SGX rolls out mandatory climate reporting for financial, energy issuers from 2023

CLIMATE reporting will be mandatory for issuers in the financial, energy, and agriculture, food and forest products industries from the financial year (FY) commencing 2023, Singapore Exchange (SGX) said on Wednesday (Dec 15).

Listed companies from the materials and buildings, and transportation industries would also be subject to mandatory reporting from their FY commencing 2024.

These sectors have been prioritised for mandatory climate reporting in subsequent years, even as all issuers must provide climate reporting on a "comply or explain" basis in their sustainability reports from their FY commencing 2022.

The requirements are under SGX's roadmap for issuers to provide climate-related disclosures based on recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). It follows a public consultation that began in August on both sustainability reporting and board diversity disclosures which SGX said "received broad support".

"The market recognises that climate reporting is important as a first step towards efforts to mitigate the effects of climate change. Decision-makers also want climate information when they allocate assets, extend financing, and price risks," said SGX Regulation (SGX RegCo) chief executive, Tan Boon Gin. "These factors make climate reporting most urgent for industries with the biggest impact."

In its response to the consultation on Wednesday, SGX RegCo said the prioritisation is based on the TCFD-identified industries that are most affected by climate change and the transition to a lower-carbon economy, which is in line with the view of most respondents.

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Effective January next year, listed issuers would also need to subject their sustainability reporting processes to internal review by their internal audit function, and all directors also have to undergo a one-time training on sustainability.

Sustainability reports also have to be issued together with annual reports unless issuers have conducted external assurance. Previously, standalone sustainability reports could be submitted 5 months after the financial year ended, a month longer than the deadline for annual reports.

Meanwhile, SGX also said that its separate public consultation on 27 proposed core environmental, social and governance (ESG) metrics and a portal for issuers to input ESG data also received "strong market support". The metrics are not mandatory, but SGX said that companies can use them as a starting point on what to disclose in their sustainability reports.

Apart from climate and ESG topics, issuers will also be required to set a board diversity policy that addresses gender, skill and experience, and other relevant aspects of diversity. They must also describe this policy in their annual reports and include details such as diversity targets, plans, timelines and progress.

"Recent uncertainties have posed financial and governance challenges for boards," SGX RegCo's Tan said. "Having a broad set of perspectives will better enable companies to anticipate and face these challenges."

The Corporate Governance Advisory Committee (CGAC) said in a separate statement that it supports the introduction of new rules on climate reporting and board diversity disclosures.

It noted that a review of disclosures by SGX-listed companies showed that some 87 per cent of the 3,700 directors were male, and 45 per cent of the companies reviewed had all-male boards.

The review also found that the average age of directors was 59 years old, with over half of directors above 60 years of age. The average tenure of independent directors (IDs) was 6.6 years, with around a quarter having served for more than 9 years.

From next year, IDs who have served 9 years or more would no longer be considered independent, unless 2-tier approval is obtained: from all shareholders; and from shareholders excluding directors, chief executive officer, and their associates. SGX RegCo's Tan said last month that the 2-tier voting is expected to be used sparingly, and that they would be watching this issue very closely.

The CGAC said it will be effecting changes to the Code of Corporate Governance's Practice Guidance to guide issuers towards improved board diversity. This includes "more strongly" recommending that nominating committees use a variety of sources including search firms or advertisements when seeking to appoint IDs.

"The CGAC takes the view that more can be done by Singapore listed companies to strengthen board diversity, including female presence on boards. In many cases, it is observed that the implementation of board diversity policies is lagging behind stated intentions," it said.

Mildred Tan, co-chair, Council for Board Diversity, said in a statement: "When companies have more diverse boards, including more female directors, stakeholders know they have invested time and effort in succession planning and board renewal."

She added: "Capable and board-ready women with relevant skillsets and experiences are available and we hope the new SGX board diversity requirements will pave the way towards more of them in our corporate boardrooms."

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