Sustainability reporting is the act of disclosing non-financial performance of an organization to its stakeholders. These reports generally cover performance in the three pillars of sustainability: environment, social, and governance (ESG). A sustainability report, usually published alongside a company’s annual report, serves as a way companies can be transparent about how they face and address certain issues, ranging from climate change, waste reduction, community development, employee wellbeing, corporate governance, and human rights. As the world changes rapidly and intricately in the 21st century, sustainability reporting allows companies to review and improve current performance and engages them with their stakeholders through transparency and long-term strategies that future-proofs companies. Markets across the world have implemented policies, mandating publicly listed companies (PLCs) to release sustainability reports each year.
Singapore is not new to the sustainability reporting landscape, with the idea gaining momentum in 2016, when the Singapore Exchange (SGX) mandated that PLCs disclose their sustainability performance. In 2016, SGX released the Sustainability Reporting Guide and stated that in the first year of implementation, companies should have at least the assessment of material ESG factors, policies and strategies to address the factors. Companies were then given up to 12 months from the financial year ending on or after December 31, 2017 to release their first sustainability report and future annual sustainability reports within five months after the previous year.
Now seven years since its release, Singapore’s Sustainability Reporting Guide has evolved and adapted according to the changing needs for transparency and accountability. The Singapore Green Plan 2030, a sustainability movement released in 2021 and spearheaded by five ministries, aims to strengthen national progress towards sustainable development. Tying this initiative alongside sustainability reporting, PLCs play a crucial role in sustainability.
Sustainability reporting in Singapore observes a ‘comply or explain’ basis. Companies that fail to comply with a guideline are given the opportunity to explain the reason for noncompliance. This approach makes reporting flexible for companies but also allows stakeholders to understand their current situation.
Singapore’s Sustainability Reporting Guide serves as reference for companies as they develop their reports, equipping them with the core components necessary in each annual report. In addition, the reporting guide is founded on principles that establish the importance of sustainability, transparency, and accountability as keys to good governance. Sustainability reporting in Singapore calls for balanced and transparent reporting of both risks and opportunities, using global frameworks, and engaging with stakeholders.
In the first iteration of the Sustainability Reporting Guide, the SGX established five primary components required in sustainability reporting. These were material ESG factors, policies, practices and performance, targets, sustainability reporting framework, and a board statement with associated governance structure for sustainability practices. Yet after a public consultation in 2021, SGX added an additional requirement: climate-related disclosures consistent with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations.
A sustainability report should identify the material ESG factors. To determine the material ESG factors essential in their long-term continuity, companies review their business, their role in the value chain, and how they interact with the environment, society, and corporate governance. Each factor is also required to have a set of criteria and the process on how this factor was selected and how it affects the value chain of the business.
Material ESG factors can include carbon emissions, water and energy consumption, waste retrieval, and other environmental measures. For the social and government aspects of ESG, this would include health and wellbeing, labor practices; gender, diversity and inclusion; and anti-corruption. The guidelines state companies should look at the overall value chain of their business and take into consideration other key parties involved such as logistics and third-party service providers when measuring ESG factors.
A new addition to the primary components, climate-related disclosures were incorporated into Singapore’s Sustainability Reporting Guidelines in 2021 as a stepping stone towards mitigating the effects of climate change on a larger scale. Companies are to state climate risks and opportunities aligned with the TCFD recommendations. TCFD recommendations are split into four categories: governance around climate-related disclosures, strategy, risk management, and metrics and targets.
With climate change threatening the way we live and the way businesses operate, it also creates a new door for better practices. This new addition to the Sustainability Reporting Guidelines paves the way for immediate action. Given its new entry, the TCFD determined which industries to prioritize in reporting climate-related disclosures. For all financial years commencing January 2023, the financial, energy, and agriculture, food and forest products industries are mandated to comply with the new policy. By January 2024, transportation, and materials and buildings industries are now mandated to disclose climate risks and opportunities. To support these reports, the TCFD also released additional resources and material to guide companies on implementing their recommendations. Certain resources are sector-specific, providing more depth in combating climate change.
To strengthen one’s sustainability journey, policies and practices need to be established as these can effectively streamline business practices and steer the company away from the risks arising from their ESG factors. In addition, measuring a company’s performance in ESG engages the company to actively create improvements or progress in their sustainability policies and practices. The Sustainability Reporting Guidelines require companies to report these for transparency towards their stakeholders and investors.
Given that companies have identified the ESG factors affecting their business and value chain, guidelines require companies to establish targets for the forthcoming year in line with each ESG factor.
The SGX does not provide a standardized framework or format for sustainability reporting. Instead, it recommends companies to utilize a globally-recognized framework that best suits their industry and their business model. This is done in order to connect and engage a company to its stakeholders, investors, and other businesses in the same industry through a framework that is recognized and familiar to all parties. In the guidelines, SGX refers to the Global Reporting Initiative (GRI) Sustainability Reporting Guidelines or the International Integrated Reporting Council's (IIRC) Framework for generic factors, and the Sustainability Accounting Standards Board's (SASB) standards for industry-focused metrics. Determining which framework best suits the company is up to the business’s discretion. The rationale for selecting the framework must also be included in the report.
The last primary component in a sustainability report in Singapore is the board statement, which informs readers that the board considered sustainability issues as part of its strategic formulation. This statement also discloses the board has determined and oversaw the management and monitoring of the material ESG factors reported. Included as well in the report is the list of board members and the roles of management in the company’s sustainability policies and practices. The board statement reports the company’s compliance and initiative in acting towards and for sustainability.
The Sustainability Reporting Guidelines released by the SGX is a framework for impactful sustainability reporting, promoting transparency towards constituents, and continuous progress and improvement. It also encourages companies to explore what practices and reporting tools best suit the needs of the company in terms of its ESG arm and how they can best convey their performance to stakeholders. This flexibility and openness pushes companies to go above and beyond. Like the sustainability landscape itself, sustainability reporting evolves in response to the current state of society and the environment around us.
Since 2016, sustainability reporting in Singapore has evolved. In the guidelines itself, the SGX encourages companies to build their knowledge in sustainability reporting and boost their confidence in the new practice. Through adopting a phased approach that lets companies gradually enter the realm of sustainability reporting and further improve in the successive years, sustainability reporting in Singapore is a learning experience for all involved parties.
During July to September 2023, Singapore went through a public consultation for recommendations and improvements on their sustainability reporting requirements. Recommendations were brought by Singapore’s Sustainability Reporting Advisory Committee (SRAC). Recommendations included mandatory climate reporting for listed companies from FY2025 and for large non-listed companies from FY2027. Additionally, recommendations call for local prescribed reporting standards that are in line with the International Sustainability Standards Board (ISSB) requirements and external assurance for mandatory climate reporting from audit and certification firms. Through these new recommendations, which are undergoing finalization and are set to be established by 2024, Singapore emerges as a leader in sustainability reporting in South East Asia.
Sustainability reporting is not a trend but a necessary practice. With global paradigms shifting towards sustainable practices, sustainability reporting evolves with it. Given Singapore being a fore-runner for future-forward thinking, its sustainability reporting guidelines are an eye-opener for companies to keep up with the pace of a changing environment.
At Keslio, we are deeply passionate about sustainability, equipping us with the expertise and extensive network needed to guide clients through their sustainability journey effectively and efficiently. Our expertise is particularly valuable for companies looking to embed sustainability practices into their businesses and investors looking to integrate ESG and impact into investment portfolios. To learn more about how Keslio can assist your organization on its sustainability journey, please don't hesitate to get in touch with us.
