IMPACT ANALYSIS: SGX announces climate change road map for companies

As part of the city state’s efforts to achieve a low-carbon economy, Singapore Exchange Regulation (SGX) has set out a road map to make it mandatory for issuers to include climate-related disclosures in their sustainability reports. An increase in demand for climate related information from lenders, investors and other stakeholders has prompted the move.

The SGX has issued two consultation papers: one deals with climate diversity while the other outlines proposals for a set of core environmental, social and governance (ESG) metrics aimed at harmonising standards and establishing a clear taxonomy for ESG disclosures. It is anticipated that climate reporting will be mandatory for some sectors by 2023, and by 2024 for all other sectors. The SGX has proposed the introduction of audit requirements, training for directors, and also requirements for boards to have a diversity policy in place.

Climate and diversity

In “Climate and Diversity: The Way Forward”, the SGX is consulting on amendments to the Listing Rules to help issuers address burgeoning interest in sustainability, especially in terms of climate-related information. The SGX is also working with the International Financial Reporting Standards (IFRS) Foundation on the establishment of an international sustainability standards board.

The Monetary Authority of Singapore (MAS) has already issued guidelines to help financial institutions understand environmental risks and enhance their resilience. The MAS has supported companies in Singapore, and in Asia more widely, in the issuance of sustainability bonds and green link loans, and intends to place S$2 billion with asset managers which have a green focus.

The Sustainable Finance Task Force established by the International Organisation of Securities Commission (IOSCO) observed in a recent report that investors seek complete, consistent, sustainability reporting to assess investment and risk analysis. It has also made it clear that investors need to understand the links between a company’s sustainability risks on the one hand and opportunity and financial implications on the other.

The Listing Rules provide that a sustainability report must refer to five major components: ESG factors, policies, practices and performance, targets, sustainability reporting framework and a statement from the board of directors. The consultation paper also acknowledges the importance board diversity, to guard against groupthink and foster more varied discussion, which in turn facilitates better decision-making.

The consultation paper outlines the growth in sustainable investing and stresses investors’ commitment to improved sustainability. At the start of 2020, for example, global sustainable investment reached US$35.3 trillion collectively in Europe, the United States, Canada, Australia and Japan, representing a 55% increase in the past four years. In Asia, inbound ESG-related financing has attracted US$22.4 billion of investment, and capital providers have indicated that they will require climate-related disclosures.

It has been predicted that, in the next five years, investors will double their ESG assets under the management, which may exceed US $53 trillion by 2025, representing approximately one-third of total assets under management.

Core metrics

The SGX’s paper, “Starting with a Common Set of Core ESG Metrics”, calls for greater harmonisation of standards and for the establishment of a taxonomy by practitioners, reflecting the gap between information and user requirements. Inaction in this area will lead to greater divergence and intensify confusion, which in turn will affect the fast-growing portfolio of ESG-focused assets under management.

The ESG has therefore proposed that — in addition to the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) — institutions, investors and market participants need some basic data definitions and a common set of core ESG metrics. The proposed core metrics are meant to serve as a starting point against which issuers can benchmark themselves, and are not intended to be exhaustive. The metrics will be reviewed from time to time to ensure they remain up-to-date, given the fast-moving nature of this sector. The metrics will need to cover a whole range of different scenarios.

The SGX also intends to introduce an ESG data portal, which would allow investors to access data in a consistent, structured format, related to international standards.

Time to prepare

The consultation ends on September 27. The proposals will introduce the mandatory alignment of ESG disclosures, enabling market participants to price and manage climate risks more effectively. Firms can now use this guidance from the SGX to establish what the regulator will expect from disclosures, and have at least two years to work toward the establishment of ESG metrics, to ensure board diversity and to devise training.

Niall Coburn is the Regulatory Intelligence Expert at Thomson Reuters in the Asia-Pacific region and a Barrister at the Queensland Bar.

As an expert on regulatory issues at Thomson Reuters, Niall writes articles, white papers, gives presentations in the region and liaises with the banking industry internationally concerning regulatory developments in the Asia-Pacific region.

Prior to joining Thomson Reuters, he was the regional Managing Director at FTI consulting, responsible for leading its Regulatory and Forensic Investigation Practice in Australia. FTI is a global consulting firm listed on the New York Stock Exchange with 500 offices worldwide.

Niall was also a Senior Lawyer and Specialist Adviser at the Australian Securities and Investments Commission. In this role he led high-profile investigations into complex corporate crime cases. He has also worked internationally, being part of a team that created the regulatory structure for the Dubai International Financial Centre (DIFC).

Niall was appointed Director of Enforcement at the DIFC in 2003 and worked with international law enforcement agencies to combat financial crime.

Niall has also worked in the Asia-Pacific region in his own consultancy, Coburn Intelligence in China and Hong Kong, investigating major frauds and misleading conduct in the investment industry.

Niall was awarded an Australia Day Honour from the Commonwealth Government for his work leading major criminal investigations at ASIC. He is a Barrister of the High Court of Australia and a member of the Queensland Bar Association and the International Bar Association.

 

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