SGX RegCo seeks feedback on climate reporting, ESG, board diversity proposals

LISTED companies in Singapore could be required to make mandatory climate-related disclosures and provide details on their board diversity policy in the coming years, with changes to listing rules proposed by Singapore Exchange Regulation (SGX RegCo).

Issuers would also need to subject their sustainability reports to assurance in future, and all directors could also be required to attend a one-time training on sustainability.

These were among proposals set out in two consultation papers on Thursday as SGX RegCo looks to enhance its sustainability reporting regime amid a growing focus on environmental, social and governance (ESG) factors worldwide.

The regulator - which has mandated sustainability reporting on a comply-or-explain basis since 2016 - said the proposed roadmap to introduce mandatory climate related-disclosures comes amid "urgent demand for such information from lenders, investors and other key stakeholders".

At a press briefing, SGX RegCo chief executive Tan Boon Gin said experts have warned that the effects of climate change will be widespread, rapid and intensifying. "We have experienced some of these phenomena, and it is likely to get worse," he said.

In addition, most financial institutions in Singapore surveyed by SGX RegCo place importance on disclosures of carbon emissions. Yet a review of sustainability reports showed only a third of companies identify climate change as a material topic.

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Mr Tan said: "Our companies must start giving better climate information to meet the demands of their investors, insurers and lenders, or risk being marginalised in terms of allocation of capital and access to financial facilities."

SGX RegCo has proposed a roadmap for mandatory climate-related disclosures based on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

The TCFD recommendations, released in mid-2017, are structured around four pillars: governance, strategy, risk management, and metrics and targets.

Under SGX's phased approach, all issuers would start by adopting climate reporting on a comply-or-explain-basis for their financial year (FY) commencing in 2022. This will be stepped up to mandatory reporting for issuers in certain sectors - where there would be greater impact - from the FY commencing in 2023. More sectors would be added thereafter.

SGX RegCo is seeking feedback on the industries for prioritisation, or on alternative approaches such as one pegged to an issuer's listing board or market capitalisation.

Moving to climate reporting under TCFD recommendations is a "first step to better prepare issuers for reporting against anticipated global baseline sustainability reporting standards to be developed by the International Financial Reporting Standards Foundation", SGX noted.

David Gerald, president of Securities Investors Association (Singapore), said: "These disclosures are critical for better pricing of climate-related risks, more effective risk-management and market discipline, and effective allocation of capital towards financing green and transition activities. This is critical for investors to make informed investment decisions."

Market watchers had previously told The Business Times that adopting the recommendations of the TCFD could help listed companies make better disclosures, with the framework focused on business environment changes and the impact.

On broader ESG reporting, meanwhile, SGX RegCo noted "a need for some basic level of convergence on data definition to alleviate the difficulties faced by financial institutions, investors and other financial market participants".

SGX RegCo is therefore also consulting the market on a list of 27 proposed ESG metrics, which it has identified after reviewing past sustainability reports.

"While not mandatory, these metrics may be used by issuers in conjunction with their sustainability reporting," SGX RegCo said.

The metrics are quantitative in nature, have defined standardised units and are mapped against globally accepted sustainability reporting frameworks. SGX RegCo noted that buyside users have endorsed the relevance of these metrics.

It is also consulting on a proposed data portal where investors can access ESG data in a structured format as reported by issuers. Envisaged features include bulk uploading of digital data and a "sustainability report generation feature".

SGX RegCo is also targeting assurance of sustainability reports.

The recent sustainability reporting review found that only 18.4 per cent of issuers carry out internal assurance, while just 2.8 per cent sought external assurance. SGX RegCo is proposing that issuers subject their sustainability reports to assurance by internal auditors with the minimum scope covering whether the data being reported is accurate and complete. Alternatively, they may also choose external assurance through external auditors or service providers.

Koh Chin Beng, president of the Institute of Internal Auditors Singapore, said internal auditors can help the board in its oversight of the governance structure and controls system. He said: "A well-resourced internal audit function can also advise the board and management on ESG issues such as strategic ESG priorities."

With the enhancements to the sustainability reporting regime, SGX RegCo is also proposing all directors undergo a one-time training on sustainability to ensure they know their roles and responsibilities.

Finally, the regulator is seeking feedback on mandating a board diversity policy. It is also proposing issuers disclose in annual reports their board diversity policies; targets for achieving this; and how the combination of skills, talents, experience, and diversity of directors on the board serves the needs and plans of the issuers.

Mildred Tan, co-chair for the council for board diversity, said: "Companies should take the opportunity to explain to stakeholders the boost to capabilities arising from diversities in board and leadership. If companies are serious about diversity, gender should be a major feature as companies respond to SGX RegCo's encouragement of fuller and more transparent disclosures."

SGX RegCo's Mr Tan noted that companies need to move beyond making broad, general statements on diversity, to showing their specific plan and targets. "Ultimately, our companies will be judged, not by the glossiness of the pages in their annual reports, but by the real concrete steps they commit to take in their actions."

SGX RegCo has proposed that issuers be required to adopt the enhancements for their sustainability reports and annual reports for FYs commencing from next January. Responses to both consultation papers can be provided to SGX RegCo by Sept 27.

Read more: https://www.businesstimes.com.sg/companies-markets/climate-and-board-diversity-disclosures-among-topics-in-upcoming-sgx-consultation