Following the release of the International Sustainability Standards Board’s (ISSB) inaugural IFRS Sustainability Disclosure Standards in June, the Singapore Exchange Regulation (SGX RegCo) will consult on any possible changes to current listing rules by the end of the year.
The ISSB standards — IFRS S1 and S2 — ask for information about a company’s climate transition plan as part of its strategy, and are consistent with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), which published a transition guide in October 2021. Together, they create a common language for disclosing the effect of climate-related risks and opportunities on a company’s prospects.
Before SGX RegCo finalises its recommendations by 2024, it will also consider the feedback received by the Sustainability Reporting Advisory Committee (SRAC) from its public consultation to mandate climate-related disclosures for Singapore-incorporated companies, launched at the start of July.
SRAC is an industry-led committee set up in June 2022 by Accounting and Corporate Regulatory Authority (Acra) and SGX RegCo to advise on the roadmap for advancing sustainability reporting by companies in Singapore.
SRAC’s recommendations, released on July 6, include mandating ISSB-aligned climate-related disclosures from listed companies starting FY2025, before non-listed companies with annual revenue from $1 billion follow suit in FY2027. Its consultation will close on Sept 30.
Companies with robust transition plans that are well-disclosed will stand a better chance of maintaining access to capital markets, including benefitting from green and transition finance, say SGX RegCo chief executive officer Tan Boon Gin, and head of the sustainable development office Michael Tang, who is also head of listing policy and product admission. “Companies will also find it easier to plug into global supply chains if they are able to meet international supplier due diligence requirements.”
See also: ISSB issues inaugural standards, creating common language for climate-related impact on companies
SGX RegCo chief executive officer Tan Boon Gin (Photo: SGX RegCo)
Writing for SGX RegCo’s Regulator’s Column on Sept 8, Tan and Tang outline three key elements of developing, executing and disclosing a credible climate transition plan. “Developing and executing a climate transition plan will help companies think through ways to mitigate risks arising from the transition to a low-carbon future, including regulatory and reputational risks. Creating a transition plan is an involved process, and getting started early will facilitate a smoother transition to reporting against the ISSB standards.”
See also: ISSB standards 'best chance we have' at consistent sustainability reporting: SGX RegCo
Michael Tang, head of the sustainable development office and head of listing policy and product admission, SGX RegCo (Photo: Albert Chua/The Edge Singapore)
Comprehensive understanding of material climate-related risks
Firstly, companies can begin development of a credible climate transition plan by seeking a deep understanding of the sources, severity and likelihood of material climate risks to their business prospects, write Tan and Tang.
“Such climate risks comprise both physical (acute and chronic) and transition risks. Identifying and understanding the material risks and their interdependencies allow the company to concretely evaluate key business decisions and formulate a sound, strategic response to mitigate these risks.”
Companies will likely have to engage with a full range of stakeholders to refine their understanding of the risks across the value chain, they add. “Assessing risks at the asset level is crucial, especially for companies operating in capital-intensive industries.”
Strong governance structures to ensure accountability
Secondly, transition plans need a clear governance structure, lines of accountability and appropriate incentives to drive implementation, say Tan and Tang. “Formal oversight from the board of directors and senior management should set the right tone at the top.”
There should be accountability at all levels, supported by an appropriate incentive structure and capacity building to equip relevant personnel with the necessary skills and knowledge, they add. “This will ensure that the entire organisation has the necessary impetus and resources to drive the transition at every level.”
Next, companies need to think through how to obtain and allocate the resources and financing needed to achieve their transition objectives, say the regulators. “A credible transition will require changes in business operations, which in turn requires a corresponding dedication of resources. While details will change over time, there should be some indication of how the entity intends to resource and finance the plan into the long term.”
Monitoring of actionable decarbonisation targets
Finally, a strategic plan will require setting credible decarbonisation targets, and the trajectory of such targets should be based on the latest climate science, say Tan and Tang. “This ensures that targets are actionable and consistent with a global policy environment where the global economy reaches net-zero emissions by 2050 and global average temperature rise is limited to 1.5°C in 2100.”
A science-based approach further refines the company’s understanding of climate-related risks, sensitivity to key assumptions used and the potential solutions available, they add. “As the low-carbon transition will take place over long time horizons, companies should outline processes and metrics to track progress against the transition plan. This involves monitoring how greenhouse gas emissions change over time, attributable to actions taken as part of the transition plan.”
In addition, companies should disclose forward-looking metrics, such as projections of emissions reduction over multiple time horizons, to create interim targets that drive implementation in the short and medium term, write Tan and Tang.
“Stakeholders would also benefit from being able to track these forward-looking metrics to better understand the expected effect of the entity’s transition strategy, and benchmark targets against actual progress,” they add.
'Best chance we have'
SGX announced in 2021 a phased approach to mandatory climate reporting based on the recommendations of the TCFD, starting with 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 the financial year starting 2023.
All other listed companies are required to apply TCFD to their climate-related disclosures on a “comply-or-explain” basis.
The ISSB builds upon the TCFD recommendations for climate reporting, and applies them to sustainability reporting as a whole, said Tan in July 2022. “So, issuers already using TCFD for climate reporting will find it familiar and relatively easier to apply to the rest of their sustainability reporting.”
Tan said then that the bourse would “consider very carefully” the pace and cadence at which it adopts the ISSB standards.
At an ISSB workshop for corporates on June 28, Tan said the standards “might be the best chance we have” at achieving “globally consistent baseline standards” for quality sustainability information. “This is why SGX RegCo wants to incorporate ISSB standards into our reporting requirement.”
