Singapore companies should report ESG impacts in financial statements. Are they ready?
Sustainability risks have material effects on line items, and directors have a responsibility to disclose them
UNDER Singapore’s Companies Act, directors have an overriding duty to ensure that a company’s financial statements give a “true and fair” view of its financial position and performance.
The Accounting and Corporate Regulatory Authority (Acra) has for a number of years highlighted how climate-related matters may have direct implications for financial reporting practice.
In its 2025 guidance, Acra reminded directors to remain vigilant and ensure that climate-related risks are properly assessed and incorporated into financial reporting, even as the extension of timelines for some climate-reporting requirements in Singapore offers some near-term relief.
Directors should consider how climate factors may accelerate asset obsolescence, require additional capital expenditure, or cause changes in market demand for products and services.
They should also evaluate whether climate-related commitments, such as net-zero targets or phase-out plans for certain assets, require reassessment of assets’ useful lives and depreciation methods.
For instance, rising carbon taxes might affect forecast cash flows for asset valuations and impairment testing, while climate commitments can trigger provisions for constructive obligations, onerous contracts or contingent liabilities.
The Institute of Singapore Chartered Accountants, the Republic’s national accounting body, has issued similar guidance.
In its technical bulletin, it stated the need for directors and auditors to consider the impact of climate-related risks on an entity’s business and operating environment, and their potential implications on the entity’s financial statements.
The current landscape
Companies are beginning to report on ESG-related impacts in their financial statements.
A Singapore Exchange (SGX) mainboard-listed energy and urban solutions provider disclosed in the notes to its financial statements in recent years: the cost of compliance under the Singapore carbon tax regime and UK emissions trading scheme; write-offs to its property related to damaged assets from extreme weather events; and the disposal of its coal-fired power generation asset, as part of its plan to exit its business in the fossil fuel.
These disclosures show how physical and transition climate risks are flowing into financial statement line items: expenses, asset write-offs, disposals and related notes.
Another mainboard-listed company, a regional investment holding company focused on urbanisation and emerging consumer class-themed investments, has been stating in the notes to its financial statements that the existing and potential impacts arising from climate change have been considered when applying estimates and assumptions in the preparation of its documents.
Even when climate considerations do not require a company’s numbers to be updated, it may be fair to clarify that they had been accounted for.
For instance, a bus and rail operator, also SGX-listed, disclosed that it had reviewed the estimated useful lives of its vehicles, premises and equipment, taking into account climate-related matters, such as regulations and the group’s sustainability commitments that may restrict the use of assets.
It concluded that the estimated useful lives of vehicles, premises and equipment were appropriate, and no material revision was required.
ESG risks have financial impacts
While the corporate landscape has typically treated traditional financial reporting and sustainability reporting as serving distinct objectives, the reality is that the regulatory basis for considering and reporting on climate and other ESG risks and impacts does not begin and end with stand-alone sustainability reporting frameworks.
Consequently, notwithstanding the recent extension of climate-reporting timelines designed to help listed and large non-listed companies build capacity, companies must not ignore the reality of ESG in their financial statements.
They should start mapping material ESG risks to specific financial statement line items, including revenue forecasts, asset values, useful lives, provisions, contingent liabilities and financing terms.
Where sustainability reports are published, their sustainability and finance teams should also ensure that these reports and financial statements are aligned on the respective underlying assumptions, projections, and data and materiality assessments.
As other ESG risks beyond climate – such as biodiversity and human rights-related risks – gain prominence, such risks may no longer be relevant to just sustainability reporting, but may well also become financial reporting considerations.
The writer is a partner in Shook Lin & Bok and leads its ESG practice
