14 January 2022

On 15 December 2021, Singapore Exchange (“SGX”) announced that it will proceed with plans to require issuers to provide climate-related reporting based on recommendations of the Task Force on Climate-related Financial Disclosures (“TCFD”) and disclosures on board diversity.

All issuers must now provide climate reporting on a “comply or explain” basis in their sustainability reports from the financial year (“FY”) commencing 2022. Climate reporting will subsequently be mandatory for issuers in the (1) financial, (2) agriculture, food and forest products, and (3) energy industries from FY 2023. The same requirements will apply to the (4) materials and buildings, and (5) transportation industries from FY 2024.

The Listing Rules were also amended on 1 January 2022 to require:

  • issuers to subject sustainability reporting processes to internal review;
  • all directors to undergo a one-time training on sustainability;
  • sustainability reports to be issued together with annual reports unless issuers have conducted external assurance; and
  • issuers to set a board diversity policy that addresses gender, skill and experience, and other relevant aspects of diversity. Issuers must also describe the board diversity policy and details such as diversity targets, plans, timelines and progress in their annual reports.

These new requirements follow SGX’s public consultation on “Climate and Diversity: The Way Forward”, launched on 26 August 2021, on proposals relating to sustainability reporting and board diversity disclosures. On 15 December 2021, SGX released its response paper to feedback received from the public consultation.

SGX also announced that it will proceed with proposals set out in the consultation paper issued on 26 August 2021 titled “Starting with a Common Set of Core ESG Metrics”, in which SGX sought feedback on (1) a list of 27 core environmental, social and governance (“ESG”) metrics (“Core ESG Metrics”) as guidance to assist issuers in providing, and investors in accessing, an aligned set of ESG data, and (2) the development of an ESG data portal (“ESG Data Portal”), to allow investors to access ESG-related data and information as reported by issuers, in accordance with aligned metrics and relevant disclosure requirements, in a structured format.

A summary of SGX’s responses and the amendments is set out below.

1. Mandatory climate-related disclosures

Roadmap towards mandatory climate-related disclosures

SGX noted that there was overwhelming support for the proposed roadmap towards mandatory climate-related disclosures, consistent with the recommendations of the TCFD (“TCFD Recommendations”).

SGX will monitor the progress in climate reporting and look to introduce mandatory climate reporting based on the International Sustainability Standards Board’s final climate reporting standard, expected to be published in 2022, for all issuers subsequently.

SGX will provide further reporting guidance and continue to facilitate capability building sessions, which may include targeted training sessions by industry sectors, to assist issuers in their preparation for climate reporting.

Prioritisation of industry sectors

SGX noted that a majority of respondents agreed that the prioritisation of issuers for mandatory climate-related disclosures should be based on their industry classification, given the greater urgency for issuers in sectors with the highest climate-related risks to conduct climate reporting. SGX also observed that a majority of respondents opined that the prioritisation methodology should be based on the industries identified by the TCFD as most affected by climate change and the transition to a lower-carbon economy (“TCFD-identified Industries”).

SGX will thus proceed with a prioritisation based on the TCFD-identified Industries, with the financial industry, the agriculture, food and forest products industry, and the energy industry prioritised for mandatory climate reporting for FY commencing 1 January 2023, and issuers in the remaining TCFD-identified Industries, that is, materials and buildings industry, and transportation industry, prioritised for mandatory climate reporting for FY commencing 1 January 2024. The roadmap has been incorporated in the Sustainability Reporting Guide.

In relation to concerns that issuers, particularly smaller issuers, would need to devote resources to build up the necessarily capabilities and skillsets, SGX stated that it will look to facilitate necessary training. In addition, SGX will proceed with the development of the ESG Data Portal, which is intended to simplify and streamline sustainability reporting processes, alleviating the reporting burden for issuers.

Amendments to incorporate TCFD Recommendations

SGX has proceeded with amendments to incorporate the TCFD Recommendations in the sustainability reporting requirements set out in the Listing Rules (“SR Regime”), noting strong support for the proposal.

Scope of application of the SR Regime

SGX also clarified that the SR Regime will apply to all primary-listed issuers with equity securities listed on the Singapore Exchange Securities Trading Limited (“SGX-ST”). A newly listed issuer will be required to produce a sustainability report for its first full FY following listing. Issuers are expected to extend the reporting scope to their material subsidiaries.

2. Sustainability reporting frameworks and ESG indicators

In line with feedback, beyond climate, SGX does not intend to prescribe specific sustainability reporting frameworks and ESG indicators against which issuers should report on at this stage. For a start, SGX encourages issuers to report against the Core ESG Metrics to facilitate consistency and comparability of ESG data disclosures.

Looking ahead, SGX is watching with interest, the IFRS Foundation’s programme of work to develop globally comparable baseline sustainability reporting requirements for all business, and will consider amending the Listing Rules to adopt those standards should that gain market acceptance.

3. Guideline on materiality

SGX announced that it will retain the Working Guideline on materiality, as respondents have highlighted its usefulness in providing practical guidance to issuers, while providing issuers with flexibility, based on their business and stakeholder engagements. The Working Guideline serves as a common baseline for all issuers, but issuers may choose to adopt an additional standard of materiality if they consider that it serves their stakeholders’ needs, including the concept of “double materiality”.

4. Assurance

SGX observed that there was broad support on the use of assurance to enhance the credibility of sustainability reports. It also noted the challenges highlighted by respondents in relation to specific aspects of internal assurance and external assurance.

