Fewer Singapore-listed corporations are linking sustainability metrics to their prime govt pay, total enterprise technique and monetary efficiency, regardless of enhancements in sustainability reporting, in line with a brand new research by the Singapore Alternate Regulation (SGX RegCo) and Nationwide College of Singapore (NUS) Enterprise Faculty.
The SGX’s biennal sustainability reporting overview, which was first performed in 2019, discovered that the variety of listed corporations with ESG-linked govt remuneration declined from 26 per cent in 2021 to 16 per cent this 12 months. This constitutes roughly 60 corporations which have backtracked from linking govt pay to sustainability targets.
This backsliding may very well be as a result of macroeconomic headwinds which have hit the underside traces of issuers previously two years, mentioned Professor Lawrence Loh, director of the Centre for Governance and Sustainability at NUS Enterprise Faculty on the media briefing.
Consequently, as an alternative of sustainability, they could have linked govt remuneration to “extra basic components that straight hit their enterprise efficiency,” mentioned Loh. The report didn’t specify which corporations made a u-turn on this.
The same pattern was noticed for the proportion of issuers that linked sustainability targets to total company technique and monetary efficiency, which fell by 7 and 10 share factors respectively after a considerable enchancment in 2021.
Whereas there was an uptick in issuers that linked the remuneration of prime executives to sustainability efficiency in 2021, this quantity declined in 2023. The same pattern was noticed for issuers that linked sustainability targets to total company technique and monetary efficiency over the identical time interval. Picture: SGX Sustainability Reporting Evaluation 2023
The report said that linking govt compensation to sustainability targets was nonetheless a nascent apply globally, citing that the Monetary Stability Board (FSB) – the world monetary watchdog behind the Taskforce for Local weather-related Monetary Disclosures (TCFD) – has additionally acknowledged that extra time is required for “a constant apply” to emerge.
In the meantime, the standard of sustainability reporting amongst listed issuers of all sizes has improved this 12 months, with small and medium cap entities – which account for almost 85 per cent of listed issuers – exhibiting essentially the most vital improve in scores.
On this research, medium cap corporations discuss with shares with a complete market worth between S$300 million (US$224 million) and S$1 billion (US$745 million), whereas small cap corporations are these whose whole market worth is beneath S$300 million.
Nonetheless, simply 393 of the 535 listed companies that printed their sustainability stories offered climate-related disclosures primarily based on the TCFD framework. Upon incorporating climate-related disclosures, which was assigned the best weightage on this 12 months’s sustainability reporting scorecard, the common rating declined from 75 factors to 66 out of the utmost of 100.
After factoring in climate-related disclosures, the common sustainability reporting rating fell, with giant issuers in addition to these from the utilities, shopper non-cyclicals and actual property sectors outperforming their friends. Picture: SGX Sustainability Reporting Evaluation 2023
“This report reveals that whereas the folks on the bottom are already working exhausting on sustainability reporting, extra must be finished within the local weather house. Looking back, we did the proper factor to start mandating local weather reporting, so our corporations have an impetus to start out reporting early” mentioned Tan Boon Gin, chief govt officer of SGX RegCo.
Grace Fu, Singapore’s minister for sustainability and the surroundings, equally emphasised in an announcement that “there may be room for enchancment” in bettering the standard of corporations’ local weather disclosures.
Smaller issuers, particularly, might want to construct up their capability for local weather reporting, mentioned Loh.
SGX turned the primary Asian trade to suggest necessary local weather reporting in with TCFD suggestions in 2021. Since FY 2022, all listed corporations have been required to make disclosures on a “comply or clarify” foundation.
Local weather reporting might be made necessary for issuers within the monetary, agriculture, meals and forest merchandise and power industries from FY 2023, earlier than together with the transportation in addition to supplies and buildings sectors from FY 2024.
Among the many 4 pillars of TCFD suggestions, the disclosure charge for climate-related metrics was the best at 92 per cent. Nonetheless, progress made in reporting Scope 3 or worth chain emissions continues to lag, with simply 20 per cent of issuers offering this information.
