Singapore Exchange Announces New Climate-Related Disclosure Rules for Listed Companies

On 15 December 2021, Singapore Exchange (SGX) announced its roadmap for listed companies to provide climate-related disclosures based on the recommendations of the Task Force on Climate-related Financial Disclosures (“TCFD Recommendations”).

SGX will be incorporating the TCFD Recommendations into its Listing Rules and introduce climate reporting as part of the current sustainability reporting regime which currently apply to both mainboard and Catalist listed entities.

The timetable for the adoption of climate reporting will be phased, focusing first on the industries for which climate reporting will be most impactful, in particular, those most affected by climate change and the transition to a lower-carbon economy. Companies in these industries will be required to provide mandatory climate-related disclosures earlier than others, but it is anticipated that over time, more industries will be added until climate-related reporting becomes a standard for all companies. The initial roadmap announced by SGX can be represented as follows:

This is part of a global trend towards more stringent climate-related disclosure requirements by stock exchanges and regulatory authorities adopting the TCFD Recommendations. In addition, the International Financial Reporting Standards (“IFRS”) Foundation (“IFRS Foundation”) is developing an investor-oriented global baseline sustainability reporting standard from an enterprise value perspective, which is also based on the TCFD Recommendations as well as the work of leading sustainability reporting organisations. In the light of this trend, it is possible that in the not-too-distant future, most companies (and not just listed ones) will need to report against one or more international climate standards.

Based on the largely positive feedback to the Consultation Paper on Climate and Diversity, SGX will be amending the Sustainability Reporting Guide to include new sections on ‘climate-related disclosures’ and ‘policies, principles and practices’ as follows:

1. Companies should disclose their Scope 1 (direct emissions from owned or controlled sources) and Scope 2 (indirect emissions from the generation of purchased electricity, steam, heating and cooling consumed by the reporting company) Green House Gas (“GHG”) emissions, with Scope 3 (all other indirect emissions that occur in a company’s value chain) GHG emissions to also be disclosed, if appropriate. An internationally accepted accounting system such as the GHG Protocol should be used.
2. Companies should conduct climate-related scenario analysis on how resilient their strategies are to climate-related risks and opportunities, especially taking into account a transition to a lower-carbon economy consistent with a 2°C or lower scenario, as well as scenarios in which there are increased physical climate-related risks. For example, companies may consider the impact on the profitability of the business in each of these scenarios: (A) countries are successful in achieving the goals of the Paris Agreement and there is an orderly transition to a low-carbon economy; (B) there is an abrupt and disorderly transition as countries belatedly catch up on climate goals; and (C) there is a failure to transition.
3. Companies should devise and implement policies and processes to adequately and effectively manage the risks associated with the identified material environmental, social and governance (“ESG”) factors, and describe key features of mitigation.
4. Companies should integrate ESG risk management structures into existing enterprise risk management structures or apply existing enterprise risk management structures to ESG risk management structures.

While SGX does not prescribe any specific sustainability reporting framework, given that this is a developing area, it has consulted on and published a set of 27 core ESG metrics commonly reported by listed companies based on a study of 330 sustainability reports from listed companies over the past 3 years. Listed companies are encouraged to report against this list. These core ESG metrics address areas such as:

Environmental factors

• GHG emissions
• Energy consumption
• Water consumption
• Waste generation

Social factors

• Gender diversity
• Age-based diversity
• Employment
• Development & Training
• Occupational Health & Safety

Governance factors

• Board composition
• Management diversity
• Ethical behaviour
• ESG/ sustainability Certifications
• Alignment with frameworks and disclosure practices relating to sustainability
• Assurance of sustainability reports

In addition, SGX is continuing to monitor the efforts of the IFRS Foundation to develop globally comparable baseline sustainability reporting requirements for all businesses. If this gains broad market acceptance, SGX may consider amending the Listing Rules to adopt these standards as well.

While the SGX sustainability reporting regime only applies to listed companies, companies seeking growth capital or preparing for IPO should not neglect the importance of climate-related factors in their strategies. Investors from family offices to venture capital funds and institutional investors are all paying greater attention to ESG factors including climate change, with many adopting ESG criteria for investment decisions.

Companies should see these new developments as an opportunity to adapt and transition into an environment where ESG factors are key to financial and corporate decision-making, and take their first steps to learn and develop policies and processes that take these ESG factors into account. For example, companies may consider:

1. Training their directors and senior to understand climate risks and sustainability.
2. Developing long-term corporate and business strategies to manage risks or take advantage of the transition to a lower-carbon economy.
3. Defining ESG-related roles and responsibilities for the board and senior management.
4. Benchmarking against peers and industry standards for ESG governance and management.
5. Engaging with investors and stakeholders on their ESG priorities.
6. Monitoring regulatory developments in relation to ESG issues and their possible impact on medium-to-long term strategies and profitability of the business.

To conclude, the new SGX climate-related disclosure requirements are part of a global movement among regulators and investors toward greater corporate accountability for climate change. Companies should view this as an opportunity and take steps to adapt to this new economic and regulatory reality, especially companies that are looking to tap financial markets for growth.

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