Issue 71: Singapore’s cautious regulatory pace; GRESB rankings show real estate improvement


    The Business Times, 20 October 2023


    It has taken more than 20 years for detailed disclosure of chief executive and directors’ remuneration to become compulsory for Singapore-listed companies.

    In this issue: Singapore’s experience with director term limits and pay disclosures shows some changes need a stronger push, while South-east Asia’s real estate players make gain on key sustainability benchmark.

    Maybe we could have aimed higher

    A new report by the Singapore Institute of Directors (SID) has showed that a significant proportion of Singapore-listed companies are still not complying with the coming rules on independent directors’ term limits and remuneration disclosures, which are set to kick in just a few months from now.

    The SID report (which was based on data as at end-2022) found that 462 long-serving independent directors of Singapore-listed companies may need to be replaced in the coming months, as a hard cap on term limits kicks in.

    These directors occupy about a fifth of board seats, and have served on the boards of their companies for at least nine years.

    Under changes to the listing rules introduced this year, they can no longer be considered independent after their annual general meetings for financial years ending on or after Dec 31, 2023.

    On the disclosure of remuneration details for directors and chief executive officers, the study found only a quarter of companies providing detailed disclosures of their CEOs’ remunerations. Reporting those details will be mandatory in annual reports for financial years ending on or after Dec 31, 2024.

    What’s somewhat remarkable is how slow progress has been made among Singapore listcos on these two issues.

    In terms of remuneration disclosures, a study by the National University of Singapore (NUS) in 2008 found that 1 per cent of companies disclosing exact remuneration of their top executives. More than a decade later, the reporting rate is still only about 25 per cent.

    In 2011, as the nine-year term limit for independent directors was headed for its first appearance in Singapore’s Code of Corporate Governance, another NUS study found 17 per cent of directors at the time had been at their companies for at least nine years.

    In other words, the situation on long-serving directors has gotten worse since 2012 – when the Code merely urged a “rigorous review” of independent directors who had been around for too long.
    The slow progress has matched the plodding pace of regulation. It’s therefore fair to ask whether the rules could have been tightened faster.

    Singapore’s stance on both issues has been relatively accommodative over the years. For remuneration disclosure, for example, disclosure became mandatory only 22 years after it was required on a “comply or explain” basis under the Code.

    Disclosure of remuneration to the nearest thousand dollars – instead of S$250,000 bands – didn’t make it into the Code until 2012, or 11 years after the inaugural version.

    The nine-year term limit first appeared in the Code in 2018, but only asked that companies perform a “rigorous review” of long-time directors’ independence and explain if they still deem those directors to be independent.

    Five years later, the term limit was moved to the listing rules to make compliance mandatory, but companies were given an escape mechanism if they could get the long-serving directors re-appointed through a two-tier voting system.

    After another five years had passed, it was clear that two-tier voting wasn’t moving the needle and long-time directors were still getting re-elected.

    It was only in 2023 that the nine-year limit became a hard cap in the listing rules, finally making strict compliance mandatory.

    There may have been good reasons for this slow evolution.

    Abrupt regulatory changes are mostly undesirable, because they increase uncertainty for businesses and investors.

    Singapore is also part of a global financial marketplace, and it can be difficult for the country to be too strict because unhappy businesses and investors can easily move elsewhere.

    Yet, the SID report suggests the measured pace by the Singapore regulators may have had little impact in avoiding disruption to companies.

    After more than 10 years, a sizeable number of Singapore-listed companies are still going to be scrambling to replace independent directors when the new rule comes into force.

    Besides, softer remuneration disclosure requirements have not saved SGX from a multi-year net delisting trend.

    One lesson is that businesses will tend to stick to the path of least resistance, and change will not happen unless it is necessary.

    A comply-or-explain regime might provide some compliance wiggle room – which can be useful when dealing with new and evolving matters such as sustainability or climate change – but it’s probably not going to bring about significant system-wide progress.

    The businesses that play ball under comply-or-explain probably have good reasons to do so, and would probably take action even without the rule.

    For instance, a company facing pressure from a major investor on CEO pay disclosure would probably do so even if it’s not required under the rules.

    In some instances, a prolonged comply-or-explain regime could also punish rule followers, who might be less competitive than the rule breakers who do not have to spend as much on complying.

    This is not to suggest that companies don’t need time to adjust to new rules, but Singapore regulators can perhaps afford to be less accommodative.

    We might not have needed to wait a couple of decades to make remuneration disclosure mandatory.

    Rather than wait for the market to be ready to change, it might be more fruitful to aim at a desired level of progress and then help the market to keep up.

    Good visibility and predictability about the change that’s coming up is probably more helpful than half-hearted regulations. Carrots or sticks to incentivise progress are important as well.

    For instance, the listing rules could perhaps have lowered independent directors’ term limits in steps, from 11 years to 10 before reaching nine. Early-bird grants or support could have been provided to help companies search for new directors.

    Singapore’s regulators are now confronting similar questions about regulatory pace when it comes to sustainability matters. There are very real concerns about the readiness of companies to meet new standards for sustainability and climate reporting, with possible standards on nature-related disclosures knocking on the door.

    There’s a greater need for urgency with environmental matters, though, with the clock running out on global warming and biodiversity loss. Waiting another couple of decades before making the necessary changes could be more costly this time.

    South-east Asia
    Real estate improves sustainability performance

    The well-followed Global Real Estate Sustainability Benchmark (GRESB) rankings were publicly released this week, with most participating entities improving their performance in the assessment.

    Singapore-based assets improved their greenhouse gas intensity to 92.7 kilogram per square metre in 2022, and are on track to achieve 67.8 kg/m2 by 2050. That’s not great, by the way, because Singapore should be hitting about 0.5 kg/m2 by 2050 to stay on a pathway that’s aligned with limiting global warming to 1.5 degrees Celsius, based on pathways established by the Carbon Risk Real Estate Monitor (CRREM).

    Singapore’s not alone in decarbonising too slowly. Despite improved overall scores, GRESB’s analysis showed all property types across the world decarbonising at rates that are too slow to stay on their CRREM pathways.

    Global leaders in the GRESB rankings included Hongkong Land Holdings, Swire Properties, Lendlease Global Commercial Real Estate Investment Trust and CapitaLand Ascott Trust.