Internal assurance

On internal assurance, SGX noted the feedback received that the role of the internal audit function is focused on the design of, and compliance with, policies, processes and internal controls to ensure the quality of the data being produced and reported, and that internal assurance is not a substitute for external assurance. Given the feedback, SGX will distinguish between the two by referring to the former as “internal review”.

An internal review by the internal audit function of the sustainability reporting process builds on the issuer’s existing governance structure, buttressed by adequate and effective internal controls and risk management systems. Accordingly, issuers should review their processes in relation to sustainability reporting, among other risk and control areas. Therefore, SGX will now expressly require issuers to minimally subject the sustainability reporting process to internal review by the internal audit function, and provide more guidance on its expectations in the Sustainability Reporting Guide. As noted by SGX, this requirement is an extension of Listing Rule 719, which requires issuers to have adequate and effective systems of internal controls and risk management systems.

Given that the focus of the internal review is to provide assurance to management and the Board, and the view that the Board has ultimate responsibility for the issuer’s sustainability reporting, SGX will not require issuers to provide a separate statement on internal review.

External assurance

SGX noted the general feedback from respondents that external assurance is a developing area. They expressed constraints on the external auditors’ ability to comment on the accuracy and completeness of sustainability reports. The challenges are exacerbated by the lack of globally recognised standards or frameworks in relation to assurance on sustainability reports. Accordingly, SGX will not mandate external assurance at the current juncture, but will provide further guidance in the Sustainability Reporting Guide for issuers that do conduct external assurance.

For external assurance, SGX has amended the Sustainability Reporting Guide to include materiality assessment as a possible scope of assurance. The scope of assurance may also cover different aspects of the sustainability disclosures, such as data and its associated data collection process, narratives, compliance with the specified sustainability reporting framework, process to identify sustainability information reported and compliance with the Listing Rules. Issuers are encouraged to consider the scope of assurance that is appropriate for them.

Where issuers have conducted external assurance on the sustainability reports, SGX agrees that, to provide transparency to users of the sustainability reports, issuers should disclose (1) that external assurance has been conducted, (2) the scope covered, (3) the identity of the external assurer, (4) the standards used, and (5) key findings.

5. Training for directors

SGX noted the overwhelming support from respondents to require all directors to undergo training on sustainability, and has proceeded with the requirement.

SGX is working with the Singapore Institute of Directors to expand the scope of the mandatory training to include a specific component on sustainability for all directors who have no prior experience as a director of an issuer listed on the SGX-ST. SGX will also work with interested parties to review the content of training. SGX will subsequently inform issuers of the list of sustainability training that directors can attend to meet the mandatory training requirement.

In exceptional circumstances, the nominating committee may assess that an existing director who has expertise in sustainability matters due to prior experience need not undergo the one-time training on sustainability, provided that the basis of this assessment is disclosed.

Issuers should provide a confirmation that their directors have attended the sustainability training in their first sustainability report for FYs commencing on or after 1 January 2022.

6. Reporting timeframe of sustainability report

SGX will now require sustainability reports to be issued together with annual reports, unless issuers are conducting external assurance on their sustainability reports. Issuers that conduct external assurance on their sustainability reports may release the sustainability report within a longer period of five months after the end of the FY, with a summary included in the annual report.

As external assurance on sustainability reports becomes more mainstream, SGX will look towards standardising the reporting timeline for all sustainability reports to be issued together with annual reports.

7. Board diversity

In view of the strong support for the proposal, SGX has proceeded with the amendments to require issuers to set and disclose their board diversity policy in their annual reports, with gender specified as an aspect of diversity that should be encapsulated within issuers’ board diversity policy.

SGX also stated that in addition to gender, issuers should consider other aspects of diversity relevant to their business and strategy. Accordingly, issuers must maintain a board diversity policy that addresses gender, skills and experience and any other relevant aspects of diversity.

SGX noted the broad support for issuers to disclose, in their annual reports, their targets for achieving the stipulated diversity, accompanying plans, and timeline for achieving the targets. SGX has therefore proceeded with the amendments.

To provide more visibility to investors and other stakeholders, issuers will additionally be required to update on their progress towards achieving the targets within the timelines.

The requirements in Appendix 7.4.1 of the Mainboard Rules and Appendix 7F of the Catalist Rules on comments by the board on specific appointments have been expanded to expressly include board diversity considerations.

8. Implementation

Issuers are to adopt the enhancements for their sustainability reports and annual reports for FYs commencing on or after 1 January 2022. The amendments to the Listing Rules (including the Sustainability Reporting Guide) took effect from 1 January 2022.

9. Core ESG Metrics and ESG Data Portal

SGX also observed that its separate public consultation launched on 26 August 2021 on the proposed Core ESG Metrics and ESG Data Portal, received strong market support.

In its response paper, SGX stated that although neither the list of Core ESG Metrics nor any specific sustainability reporting framework will be made mandatory at the current juncture, they will nevertheless serve as a starting point for what companies can disclose in their sustainability reports. Issuers should still conduct a materiality assessment to ensure the relevance and completeness of their reported metrics.

SGX noted that respondents recognised that the ESG Data Portal will not only make information more accessible and comparable, but will also save costs, improve ESG data transparency and measurability, and enable decision-making for investors to become more efficient.

SGX expects the ESG Data Portal to house ESG information beyond the Core ESG Metrics. Information recorded in the ESG Data Portal may include, amongst others, material ESG factors, commentaries and explanations for reported metrics, and discussions on strategies, processes, board statements and targets relating to ESG matters.

Reference materials

The following materials are available on the SGX website www.sgx.com:


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