Listed issuers of all sizes here have improved the quality of their sustainability reports, and most have started on the relatively newer area of climate reporting. However, a biennial study warns of greenwashing risks, and highlights gaps in the quality of climate disclosures, board and management involvement and lack of climate transition plans.
Listed issuers scored an average of 75 points out of a possible 100 in the Sustainability Reporting Review 2023, up from 72 points in 2021 and 61 in 2019. The third edition of the study, released on Nov 23, reviewed sustainability reports for FY2022 that were available as of July 31 this year.
Conducted by the Singapore Exchange S68 Regulation (SGX RegCo) and the Centre for Governance and Sustainability (CGS) at the National University of Singapore Business School, this year’s edition included the assessment of climate-related and transition plan disclosures, which many issuers are reporting for the very first time.
According to the report’s authors, this nascent area remains “relatively underdeveloped”, particularly among smaller issuers. Of the 535 SGX-listed issuers that published their sustainability reports, only 393, or 73%, provided climate-related disclosures based on the Task Force on Climate-related Financial Disclosures (TCFD) framework.
Singapore issuers also lag their global peers in climate-related disclosures. Here, 43% of issuers disclosed information relating to at least five of the 11 TCFD recommendations, lower than the global average of 58%, based on the 2023 TCFD Status Report released in October.
From FY2022, all SGX-listed issuers are required to include climate reporting — based on the 11 recommendations of the TCFD — in their sustainability reports on a “comply or explain” basis. This means issuers that do not disclose such information will have to state what was excluded and describe what was done instead, giving reasons for doing so.
SGX’s phased approach to mandatory climate reporting has begun for listed companies in five prioritised industries. Climate reporting is mandatory for issuers in the financial and energy industries and those in the agriculture, food and forest products industry from their financial year starting 2023.
The findings in the 2023 review of sustainability reports are a reality check, says Tan Boon Gin, chief executive officer of SGX RegCo. “While companies are generally competent in sustainability reporting, the quality of climate disclosures was more uneven. This is to be expected given the speed at which new requirements were introduced.”
See also: SGX RegCo to seek feedback by year-end on mandating ISSB-aligned climate reporting
But we do not have the luxury of time, adds Tan. “We hope this report will help companies to close the gap between their current state and what is expected of their green credentials.”
New climate component drags scores, small-caps lagging
This year’s study made one major change to its scoring methodology. Researchers replaced the “general scope” component with “climate-related disclosures”, which was assigned the highest weightage of 25% in the latest assessment framework “to underscore its relative significance as a first step towards mitigating the effects of climate change”.
The other five primary components — material ESG factors; policies, practices and performance; targets; sustainability reporting framework; and board statement and governance structure — each have an equal weightage of 15%.
To ensure a fair comparison against the previous edition of the report, the headline scores were normalised to 100 points with the same six components used in 2021. After incorporating climate-related disclosures, however, most issuers received lower scores, with the average down to 66 points from the initial 75 points. In addition, only 38% of issuers scored above 70 points.
The report’s authors think these are but teething pains, and scores should improve as issuers develop “more mature and robust” reporting practices and become “more familiar” with climate-related disclosures.
But some issuers are more prepared than others in this regard. Large issuers, or those with market capitalisation of at least $1 billion, were better able to meet climate-related disclosures.
See also: SGX, MAS launch web tool that auto-generates sustainability reports
Following the change in methodology, large-cap issuers experienced a mere two points drop from 84 points to 82 points. Conversely, small-cap issuers faced a steeper drop of 11 points — falling from 73 points to 62 points.
Reporting requirements are changing “very rapidly”, says Tan in a Nov 22 media briefing, but the “whole purpose of these changes is to produce more accurate information”. Tan promises more “proactive engagement” and “capacity-building” to support the bourse’s small-caps in filing their climate-related disclosures.
While the study did not examine why some issuers are slower than others in this regard, SGX RegCo’s head of listing policy and product admission Michael Tang acknowledges the time and resources needed to comply with reporting requirements.
In September 2022, SGX and the Monetary Authority of Singapore (MAS) launched ESGenome — a digital disclosure portal that helps listed companies generate sustainability reports. According to Tan, “over 30%” of SGX-listed companies have been onboarded, and Tang says sees a “healthy uptake” of listed companies using the platform.
At the Singapore Fintech Festival 2023 last week, MAS launched a similar platform for non-listed companies of all sizes, named Gprnt. Tang says Gprnt “extends the data collection” of sustainability reports, and SGX RegCo is studying how ESGenome can be interoperable with the new platform.
Fewer companies linking sustainability to executives’ pay
Professor Lawrence Loh, director at CGS, says he is surprised by three sets of findings. For one, the proportion of issuers that linked top executive remuneration to sustainability performance swelled between the first (8%) and second (26%) editions of the report, but fell in the latest study (16%).
The same pattern emerged both in the proportion of issuers that linked sustainability targets to their overall corporate strategy and also to their financial performance. “It’s very, very consistent,” says Loh. “It’s not just something that we find for one linkage, but across the board.”
Loh says his team is still examining the reasons for this change. “Perhaps in 2021, there was a big urge to include these measures, but in the last two years, what we sense is there’s a decline probably because of the general macroeconomic environment and also geopolitical tensions.”
Hence, companies have diverted more resources and attention to “fundamental factors that directly hit their business performance”, he adds.
That said, tying sustainability performance to executives’ pay is still rare globally, say the authors. Citing a Financial Stability Board report from April, they think more time is needed before a “consistent practice” of linking sustainability to executive remuneration emerges. “Climate-related metrics tend to be incorporated primarily into senior management’s short-term incentive plans, [but] the impact of incorporating such metrics is relatively modest at present as their weights are still small or they are only used as an overall adjuster or modifier.”
