Unlikely allies in Singapore’s sustainability journey: Finance and accounting
Victor Ng
GREEN finance is an exciting area of growth in Singapore, accounting for almost half of the ASEAN green bond and loan market.
In its 2022 Budget, the Singapore government announced several measures aimed at elevating the country’s standing to become a leading carbon services hub in Asia. Some measures such as the broadbased carbon tax which was introduced in 2019 have helped enterprises reduce their greenhouse gas emissions. There is also the Green Plan that Singapore hopes to achieve by 2030. Such measures have prompted businesses to take Environmental, Social, and Governance (ESG) matters more seriously in their operations.
One such area businesses are increasingly looking at is to integrate their financial performance alongside sustainability commitments. Accountants have been brought to the forefront of this conversation, highlighting the crucial role they play in capital and corporate reporting in ESG.
As accountants become emerging ESG stewards for their firms, they’ll need to move beyond traditional functions and take on a more strategic role in ensuring that ESG commitments are fulfilled.
Why F&A functions are well-positioned to lead ESG goals
With F&A leaders facing mounting pressure to make climate-related disclosures, chief financial officers (CFOs) are best-positioned to drive the sustainability imperative. As the business and strategic partner to the chief executive officer (CEO), the CFO’s responsibility is to ensure financial reporting is accurate, complete and verifiable according to accounting standards. Their expertise will allow CFOs to ensure that ESG data receive the same attention and care as the rest of the data reported in financial statements.
Besides providing oversight and accountability, CFOs would also develop governance structure and control environments for their company’s ESG risks and factors. This way, F&A teams can best align internal stakeholders around a company’s ESG responsibilities. Consistent communication of sustainability’s impact on the company’s bottom line will be the way forward.
Importance of ESG standards in financial reporting
Without an active role in ESG, accounting professionals can risk non-compliance with accounting guidance and reporting requirements. Accounting standards in Singapore follow those issued by the International Accounting Standards Board, the independent standard-setting body of the International Financial Reporting Standards (IFRS) Foundation. Inaccurate reporting of the company’s state of affairs, or non-compliance, may result in criminal liability under the Companies’ Act. Singapore Exchange (SGX), has also made climate reporting mandatory on a ‘comply-or-explain’ basis. Lack of transparency and accountability to ESG initiatives may consequently lead to a loss of stakeholder trust.
With ESG’s increased significance, F&A teams must stay closely tied to standard setters to ensure they are properly guiding and informing their corporate strategy. Investors, lenders and rating agencies expect greater visibility into a broad range of metrics to understand companies’ ESG policies and performance. It is crucial that F&A teams ensure they have implemented proper policies, procedures and controls around the collection and disclosure of ESG information to reduce the risk of inaccurate reporting.
Beyond Singapore, global organisations are also asking financial accounting standards boards to provide rules on topics like accounting for renewable-energy certificates and carbon-offset credits. Companies can purchase and use these credits to achieve their targets to reduce greenhouse gas emissions. With more companies and governments prioritising ESG in their F&A functions, Singapore has to remain competitive so as to not be left behind.
Evolving sustainability reporting
Sustainability reporting is still relatively new for F&A teams, but they must evolve with the global call for efforts to combat climate change. Establishing proper procedures, controls and policies are critical to reduce the risk of inaccurate reporting. Furthermore, stakeholder trust would be at stake if inaccurate reporting and the lack of transparency and accountability happens.
ESG is here to stay. Accounting leaders especially have to be actively involved in the conversation or risk non-compliance with accounting guidance and requirements. Businesses need to realise this and involve their finance and accounting teams in more strategic decision-making. Prioritising ESG is not just a matter of outlasting competitors but building a more sustainable, resilient future.
The writer is regional vice president, Asia at BlackLine
