Corporate disclosures for an Esg-focused audience
Accurate ESG reporting is increasingly important, and companies must rise to the challenge
NEW rules mandating climate-related disclosures have taken effect in Singapore. Listed companies in the financial, agriculture, food and forest products, and energy sectors are required to include such disclosures in their sustainability reports from the 2023 financial year. These disclosures must be consistent with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), an international grouping of industry experts from financial institutions, large companies and professional services firms.
The TCFD’S recommendations, contained in a 74-page report, cover governance, strategy, risk management, metrics and targets related to climate-driven risks and opportunities.
This mandatory requirement extends to listed companies in the materials and buildings, and transportation industries from FY2024.
Compliance with the TCFD’S recommendations by corporations and institutions whose business activities have varying degrees of impact on Mother Nature is a concrete first step towards addressing the risks and complications arising from global warming and climate change that will affect the lives of everyone.
“Even non-listed companies are not excused,” says Robson Lee, partner at Kennedys Law and a director of Legal Solutions LLC. “Starting from FY2027, large non-listed companies in Singapore will be required to make climate disclosures too.”
Companies are defined as large enough to be subject to this requirement if they have an annual revenue of at least S$1 billion and total assets of at least S$500 million.
Lee notes that Singapore is the first country in Asia requiring such disclosures from non-listed companies, but expects climate-related disclosure requirements to increasingly become prescriptive in more countries.
“It is an inevitability given the global commitment to limiting the global temperature increase to well below 2 degrees Celsius and reducing greenhouse gas emissions to a net zero by 2050,” he adds.
Environmental and social initiatives at local listcos
As companies evaluate how best to deal with these tougher disclosure requirements, Lee offers some suggestions gleaned from the best practices at some of Singapore’s largest listed companies.
The three local banks – UOB, DBS and OCBC – have adopted a 2050 net zero carbon emissions target, as have flag carrier Singapore Airlines (SIA) and assets manager Keppel Corporation.
These companies have also established sustainability committees; committed to reducing waste; volunteered manpower and funds to benefit social causes, green and transition financing; adopted the screening of partners and suppliers for environmental, social and governance (ESG) considerations; and raised awareness on sustainability-related issues, Lee says.
At the same time, it is not enough for listed companies to be focused on climate disclosures alone. The Singapore Exchange’s listing rules also require all issuers to describe material social and governance factors in their sustainability reports, Lee says.
The social aspects of ESG include fair treatment of employees, standards for workplace safety and non-discriminatory hiring practices. Stakeholders want to be assured that issuers have the necessary policies and systems in place to support all these concerns.”
Lee points, for instance, to the comprehensive disclosures by SIA of various practices to support a socially responsible business environment.
“The company conducts regular reviews of and engagements in key activities that impact on the well-being and safety of its employees including audits, drills, newsletters, reporting
Care with corporate governance
In the area of corporate governance, meanwhile, Lee flags three risks that companies need to be aware of and pay special attention to – in both disclosures and business practices – as businesses expand globally and digitally.
The first relates to Singapore’s Prevention of Corruption Act 1960 (PCA), which is the primary anti-corruption legislation in Singapore that guards against the risks of bribery and corruption, both in Singapore and in overseas.
The second relates to Singapore’s regulatory regime combating money laundering and terrorism financing, the main legislations being the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act 1992, and the Terrorism (Suppression of Financing) Act 2002.
“Compliance with the PCA prevents corruption within organisations, and aids the fostering of an accountable and transparent business. Likewise, establishing a corporate culture and rigorous enforcement of internal controls preventing money laundering and combating terrorism financing are cardinal to the integrity of Singapore’s financial market, and an inextricable pillar of ESG,” Lee says.
“Corruption is widely acknowledged to carry detrimental social and governance impact. Accordingly, the sustainability reports of listed companies commonly include references to the elimination of corruption within their governance-related sections.”
The third governance risk relates to the Personal Data Protection Act 2012 (PDPA), which governs the handling of personal data by corporations.
The PDPA imposes eleven obligations upon corporations relating to the collection, use and disposal of such data. Lee notes that companies are also required to appoint a data protection officer to monitor and ensure compliance with these obligations.
‘ ESG mandatory reporting could be the proverbial stepping stone towards a more sustainable future.’ Robson Lee, partner at Kennedys Law and director of Legal Solutions and investigation programmes and training,” he says.
Paying attention to legal pitfalls
As they navigate a complex web of ESG disclosures, Lee says companies should be aware of several potential legal pitfalls.
The most significant of these is perhaps greenwashing – falsely representing the environmental merits of corporate initiatives and actions.
While there are yet to be specific rules enacted against greenwashing in Singapore, Lee says companies should be familiar with the provisions of the Consumer Protection (Fair Trading) Act 2003 when planning their next ESG marketing campaign.
The long list of ESG disclosure requirements, and pressure from various stakeholders, might make it tempting for companies to inflate the impact of some of their purported environmentally-friendly activities, or conceal or down-play the adverse impact of their carbon-generating operations.
Directors of listed companies should also be mindful of their legal responsibilities and the penal consequences when publishing information to the market that could be misleading or untrue.
Given these various challenges, Lee says management and boards need to be attentive and pro-active in the discharge of their responsibilities in relation to their companies’ ESG practices and disclosures. The company’s senior management should seek professional advice and guidance to establish comprehensive ESG policies and practices. Most importantly, the board must diligently exercise over-sight in the execution to ensure proper implementation of the company’s policies and practices that are consistent with the information that is publicly disclosed to the market.
“With the ubiquitous impact of climate change around the world, it has become imperative for companies to gird themselves in the face of headwinds that are envisaged to be more complex and uncertain for businesses in an increasingly difficult geopolitical global environment,” Lee says.
Tough disclosure requirements may pose challenges for businesses, but they are necessary for the world. “ESG mandatory reporting could be the proverbial stepping stone towards a more sustainable future,” Lee adds.
“In making ESG disclosures prescriptive, companies are required to invest resources to institutionalise their businesses. This would in effect nudge companies to future-proof their relevance in their respective industries in a challenging and competitive global environment.”