1. Requirements for a sustainability report;
  2. Seven principles to be considered during the internal review; and
  3. Guidance on the internal review process.

We provide a brief overview of the Guide's key aspects below.

Requirements of a Sustainability Report

Rule 711B of the Listing Rules ("Rule 711B") requires the sustainability report to describe the sustainability practices of an issuer with reference to the following six primary components:

  1. Material environmental, social and governance ("ESG") factors;
  2. Climate-related disclosures consistent with the TCFD recommendations;
  3. Policies, practices and performance;
  4. Targets;
  5. Sustainability reporting framework; and
  6. Statement by the board of directors ("Board") and associated governance structure for sustainability practices.

The internal audit function should ensure that the sustainability report covers the primary components. If any components are excluded, the issuer must disclose the exclusion, describe what has been performed instead, and its reasons for doing so.

It should be noted that the second component on climate-related disclosures is being implemented on a graduated basis.

  1. For FY commencing 1 January 2022: all issuers are to adopt climate reporting on a "comply or explain" basis;
  2. For FY commencing 1 January 2023: climate reporting is mandatory for issuers in three industries: (i) financial; (ii) agriculture, food and forests products; and (iii) energy.
  3. For FY commencing 1 January 2024: climate reporting is mandatory for an additional two industries: (i) materials and buildings; and (ii) transportation.

For more details, please see our December 2021 Legal Update on "Enhanced Disclosures on ClimateRelated Information & Board Diversity Policy for SGX-Listed Companies" here.

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Footnote

1. Set out in Practice Note 7.6 of the SGX-ST Mainboard Rules and Practice Note 7F of the SGX-ST Catalist Rules.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.