Delay in climate reporting not ‘a get-out-of-jail-free card’ for Singapore’s smaller listcos, say observers
The Republic’s banks say this will not change how they engage with SME clients, nor will it affect how they track their financed emissions
[SINGAPORE] Small and mid-sized listed companies on the Singapore Exchange (SGX) should not view the five-year delay in climate reporting requirements as a chance to take a breather.
They should continue building up capabilities in sustainability reporting and develop a roadmap towards their eventual disclosures, as investors already demand such climate-related information, said sustainability professionals.
“I hope that the postponement… is not seen by the small and medium-sized enterprises (SMEs) as ‘Okay, I have more time to start doing this assessment, and I can do other things in the meantime.’ I’m saying the problem is not going away. What if we are hit by a climate-related event tomorrow?” said Corrado Forcellati, senior director of sustainability consulting firm Paia From CBRE.
“I am trying to make sure that we don’t give a ‘get-out-of-jail-free card’,” he added.
In fact, the five-year delay before full climate disclosures become mandatory for smaller listed companies might mean higher expectations on the quality of their reporting.
“With the additional time now available, it is crucial that we collectively establish the building blocks of critical data points and key information required for alignment with the ISSB (International Sustainability Standards Board) standards and to an expected high standard, with less dependency on permanent reliefs,” said Fang Eu-Lin, sustainability and climate change leader at PwC Singapore.
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“I encourage boards and senior management to begin or continue with the process of assembling their own building blocks sooner rather than later. Doing so will help ensure the timeline extension announced this week will be put to good use,” she added.
On Monday (Aug 25), the Accounting and Corporate Regulatory Authority and Singapore Exchange Regulation announced that most climate reporting requirements for small and mid-sized listed companies – defined as non-constituents of the Straits Times Index (STI) with a market capitalisation below S$1 billion – would be pushed back by five years to FY2030.
Non-STI constituents with a market capitalisation of S$1 billion and above will have to comply from FY2028, while STI constituents would have to stick with the original timeline of making climate-related disclosures aligned with ISSB standards from January 2025 onwards.
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STI constituents will also have to report their indirect emissions resulting from their supply chain – known as Scope 3 emissions – from FY2026.
While Scope 3 reporting requirements remain voluntary for the rest of the listed companies, they will still have to report operation emissions (Scope 1) and those arising from the use of electricity (Scope 2) from this financial year.
Potential impact
The sweeping – and sudden – changes made by Singapore’s regulators left some sustainability professionals, including those that have been working with listed SMEs, disappointed.
For one, climate risk disclosure is not particularly new to companies, said Marc Allen, co-founder of climate-tech platform Unravel Carbon.
Granted, Singapore’s delay is not unique among the world’s regulators, as similar decisions were made by the European Union in February this year to streamline climate-related reporting and disclosures.
The decision to push back full ISSB-aligned disclosures could have several effects. On the policy front, this could hamper effective policymaking as policymakers wouldn’t necessarily have a complete picture of Singapore’s exposure to climate-risk given the inadequate disclosures, said Forcellati.
Singaporean companies with exposure to Malaysia – who are pushing forward with their mandatory climate disclosures – may also find themselves having to report some level of disclosures, said Allen.
The ease of assessing capital for companies not making these disclosures is another area.
Given that investors are pricing in climate-related risks in their investment decisions, companies that have not performed such assessments would be deemed riskier and would not be able to get the capital they are seeking, or face higher premiums.
“Companies who are exposed to international and domestic credit markets may find themselves being compelled to provide this information as part of the finance industry’s due diligence processes,” said Allen.
Pressing ahead
Regardless of postponed climate reporting rules, capital providers are already expecting such information from companies.
The top priorities, going forward, is for companies to build up sustainability reporting capabilities to ready themselves come FY2030, said observers.
“This extension must not be mistaken as a permission to pause. The clock is still ticking and the market urgently needs professionals equipped with the right tools and knowledge to produce reliable and decision-useful information,” said Fann Kor, chief executive officer of the Institute of Singapore Chartered Accountants.
“To ensure we stay on track with our plans towards net zero, we must double down on our efforts to build the necessary capacity and capability,” she added.
Ensuring that a company’s reporting meets ISSB standards is complex, demanding and intensive, and it requires skill sets that listed SMEs may not have the resources nor manpower to acquire, said observers.
Fang said that a good place to start is by getting acquainted with the capacity-building offerings available in the market. They can then chart a roadmap towards producing high-quality sustainability information by the required deadline.
Companies should use this window to enhance governance frameworks, establish robust operating models and drive value creation by strategically integrating environmental, social and governance (ESG) considerations in their business, said Cherine Fok, partner of ESG consulting, and Pamela Fan, partner for ESG assurance at KPMG in Singapore.
They could also develop reporting roadmaps that reflect progressive improvements in disclosures as a guide from now until 2030, they added.
“Such a roadmap could involve companies making clear policy choices on their emissions approach, reporting on Scope 1 and 2 emissions, their climate risk exposures and climate action plans across all operations,” said Fok and Fan.
“Following which, companies may expand their reporting boundaries to include their value chain activities. Finally, they should be able to provide financial quantification of potential impacts of climate change to their business strategy and articulate a compelling climate transition plan.”
Negligible impact on local banks
Despite the delay in climate disclosures, Singapore’s banks say that this will not change the way they engage with their SME clients, nor will it affect how they track their financed emissions.
Instead of viewing the pushback in timeline as a setback, Mike Ng, chief sustainability officer at OCBC, said that it is “a recalibration that supports inclusive progress”.
In fact, with Scope 3 reporting now voluntary – except for STI constituents – companies can now concentrate on improving the accuracy and robustness of their Scope 1 and Scope 2 emissions data, he added.
The banks said that many clients are already developing their own decarbonisation and transition strategies, whether it is to capture emerging opportunities, be more resilient and future-ready or to save costs.
“It is on the back of such plans and targets that we will continue to see robust growth of sustainable financing in Singapore and the region... Mandatory sustainability disclosures are only one of many levers to drive action in real economy decarbonisation,” said Eric Lim, chief sustainability officer of UOB.
While the delay in implementing ISSB-aligned reporting may impact the availability of high-quality data and information in the short-term, Helge Muenkel, chief sustainability officer of DBS, said that it does not prevent climate action.
“The roll-out of mandatory sustainability reporting is a process which requires time to build capability and capacity to improve disclosures,” he added.
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