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28 July 2022

On 19 July 2022, CEO of Singapore Exchange Regulation (“SGX RegCo”) Tan Boon Gin delivered his keynote speech for the “Climate Reporting in ASEAN - State of Corporate Practices” launch event. His speech discussed the implications of greenwashing and possible upcoming regulations on making information available, comparable, and trusted. A summary is set out below.

Implications of greenwashing

Mr Tan outlined two main implications of greenwashing:

  • False and misleading: Greenwashing results in false and misleading information, and this is particularly damaging in a disclosure-based regime where the accuracy of the information on which decisions are based determines how effective the market is in the pricing and allocation of capital.
  • Un-level playing field: Greenwashing results in an un-level playing field. Greenwashing left unchecked will allow companies that do not incur the cost of greening to enjoy the climate incentives. Such companies can compete more effectively for the green dollar, against others which have incurred such costs, and in the long run, genuinely green companies and products may fail because if the market cannot tell the difference, the market may choose the lower-cost greenwashed companies.

Making information available, comparable, and trusted

Mr Tan explained the three methods regulators will use, and have already begun using, to address greenwashing - making information available, comparable, and trusted:

  • Make information available: The two dimensions to making information available are the “disclosure requirement” and the “access requirement”:
    • Disclosure requirement: SGX-listed companies have been mandated to do sustainability reporting since 2016. In 2021, SGX RegCo mandated climate reporting in accordance with the recommendations of the Task Force on Climate-related Financial Disclosures (“TCFD”). This will be introduced in phases. The first phase is for companies to do climate reporting on a comply or explain basis in 2022. Subsequently, climate reporting will become mandatory for more companies, starting with the companies in the most carbon intensive industries such as (i) financial, (ii) agriculture, food and forest products, and (iii) energy industries.
    • Access requirement: The market has provided strong feedback that it wants climate disclosures by companies available in a single platform that users can easily access. SGX RegCo has previously consulted on a proposed digital data portal where investors can access environment, social and governance (“ESG”) data in a structured format as reported by issuers in accordance with SGX RegCo disclosure requirements. This proposal was well received and SGX RegCo is currently developing a disclosure portal called ESGenome. Apart from giving users a single point of access, SGX RegCo hopes to develop features in this portal that will help issuers such as guiding companies to enter the necessary information to meet SGX RegCo disclosure requirements and autogenerate sustainability reports.

SGX RegCo is also considering whether to mandate all listed companies to prepare their sustainability reports using a common digital format, with ESGenome being one possible solution. This would help investors and stakeholders manage and process the data.

  • Make information comparable: Mr Tan noted that so far, there has been a lack of consistency and comparability in terms of climate disclosures, with different issuers reporting against different standards and frameworks. This is frustrating to investors and the companies themselves as they try to benchmark against their peers, and is why SGX RegCo has mandated reporting against the TCFD recommendations, a widely accepted framework.
    • ISSB standards on sustainability and climate-related disclosures to be incorporated: Looking ahead, the International Sustainability Standards Board (“ISSB”), which was set up to develop a global baseline standard for sustainability reporting, has released two Exposure Drafts for public comment - the first on general sustainability disclosures and the second on climate-related disclosures. These standards are expected to be issued by the end of 2022.
    • When the ISSB standards are issued, SGX RegCo will begin the process of incorporating them into the listing rules as mandatory disclosure requirements for listed companies. To prepare for this process and ensure a smooth and practical implementation tailored to Singapore’s market, SGX RegCo and the Accounting and Corporate Regulatory Authority (ACRA) have set up a Sustainability Reporting Advisory Committee.
    • Mr Tan stated that the ISSB builds upon the TCFD recommendations for climate reporting and applies them to sustainability reporting as a whole. Issuers already using TCFD for climate reporting will find it familiar and relatively easier to apply to the rest of their sustainability reporting.
    • Difference between ISSB climate-related disclosures and TCFD recommendations: Mr Tan also highlighted one key difference between the ISSB climate-related disclosures and the TCFD recommendations - the ISSB climate-related disclosure standard mandates Scope 3 greenhouse gas emissions (meaning the indirect emissions throughout a company’s value chain, both upstream and downstream), as a cross-industry metric. The ISSB climate disclosure standard also has a more detailed industry classification and disclosure topics and metrics for each industry.
    • Sustainability reporting roadmap to extend to all companies, including non-listed companies: Particularly for Scope 3 emissions, SGX RegCo will consider very carefully the pace and cadence at which ISSB standards are adopted. In relation to this, one of the purposes of the Sustainability Reporting Advisory Committee is to advise on a sustainability reporting roadmap for Singapore companies (including non-listed companies). Mr Tan explained that without accurate climate reporting by non-listed companies, it will be difficult for companies to disclose their Scope 3 emissions as not all their suppliers and customers will be listed companies.
  • Make information trusted: Mr Tan explained that governance is key to reliable information, which is why the first pillar in both the TCFD and ISSB frameworks is governance. This reflects the important role that the board of directors plays in policing climate information and is one of the reasons why SGX RegCo has mandated compulsory training for directors in this area. 
    • Enforcement action on material gaps and misstatements in climate disclosures: Climate information is becoming as material as financial information and the same kind of enforcement action being taken for material gaps and misstatements in climate disclosures can be expected. For example, the US Securities and Exchange Commission has set up a Climate and ESG Task Force in their Enforcement Division.
    • Developments on external assurance standards: SGX RegCo has required issuers to minimally subject the climate reporting process to internal review by their internal audit functions. On external assurance, this is still a developing area and there is a lack of globally recognised standards or frameworks in relation to assurance on sustainability and climate information. As such, SGX RegCo has not mandated external assurance, though SGX RegCo has provided further guidance in its Sustainability Reporting Guide for issuers that conduct external assurance.

Mr Tan also made reference to the International Auditing and Assurance Standards Board target to propose new sustainability assurance standards for public comment during the second half of 2023.