Climate and board diversity disclosures among topics in upcoming SGX consultation

    By RAPHAEL LIM 

    The Business Times, 4 August 2021

    DISCLOSURE requirements must evolve in tandem with investor expectations, or the market and its issuers risk being left behind, said Tan Boon Gin, chief executive of Singapore Exchange Regulation (SGX RegCo) on Wednesday.

    Speaking at the launch of the Singapore Governance and Transparency Index (SGTI) 2021, he congratulated companies for continuously improving performance in their SGTI scores, but emphasised that the "evolving business and regulatory landscape means that companies must be ready to continuously up the ante on governance, diversity, transparency and sustainability".

    While there is consensus built around financial statement reporting, constant evolution of investors' expectations has resulted in areas of non-financial statement reporting increasing in prominence.

    Mr Tan highlighted three areas - climate, assurance for sustainability and board diversity - which would also be part of SGX RegCo's upcoming sustainability reporting and board diversity public consultation, which can be expected "very soon".

    While SGX has mandated sustainability reporting in 2016, the question has arisen as to how to prepare companies for "intensifying scrutiny" on climate-related aspects of their business, he said.

    Financial institutions (FIs) are emphasising environmental, social and governance (ESG) factors, particularly climate-related information, when evaluating what businesses to lend to, or what assets to invest in.

    However, SGX found in a review of listed issuers' sustainability reports that climate-related information is still lacking, and there is little assurance and standardisation of data reported.

    Meanwhile, international regulators are also looking at disclosures relating to climate considerations, with the framework set by the Task Force on Climate-related Financial Disclosures (TCFD) one of those being used.

    "This growing regulatory consensus around the recommendations of the TCFD is, in our view, an endorsement of the area of sustainability disclosures for which investor demands are greatest, as well as where the underlying methodology is most scientific and mature," Mr Tan said.

    The upcoming consultation will "focus significantly" on whether SGX-listed companies should disclose climate-related information in accordance with the TCFD recommendations.

    The topic of sustainability and standards was also discussed at a panel during Wednesday's SGTI event.

    Boon Swan Foo, chairman of Global Investments, said the topic is urgent as Singapore companies are part of an international value chain.

    "If we want international money coming in, these guys are going to evaluate your ESG (and) whether you are moving towards a greener economy," he said, adding it would be best to adopt standards that international investors can understand and are using.

    Fang Eu-Lin, sustainability and climate change leader at PwC Singapore, said that climate risk assessments are important as they allow companies to assess the size of the risk from both the physical perspective, such as stranded assets, or transitional perspective where regulatory changes may affect the company.

    "It is not immaterial. These are good to actually disclose, so that the financial market has a sense of this kind of risk, as well as other types of risks," she said, adding that the TCFD should be implemented if Singapore wants to continue to be exceptional.

    The topic of climate disclosures may be something new to most, Mr Tan acknowledged. SGX RegCo will be seeking feedback on how best to support issuers and directors in the transition.

    During the panel discussion, participants also highlighted that training for both investors and directors may be helpful.

    Loh Uantchern, vice-president at Securities Investors Association Singapore (Sias), said retail investors would need to go beyond the "alphabet soup" - in reference to the many acronyms of reporting standards.

    "Even professionals struggle to wade through this alphabet soup, so what SIAS is doing is we are going through a programme of educating our stakeholders or retail investors on what are the basic fundamentals of sustainability and how does it affect them in terms of their investments."

    In his speech, Mr Tan noted that there has not been a similar consensus such as the TCFD for non-climate related information, but FIs still want quality data metrics that permit comparability for effective investment decisions.

    SGX has identified 27 commonly reported metrics by companies, and Mr Tan said they will pose questions in the upcoming consultation on whether using these metrics, or having a common reporting portal, would be helpful.

    Apart from reporting, Mr Tan said that issuers also need to pay attention to the issue of assurance of sustainability reports, amid increasing materiality of non-financial statement information.

    "Evolving stakeholder and shareholder expectations in the transparency and accuracy of such information point to the trend that assurance will ultimately become a requirement," he noted.

    However, there may be challenges as there is still limited consensus on standard setting for sustainability reporting, let alone sustainability auditing.

    SGX RegCo will also seek feedback on whether companies may, in the interim, already be able to give better assurance to users of sustainability reports, before common reporting and assurance standards for sustainability are put in place.

    The topic of board diversity is also another area where global regulators are beginning to introduce more prescriptive rules.

    Mr Tan said: "It is globally recognised that having board diversity in leadership is good for business. This is particularly important in times of uncertainty when companies may benefit from the different perspectives that directors with different backgrounds and experience may offer."

    Participation of women on the boards of the top 100 listed companies in Singapore climbed to 17.6 per cent as of last December, up 1.4 percentage points from 2019, but this is still below the 20 per cent target set for 2020 by the Council for Board Diversity.

    "We believe that more can be done at a faster pace in Singapore to build diverse corporate boards capable of steering companies into the future," Mr Tan said, adding that the upcoming consultation would also include a proposal on mandating greater disclosure around board diversity.

    In the panel on Wednesday, Euleen Goh, chairman of Sats, said: "I think it is an important subject for the board and for the nomination committee, not least because global institutional investors are demanding it."

    She added that she is a big supporter of diversity as it gives comprehensive perspectives to deal with today's volatile and uncertain environment. "But don't go for diversity for the sake of diversity, go for diversity that is relevant to your business."