SGX to develop listed derivatives based on MSCI Climate Action Indexes 

THE Singapore Exchange (SGX) said on Thursday (Oct 27) that it will license the recently-launched MSCI Climate Action Indexes for listed futures contracts.

In a statement, SGX said that it has entered into an agreement with investment-research firm MSCI to license the index, which includes companies that are taking concrete steps to reduce their carbon emissions.

In the index, companies' current carbon intensity and their potential to lead the climate transition are assessed, relative to that of their peers.

With the licence, SGX said that it will work with market participants to develop climate-related products, including futures contracts, to help investors reduce their portfolio carbon footprint.

SGX chief executive officer (CEO) Loh Boon Chye said that the indexes, coupled with related products in the bourse operator's pipeline, will facilitate climate engagement and accelerate the flow of funds to support companies in their transition efforts.

Public consultation for regulatory proposals

In a separate statement, the Singapore Exchange Regulation (SGX RegCo) opened public consultation on two proposed measures.

Firstly, SGX RegCo is proposing a hard nine-year limit on the tenure of independent board directors (IDs), and the removal of the two-tier voting mechanism for long-serving IDs.

In its consultation paper, it noted that current market practice suggests a "concerning trend" that long-serving IDs may become entrenched. It also cited KPMG's review of companies with financial years ended Jul 1, 2020 to June 30, 2021, which showed that only 52 per cent of companies disclosed that they did not have directors serving beyond 9 years.

Furthermore, KPMG found that the disclosures made by companies regarding the independence of their long-serving IDs were often lengthy and not meaningful.

In addition, another study by Nanyang Business School associate professor Victor Yeo in 2021 found that 97 per cent of long-serving IDs who were put through the two-tier vote were reappointed.

SGX RegCo said: "Indeed, long-serving directors may have accumulated valuable experience and institutional knowledge in relation to the company and its industry. However, with increased familiarity, there may also be reduced objectivity.

"In our view, if companies wish to retain their quality long-serving directors, an appropriate balance would be for these directors to serve in a non-independent capacity instead."

SGX RegCo has also suggested that companies be given a transitional year to find suitable ID candidates before the hard-tenure limit kicks in.

Secondly, SGX RegCo is proposing the mandatory disclosure of the actual amount and breakdown of the remuneration of board directors and the chief executive officer (CEO) of listed issuers on a named basis in annual reports.

The regulator noted that during its review, KPMG found that companies mostly provided boilerplate explanations that their non-compliance was due to competitive, sensitivity and confidentiality concerns.

"Shareholders expect the remuneration of directors and the CEO to be linked to a companies' sustainable, long-term value creation," it said, adding that at the height of the Covid-19 pandemic, questions were raised on whether remuneration packages of listed companies' directors and executives were appropriate amid the uncertain business environment.

SGX RegCo also noted that major jurisdictions such as the UK and USA require the disclosure of the amounts and breakdowns of compensation paid to directors and CEOs on a named basis.

The proposal will bring Singapore's disclosure requirements on director and CEO remuneration in line with global standards, it said.

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