SINGAPORE - Two-thirds of Singapore-listed companies that were studied have commenced their climate reporting efforts for the 2022 financial year, but significant gaps remain in external assurance and target setting, according to a new report by financial services firm EY and accountancy body CPA Australia.
Of the 240 companies that started providing climate-related disclosures for FY2022, only 10 per cent sought external assurance by having their reports independently audited, added the report, which was based on companies listed on the Singapore Exchange (SGX).
This follows SGX’s rules that require all Singapore-listed companies to incorporate climate-related disclosures into their sustainability reports on a “comply or explain” basis, starting from FY2022.
Based on recommendations by the Task Force on Climate-related Financial Disclosures (TCFD), companies are to report on four key areas: governance, strategy, risk management, and metrics and targets.
From FY2023, climate reporting will be mandatory for issuers in the financial, agriculture, food and forest products, and energy industries. These companies must achieve full compliance with TCFD’s recommendations in their FY2023 sustainability report to be published in 2024.
However, among the 130 issuers that have not commenced climate-related disclosures, close to half did not make mention of any plans to comply. The remaining either said that they will aim to comply in the future, or committed to comply by 2024 or the following year.
The report analysed data from 370 Singapore-listed companies whose financial year ended on Dec 31, 2022, and whose sustainability reports were published by May 31 this year.
As a whole, when compared with the global average coverage of climate-related disclosures, FY2023 and FY2024 mandated issuers are still falling behind. In this case, “coverage” refers to the issuers providing some level of information that aligns with each of the TCFD recommendations, regardless of the quality of the information provided.
Singapore-mandated issuers demonstrate strong disclosure practices under the governance pillar, in line with the TCFD recommendations, but lag behind the global average in terms of disclosures across the other three pillars.
The companies that did include climate-related disclosures were mainly focused on climate-related risks to their business, while less than half outlined climate-related opportunities.
Notably, many issuers have disclosed qualitative targets, such as to “maintain or reduce”. While 92 per cent of companies have set metrics to assess risks and opportunities – mainly on water, energy, emission, land use and waste management – they have not yet set quantifiable targets, highlighting a lack of specific metrics to measure physical risks.
Furthermore, although the majority provided high-level observations on the potential impact of climate risks and opportunities, few quantified and disclosed the range of financial impact. This indicates that climate change risks and opportunities are not yet fully integrated into the corporate budgeting and strategic planning processes.
Disclosures of Scope 1 and 2 greenhouse-gas emissions are “quite advanced”, with 75 per cent of issuers disclosing Scope 1 emissions and 83 per cent disclosing Scope 2 emissions. There is still progress to be made for disclosure of Scope 3 emissions, as only a quarter of issuers provided such disclosures.
Scope 1 emissions are defined as those directly produced by a company, Scope 2 are those generated through the company’s energy consumption, and Scope 3 are indirectly caused by the company through its value chain.
In the light of SGX’s requirements, the report advises companies to engage with all stakeholders proactively in preparation for new climate reporting requirements. Companies should strengthen their assessment of the financial impact of climate-related risks, explore climate-related opportunities for long-term resilience, and set meaningful quantitative targets to track performance.
On June 26, the International Sustainability Standards Board (ISSB) launched standards for a new global baseline of sustainability disclosures, the first of its kind aimed at meeting the needs of capital market participants, including investors and regulators.
The two standards, known as S1 and S2, fully incorporate TCFD’s recommendations. S1 sets general requirements for how a company should disclose information about its sustainability-related risks and opportunities, while S2 focuses on climate-related ones.
As they will be effective for annual reporting periods from Jan 1, 2024, companies already prepared for TCFD implementation will have a smoother transition to S1 and S2 reporting once they become mandatory in Singapore.
Following these new standards, Singapore’s Sustainability Reporting Advisory Committee proposed that all non-listed companies with an annual revenue of over $1 billion start making ISSB-aligned disclosures from FY2027. Future plans to mandate reporting by entities with an annual revenue of at least $100 million could also be rolled out by around FY2030. THE BUSINESS TIMES
