One small step in climate reporting, one big leap towards climate action

THE recently concluded public consultation by the Accounting and Corporate Regulatory Authority and Singapore Exchange Regulation (SGX RegCo) on the recommendations by the Sustainability Reporting Advisory Committee (SRAC) stirred much interest as it marks a significant step in advancing climate reporting in Singapore.

If the SRAC recommendations are adopted, climate-related disclosures (CRDs) will be made mandatory for all SGX-listed issuers from FY2025. More significantly, this will extend to large non-listed companies with annual revenue of at least S$1 billion from FY2027. For other non-listed companies with annual revenue equal to or more than S$100 million but below S$1 billion, a review will be conducted in FY2027, with the view to require reporting by around FY2030.

In addition, CRDs should be reported using local prescribed standards that mirror the requirements in the International Sustainability Standards Board (ISSB) standards.

By setting clear climate reporting guidelines, Singapore is affirming its commitment to the green movement.

A balancing act

From the recommendations, it is apparent that the SRAC is cognisant that companies are at different stages of readiness on climate reporting. Hence, the proposed phased approach is well calibrated, with SGX-listed issuers and larger non-listed companies taking the lead. The SGX-listed issuers have a head start in CRDs with the current reporting requirements, which will facilitate their transition to the SRAC recommendations. These two groups of companies are also comparatively better resourced than smaller firms and, hence, in a better position to report CRDs.

On a related note, CRDs are useful only when they are reliable. As such, the requirement for assurance is inevitable. The recommendations are mindful of the nascent state of both climate reporting and sustainability assurance today. By mandating only limited assurance (which is a lower level of assurance than reasonable assurance that is applied on statutory audits of financial statements) on Scope 1 and Scope 2 greenhouse gas (GHG) emissions two years after climate reporting is required, both the companies and auditors should have sufficient time to build knowledge and capabilities, and be ready when the time comes.

It is also proposed that audit firms and testing, inspection and certification firms (TICs) can become climate auditors. With a wider pool of service providers, companies will have more options sourcing for service providers that can meet their assurance needs. This can only be good news for companies.

One interesting recommendation by the SRAC is to allow assurance to be conducted using either a Singapore-standard equivalent to the International Auditing and Assurance Standards Board’s International Standard on Sustainability Assurance 5000 (ISSA 5000), General Requirements for Sustainability Assurance Engagements, or the ISO 14064-3, Greenhouse gases – Part 3: Specifications with guidance for the verification and validation of greenhouse gas statements.

The rationale behind this recommendation is understandable as they are both globally recognised standards. However, allowing two different sets of standards could cause confusion in the market. It is unlikely that many users of such assurance reports will be able to understand and appreciate the differences between the two different standards.

Given the vision to eventually expand the scope of assurance to all CRDs and, perhaps, even other aspects of sustainability reporting in Singapore, the SRAC should consider if Singapore goes with only ISSA 5000 from the very beginning. As it is an overarching standard which can be used for all sustainability-related engagements, ISSA 5000 provides scalability and can accommodate future expansion of assurance requirements to other areas beyond GHG emissions.

The ISSA 5000 is also intended to be profession-agnostic and, as such, can be used by both audit firms and TICs. Having both the audit firms and TICs adopt the same standard could help lead to consistency in assurance quality and even promote knowledge sharing between the two groups.

Another proposal to note is that the CRDs will share the same existing statutory timelines for the reporting and filing of financial statements. While this helps facilitate timely communication to users, we foresee that this may add further stress to corporate teams and assurance professionals who would then need to cope with additional workload within the same timeframe. To manage this, it is critical for companies to focus on building capacity and capability.

Building capacity and capability is crucial

Sustainability, sustainability reporting and climate reporting are still relatively new concepts to many companies, especially small and medium enterprises. Many employees may not fully appreciate the impact of climate change or understand climate-related risks and opportunities. Given that sustainability encompasses a wide range of topics, the learning journey is a challenging one to navigate. There is insufficient clarity on what to learn and where to learn.

What is clear is that there is an urgent need for employees to understand the concepts of sustainability such as environmental, social and governance (ESG) and the related methodologies and disclosure standards, and consider how these affect their work.

In view of the demand for a structured programme for sustainability, the Institute of Singapore Chartered Accountants (Isca) will soon be launching sustainability certification programmes for both preparers and assurance providers. These programmes will offer both beginner modules to build up the knowledge foundation and advanced modules on sustainability-related topics that will dive deep into climate reporting and sustainability assurance. These will be relevant and useful for upskilling in sustainability, especially to finance professionals who are spearheading sustainability initiatives or supporting sustainability reporting within their organisations.

Companies beginning on their climate reporting journey can also benefit from two climate disclosure guides recently issued by Isca: Taking First Steps Towards Climate-related Disclosures and First Steps in Conducting Climate-related Scenario Analysis.

There are also government grants and sector initiatives readily available to help companies harness sustainability as a competitive advantage to capture new pockets of business opportunities. For example, the Enterprise Sustainability Programme is a scheme by Enterprise Singapore to build capabilities and capture new opportunities in sustainability.

Do nothing and risk everything

Sustainability reporting standards and best practices are fast evolving, requiring continuous updates and learning. The journey will require commitment, resources and concerted effort. This path may not be easy, but it also presents opportunities for companies that are willing to put in the effort and resources. All companies should seize the opportunity to elevate their sustainability efforts and reinforce their dedication to creating a sustainable future.

The writers are from the Institute of Singapore Chartered Accountants (Isca). Terence Lam is head of professional standards, and Koh Chong Yu is deputy director, executive office and policy.