The disclosure charges for the opposite three pillars fared much less effectively, the place solely about 60 per cent of issuers have communicated the board’s oversight of climate-related dangers, how climate-related points have affected their enterprise technique and the mixing of local weather dangers into their total danger administration.
“Throughout the board, from governance and technique, to danger administration, the three components must be checked out, somewhat than simply stipulating targets,” Loh commented.
Hardly any had detailed transition plans
Regardless of 249, or almost two thirds, of issuers having climate-related targets, simply 65 of them have disclosed some type of a transition plan, reminiscent of a net-zero or decarbonisation plan. The majority of issuers with a transition plan got here from the actual property sector, adopted by industrials and shopper non-cyclicals.
Nonetheless, their function of the board and administration in driving the transition plan remained obscure for a lot of of those issuers.
Whereas 40 issuers mentioned that their boards have been concerned in drawing up their transition plans, solely 9 issuers offered detailed phrases of reference which set up the precise responsibilties of board members. Fewer than half of issuers with a transition plan offered particulars about their administration’s function in executing the transition plan.
In July, a committee fashioned by the Accounting and Company Regulatory Authority (ACRA) and SGX RegCo launched a public session on its proposal to make climate-related disclosures in step with Worldwide Sustainability Requirements Board (ISSB)’s inaugural requirements necessary for listed and enormous non-listed corporations from FY 2025.
The ISSB requirements, meant to supply a world baseline for sustainability-related disclosures, require corporations to reveal details about their local weather transition plans.
Loh, who can be a member of the committee that sought suggestions on this proposal, expects the variety of ISSB-aligned disclosures to enhance within the lead as much as 2025.
“I’m sure that most of the extra progressive and energetic issuers will begin their preparations now for the ISSB requirements, as a result of most of the parts have been specified by very particular phrases within the session paper. That in itself is a roadmap,” he mentioned.
Within the report, SGX RegCo recognized three key parts a transition plan ought to comprise, together with the fabric local weather dangers that issuers have recognized, a transparent governance construction to drive the implementation of the transition plan and actionable near- and long-term science-based targets to attain net-zero emissions by 2050.
The research confirmed that majority of local weather targets being set by issuers are short-term in nature. Solely a few third of third of them are long-term or medium-term local weather targets.
“An announcement reminiscent of ‘our perpetual goal is to scale back our environmental affect’ says little. There must be particular short-term, medium-term and long-term targets to permit stakeholders to trace progress and align targets with strategic planning,” said the report.
Omitting damaging developments dangers greenwash
The research additionally highlighted potential crimson flags for traders to identify potential greenwash in sustainability stories.
One crimson flag was the omission of damaging developments in sustainability stories. Solely 54 per cent of issuers disclosed unfavourable outcomes of their FY 2022 stories, which might point out makes an attempt to convey “an excessively optimistic company picture or that the targets that have been met have been too ‘mushy’ to start with,” the report wrote.
In gentle of greenwash issues, some issuers – largely giant cap issuers, or these with a complete market worth exceeding S$1 billion (US$745 million) – have sought exterior assurance for his or her sustainability stories, although solely an inner overview is required. This might present a further layer of checks towards greenwashing, the research said.
When requested concerning the digital disclosure portal ESGenome, which was launched in partnership with the Financial Authority of Singapore (MAS) final 12 months to permit for the automated mapping of ESG metrics to chose reporting requirements and frameworks, SGX RegCo’s Tan informed Eco-Enterprise that over 30 per cent of issuers have been onboarded to the platform.
MAS’ supervisor director Ravi Menon beforehand mentioned there have been plans to scale ESGenome into “a national-level disclosure utility that meets the reporting wants of all corporations.”
Simply final week, the central financial institution unveiled a revamped utility referred to as “Gprnt” (pronounced “Greenprint”) on the Singapore FinTech Pageant, which goals to simplify sustainability reporting for small- and medium-sized enterprises.
Michael Tang, head of Itemizing Coverage and Product Admission at SGX RegCo, who famous this improvement, informed Eco-Enterprise, “We welcome this transfer as a result of it extends information assortment and we’re how ESGenome may be interoperable with Greenprint.”
