Sustainability reporting can work for companies big and small


    The Business Times, 12 January 2024


    AT THIS point of the sustainability reporting and climate disclosure journey, the theory of success is well established.

    A global consensus has developed around the standards laid out by the International Sustainability Standards Board (ISSB), and I believe our ultimate goal must be to have everyone report to these.

    As we move from the realm of theory into the nitty-gritty practicalities of actually making the disclosures, however, there are real-world challenges. How, then, do we move from the theory of success to the practical in this new year?

    Here, I draw your attention to a significant milestone in 2024 for our education system that may provide lessons for us.

    From this year, there will be no more Express, Normal and Technical streams in our Singapore schools. There will also be no more O-level or N-level exams. Everyone will take a common exam.

    There will be a wide range of scores, of course, so flexibility will be built into the education system to cater to students of different abilities.

    Much like students, listed companies score variably on sustainability disclosures. A review of companies’ sustainability reports we conducted in November found smaller companies tend to do poorly while those that scored top marks usually are the bigger ones.

    The results have led some to suggest we apply a differentiated approach, requiring big companies to produce climate disclosures to ISSB standards while exempting small ones.
    Our education system has shown, however, that it may not be helpful to draw such bright-line rules.

    Big companies need small companies to report

    First, in order for big companies to provide complete climate disclosures, small companies have to make such disclosures too. Our small companies are deeply embedded in the value chain, so our big companies will need their climate information to report on their value-chain activities.

    I am not just talking about traditional supply chains and the rise of the green procurement mandate. Banks, too, are being asked to engage their customers to manage climate risks, and work with them to reduce carbon footprints. Our small companies must meet these expectations to stay in business.

    Everyone is connected, big and small, so all must report for this to work. What we want is for all companies to report to the same standard, just as all students will now be sitting a common exam.

    Accountability of carbon-intensive companies

    Second, I think we can all agree that the priority is for carbon-intensive companies to make disclosures, regardless of size. After all, they are the main contributors to what the world is grappling with now – climate change caused by greenhouse gas emissions. Such companies must take responsibility for these externalities.

    Singapore Exchange Regulation (SGX RegCo) has already identified the carbon-intensive industries and divided them into two buckets in our listing rules.

    The first bucket – comprising the financial, agricultural and energy industries – must comply with recommendations for the Task Force on Climate-Related Financial Disclosures (TCFD) from FY2023. The second bucket – comprising the building and transportation industries – must do so from FY2024.

    More than 50 per cent of listed small and medium enterprises fall within these carbon-intensive sectors. Had we differentiated by size, their emissions would not have been accounted for.

    Having only big companies report to ISSB standards does not allow us to fully account for those which generate proportionately large amounts of greenhouse gas emissions relative to their economic output.

    Flexibility provided for in the system

    In the same way that our school system will have flexibility built into it, the climate reporting system also has flexibility – in the form of reliefs ISSB has provided.

    The ISSB standards are rigorous and complex, and are a level up from the TCFD recommendations we already have in our rules.

    ISSB’s reliefs will mean more time for companies to report to the full rigour of the requirements. We are working with key partners to guide companies on how to use these reliefs in the initial years of reporting, and we will help companies to apply these reliefs.

    We also do not expect companies to produce perfect reports right off the bat. We know this needs time, and what is important is that companies make an effort and show progress from year to year. If there are any inadequacies in the initial years of reporting, our focus will be on helping companies fix them.

    The key is to make sure support is available for those who need help. We need to look at the ecosystem and be ready to support all our companies. Do we have enough capacity, both in terms of skills and talent to meet demand and cater to both big and small companies?

    I am heartened by the collaboration between The Institute of Singapore Chartered Accountants and the Law Society to build a community of professional services firms that can provide sustainability services in Singapore and regionally. I hope this will make help more generally available to all companies, and, dare I say, more affordable.

    We hear the concerns about how prepared our companies will be to meet the ISSB standards.Taking a cue from our education system, the solution is not to have one stream for big companies and another stream for small companies. This could be too blunt and demotivating.

    Let us instead work together, providing guidance and support in the course of reporting, using the flexibility that is already within the standards themselves.

    The writer is chief executive of SGX RegCo. The above is an edited excerpt of his speech at the Audit and Risk Committee Seminar 2024 organised by the Accounting and Corporate Regulatory Authority, Singapore Institute of Directors and SGX RegCo.