Firms must make 'substantive changes' to meet sustainability reporting requirements

Singapore

SINGAPORE companies have "a massive mountain to climb" when it comes to meeting new regulatory requirements for sustainability reporting, says new research from global management consultancy, Corporate Citizenship.

However, industry experts have weighed in to point out that the companies that do succeed in climbing the mountain - producing meaningful, informative sustainable reports - will reap vast rewards at the peak, ranging from value creation to employee retention.

The Singapore Exchange (SGX) last month issued a Sustainability Reporting Guide (SR Guide) that will apply to all listed companies with a financial year ending on or after Dec 31, 2017.

Companies will have to describe their sustainability practices, with reference to five primary components: 1) their key material environmental, social and governance (ESG) risks and opportunities; 2) their policies, practices and performance; 3) their targets for the forthcoming year; 4) the reporting framework chosen; and 5) a board statement explaining the company's sustainability actions and the board's oversight.

Companies will have to explain their reasons for excluding any of these primary components, though they will have considerable flexibility within these requirements.

The local scene is, however, in poor shape, according to Corporate Citizenship, which specialises in sustainability and corporate responsibility.

It said that only 13 per cent of the largest 100 SGX-listed companies appear to be fully compliant with the SR Guide.

"The vast majority of companies in Singapore will therefore need to create some substantive changes in the years ahead," it said. "For first-time reporters, in particular, meeting the SGX requirements will be a challenge."

Corporate Citizenship found that, while the majority of the largest listed companies here publish some sustainability information, only 23 per cent currently meet SGX's requirements by producing a sustainability report or disclosing ESG information in their annual reports or through other mediums.

"This implies that a significant majority - 77 per cent - of large companies in Singapore will need to make a step change in their disclosure to meet the new SGX requirements."

Of those that do produce sustainability reports, almost half (44 per cent) produced their first sustainability report only within the last three years, and only four companies have been reporting for more than seven years.

City Developments (CDL), Keppel Corporation, Singtel, Singapore Airlines, Singapore Press Holdings and CapitaLand are among the companies that currently issue sustainability reports.

Among those that do not yet produce sustainability reports, reception to the news that they will soon have to has not always been enthusiastic.

Some companies have cited the increased compliance cost as an additional burden, while others say long-term sustainability initiatives may stand in conflict with short-term profit-making goals.

But industry experts say the benefits of adopting sustainability reporting will be considerable.

Titus Kuan and Kevin Yong of the professional accountancy body, the Institute of Singapore Chartered Accountants (ISCA), said in their piece on sustainability reporting in ISCA's July 2016 IS Chartered Accountant Journal, that sustainability reporting results in value creation, cost savings, improved brand equity, better employee retention and supply chain sustainability for businesses.

"By adopting sustainability reporting, investors can obtain relevant information beyond mere financials to make a more comprehensive assessment of the company's prospects and quality of management. The provision of disclosure on non-financial performance will also showcase a company's commitment to transparency and accountability to stakeholders," they said.

Preparing sustainability reports will also help companies identify inefficiencies in their internal systems, streamline the business and make improvements in decision-making and operational processes, resulting in cost savings.

As for improving brand equity, the writers cited a 2013 survey by Boston College Center for Corporate Citizenship and EY which said that more than half of those issuing sustainability reports saw improvements in reputation.

"CDL is ranked tenth in a global sustainability ranking of firms with market capitalisation of above US$2 billion, and Keppel Corporation is selected as a component of the Dow Jones Sustainability Asia/Pacific Index 2013/2014. These are examples of firms that have boosted their global prominence as a result of their sustainability efforts," the writers said.

Employee relationships may also be strengthened as the company focuses on employee development. Companies will also be able to lower rising levels of risk in regulatory, legal and consumer scrutiny in corporate supply chain practices and build a reliable supply eco-system by selecting suppliers that comply with sustainability reporting frameworks, they said.

Tan Wah Yeow, deputy managing partner at KPMG Singapore, adds, "The practical and effective implementation of SGX guidelines will help companies focus their efforts on ESG considerations critical to continued business growth, and enable them to create real business value from their sustainability initiatives."

Singapore's adoption of such guidelines brings the country in line with the rest of the region. The adoption rate of corporate sustainability reporting in the Asia-Pacific rose from below 50 per cent in 2011 to 79 per cent in 2015, according to KPMG's Survey of Corporate Responsibility Reporting 2015. Voluntary and mandatory reporting requirements have been introduced in countries such as Taiwan, India, and South Korea; Hong Kong's stock exchange, for example, upgraded its ESG Guide in December to "comply or explain" requirements.

Mr Kuan and Mr Yong of ISCA point out that any hurdles faced by Singapore companies in adopting such requirements "are not unique to Singapore and they form part of a necessary stage towards any new regime".

"Over time, the advantages that a company with quality sustainability reporting has over another would prove more apparent, widening the adoption to that of choice rather than mandate," they say.