Only 36% of issuers required to make climate disclosures fully met SGX requirements: review
Study also shows that getting companies to provide more depth and details in such reports is a serious challenge
[SINGAPORE] Among listed companies mandated to report climate-related disclosures for their 2023 financial year, only 36 per cent fully met regulatory requirements set by the Singapore Exchange Regulation (SGX RegCo).
However, this was still an improvement from the previous year, when a smaller proportion of 15 per cent fulfilled their obligations, according to a review conducted by SGX RegCo and the National University of Singapore Business School’s Centre for Governance and Sustainability (CGS).
SGX RegCo had laid out a phased approach by which different sectors would gradually be made to meet these requirements, beginning with the 2024 sustainability reports of the finance, energy, as well as agriculture, food and forest products industries.
The review, which was released on Tuesday (Mar 11), assessed the state of climate reporting for FY2023 by looking through that period’s sustainability reports of 529 listed companies that were available from Jul 31 last year.
Companies fully satisfy sustainability reporting requirements only when they disclose all 11 recommendations under a framework developed by the Task Force on Climate-Related Financial Disclosures (TCFD).
Across the whole universe of SGX-listed companies – which includes other issuers that need not report these disclosures if they can explain why – the percentage of issuers that were fully aligned dropped even further to 28 per cent.
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“Only 28 per cent (of issuers) I would say are fully TCFD-ready, and our yardstick is actually not very stringent – as long as they fulfil (the recommendation) in a certain way, even if it is not in itself complete. And I think that this is not very good,” said CGS director, Professor Lawrence Loh, during a media briefing.
While full adoption of the TCFD framework remains limited, the review noted that the state of climate disclosures improved in 2024, as only 9 per cent of issuers reported all 11 recommendations in their 2023 sustainability reports.
The percentage of issuers that started TCFD reporting also increased to 97 per cent, compared with 73 per cent in the previous year.
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This was mainly due to issuers with a small market capitalisation of less than S$300 million coming on board, as 96 per cent of them made at least one disclosure in 2024, up from 67 per cent the year before.
The review also noted that more than half of the issuers (61 per cent) provided at least nine disclosures, up from 27 per cent in the same time period in the prior year.
However, Prof Loh noted that such an increase is not phenomenal, considering that issuers with just one TCFD disclosure – regardless of how detailed it is – are also included.
Lacking depth
This latest review showed that getting issuers to start reporting climate disclosures is not the main challenge. Rather, the bigger problem is having them provide more depth and details in their disclosures, noted Prof Loh.
This review comes at a critical juncture, he added, as it would give a sense of whether issuers are ready to transition and fulfil upcoming mandates – set to come into effect from FY2025 – to align climate reporting with the standards developed by the International Sustainability Standards Board (ISSB).
This is because the ISSB framework is developed from the same four pillars – governance, strategy, risk management, as well as metrics and targets – as TCFD.
Among the four pillars under the TCFD framework, the review found that issuers were the weakest in making strategy and risk-management disclosures.
Under the strategy pillar, only 35 per cent of issuers came up with a climate scenario analysis, and an even smaller proportion (31 per cent) had defined time horizons for the various scenarios. How companies integrate climate risks into their overall risk management was also disclosed by slightly less than half of them (48 per cent).
Even within the governance pillar, only 42 per cent of issuers described how their board would monitor their progress in how they address climate-related issues, compared with 92 per cent that laid out the process through which the board is informed about such issues.
“The weak point is the ‘how’. It’s actually not good enough for companies to say, ‘Our board monitors and oversees progress’. They cannot just repeat the disclosure statement, they have to actually tell us how in specific terms... Some of the specificity and the details are always missing,” said the professor.
Nevertheless, he noted that it will likely not be a huge challenge for companies to transition to ISSB-aligned reporting, though there is certainly a need for a road map for how companies can make that gradual switch.
Michael Tang, head of sustainable development office at SGX RegCo, said that the regulator is studying the report to see in what areas it can provide more support to companies to aid them in adopting ISSB.
Scope 3 emissions
Only 29 per cent of issuers disclosed Scope 3 emissions in 2024. Though this is an improvement from the 15 per cent in the previous year, it is a much lower disclosure rate compared with those for Scope 1 (80 per cent) and Scope 2 emissions (87 per cent). Scope 1 refers to emissions arising from a company’s business activities, while Scope 2 comes from its purchase of electricity.
This is not surprising, given that companies have always noted the difficulties in measuring Scope 3 emissions, or those that arise from their value chain.
Though it was not mandatory for issuers to report their Scope 3 emissions in 2024, Prof Loh still noted that this low level of reporting is a “critical weak link”.
SGX RegCo had surprised the market somewhat when it pushed back the timeline on Scope 3 reporting, with the exception of larger issuers.
It had originally intended for Scope 3 emissions to start from FY2026, but has dropped the timeline to “carry out an in-depth review... before setting out the implementation road map”.
While nothing has been finalised yet, Tang said that SGX RegCo would likely prioritise companies with a larger market capitalisation to start Scope 3 reporting first.
“We’re at a stage where we’re just synthesising both actual data that (Prof Loh) has provided as well as the on-the-ground colour that we are gleaning from our engagement. As and when we make those announcements, we will definitely inform the market,” he added.
Tang also noted that companies are voicing concerns about heightened uncertainty, given the changing climate-related regulations in other markets such as the United States and European Union.
US President Donald Trump has scaled back the country’s climate commitments, while the EU recently issued new legislation to simplify sustainability-related reporting.
Despite these shifts, Prof Loh said, companies here should “double down on sustainability” given that Singapore recently announced more ambitious climate targets of reducing emissions to between 45 million and 50 million tonnes of carbon dioxide equivalent.
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