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Among recommendations shared to strengthen climate-related disclosures, was one on enhancing transparency for opportunity metrics and how executive pay has been tied to climate performance.
Larger listed companies in Singapore, of which 78% are from the carbon-intensive sectors, are making good progress in climate reporting — reports a recent study by the Accounting and Corporate Regulatory Authority (ACRA) and the Sustainable and Green Finance Institute (SGFIN) at the National University of Singapore.
The study also recommended strategies to strengthen climate-related disclosures to meet investors’ expectations and mandatory reporting requirements.
Previously announced in February 2024 by Second Minister for Finance, Chee Hong Tat at the Ministry of Finance Committee of Supply, Singapore will introduce mandatory climate reporting to aid companies in a green transition, in line with Singapore’s national agenda on sustainable development.
The mandatory climate reporting, to be implemented in a phased approach, will start from financial year 2025, with listed issuers reporting using International Sustainability Standards Board (ISSB)-aligned requirements. Following thins, larger non-listed companies will start reporting from the financial year 2027, albeit with some exceptions. Companies that exhibit strong alignment with Task Force on Climate-related Financial Disclosures (TCFD) Framework will be well-positioned to fulfil ISSB-aligned reporting requirements.
The study examined the climate-related disclosures of 51 larger listed issuers for the financial year 2022 based on the Task Force on Climate-related Financial Disclosures (TCFD) Framework. The key findings, which include suggestions & recommendations, include:
Governance
- Nearly all companies studied (94%) have assigned roles or formed committees to deal with climate risks and opportunities.
- Around three-quarters (75%) have fully described their process of reporting to and involving the Board in climate matters.
- However, there was a need to strengthen the disclosure on how the Board was involved in shaping performance objectives; this would allow investors to assess the Board’s involvement and strategic alignment with climate goals.
Strategy
- Most companies studied (88%) have disclosed the physical and transitional risks related to climate, though only close to two-thirds (61%) have disclosed the related opportunities.
- While three-quarters (75%) have carried out scenario analyses to assess how well their operations and financial positions or performance could withstand the effects of climate change, the study noted that they should explain why they chose such scenarios, clarify the assumptions they relied on, and most importantly, describe how resilient and effective their strategy is.
- Only 16% have fully disclosed how they incorporated climate risks in their financial planning.
Risk management
- More than two-thirds (71%) have fully disclosed how they identified, assessed, and managed climate-related risks.
- However, only 24% of companies made full disclosures on the significance of climate-related risks compared to other risks and only 10% explained their potential magnitude.
- This suggests room for improvement, as such information is necessary for investors to evaluate the company's readiness in facing the upcoming economic and regulatory changes, including the transition to a lower-carbon economy.
Metrics and targets
- Companies studied did well in this aspect, with commendable disclosures for Scope 1 and 2 GHG emissions (96% and 100% respectively), with notable progress for Scope 3 emissions (59%).
- Most companies (80%) have set targets and the timeframes to reduce emissions.
- However, more could be done in terms of setting interim milestones to track tangible and timely progress.
- Transparency also recorded room for improvement in disclosures for opportunity metrics and how executive pay was tied to climate performance as less than 10% companies studied have done so.
To add on, the study also picked up on how some local and overseas companies disclose climate-related information, which can serve as a guide for best practices. It has also recommended strategies on how companies can enhance their climate reporting, including prioritising progress over perfection, making meaningful links to financial reporting, and working towards future-proofing the strategy and business model.
Several initiatives have been launched to assist companies in meeting the upcoming reporting requirements, including but not limited to the Green Skills Committee, which was established the Ministry of Trade and Industry and SkillsFuture Singapore, in collaboration with the private sector, to develop skills and training programmes for the low-carbon economy.
The Singapore Economic Development Board and Enterprise Singapore will also launch a Sustainability Reporting Grant, which provides funding support for companies who may be impacted by mandatory reporting requirements to produce their first sustainability report in Singapore, before it takes effect.
ACRA Assistant Chief Executive, Kuldip Gill, stated: "ACRA is dedicated to supporting companies throughout their climate reporting journey. Our aim is to inspire and guide companies in adopting both local and global best practices through this study. Together, we can empower companies to make transparent disclosures, enhance their access to green financing, and facilitate their transition to a greener business model."
Dr Sean Shin, Research Affiliate at SGFIN, added: “Our study has unveiled some of the best business practices and climate-related disclosure by our listed companies. This underscored their adept management of climate-related challenges and commitment to ride the green transition. This will also place them in a good position to report using the ISSB standards."
Lead image / Unveiling Climate-related Disclosures in Singapore
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