Alexandra Cain looks at recent efforts to introduce new governance rules for Singapore’s listed companies
Several new corporate governance measures are slated to be introduced in the Singaporean capital markets in coming years, with investors increasingly concerned about their assets’ climate change disclosures and board diversity policies.
Singapore Exchange (SGX) launched a consultation paper on climate change and diversity disclosures last August. In it, Singapore Exchange Regulation (SGX RegCo) set out a roadmap for climate-related disclosures to be mandatory in issuers’ sustainability reports, as a result of heightened investor demand for this information. The disclosures will be based on the TCFD reporting requirements. The consultation process is also exploring assurance of sustainability reports and one-time sustainability training for all directors.
At the same time, SGX RegCo is proposing to introduce enhanced board diversity rules that would require issuers to have a board diversity policy and provide disclosures on related targets, plans and timelines in annual reports.
These changes are being introduced ahead of expected mandatory climate change disclosure rules being developed by the new International Sustainability Standards Board (ISSB), which was created in November last year by the IFRS Foundation in association with the International Accounting Standards Board.
ISSB’s objective is to deliver a comprehensive, global baseline of sustainability-related disclosure standards, providing investors and other capital-market participants with information about companies’ sustainability-related risks and opportunities to help them make informed decisions.
Harold Woo, IRPAS
Harold Woo, president of IRPAS, notes the consultation process has involved SGX putting forth a list of 27 proposed ESG metrics. ‘While not mandatory, these metrics may be used by issuers in conjunction with their sustainability reporting,’ he says. ‘The exchange has also proposed a data portal where investors can access ESG data in a structured format as reported by issuers in accordance with aligned metrics and disclosure requirements.’
Commenting on proposals around the assurance of sustainability reports, Woo says the consultation process is exploring how listed Singaporean businesses can demonstrate whether reported data is accurate and complete. ‘Issuers may also choose to have their sustainability reports assured through external auditors or an independent assurance services provider,’ he adds.
Woo points out that financial markets need high-quality and transparent sustainability disclosures, in particular on climate change, so that market participants can price and manage climate risks more effectively.
Fung-Leng Chen, vice president of investor relations at Singaporean real estate investment trust Frasers Centrepoint Asset Management, says corporates know there is no turning back when it comes to enhanced sustainability reporting: ‘You either need to comply to stay in business, or you may have to face the harsh reality of being marginalized as the competition moves forward.’
All issuers must report climate information on a comply-or-explain basis in their sustainability reports from the financial year starting in 2022. Climate reporting will be mandatory for issuers in the financial, agriculture, food and forest products and energy industries from the 2023 financial year, and for the materials and buildings and transportation industries from the 2024 financial year.
Sustainability in practice Jaclyn Yeo is head of sustainability reporting at DBS, which already has a well-developed sustainability reporting practice. ‘The primary objective of our sustainability report is to convey our sustainability efforts, whether it’s a job well done or in tracking against our targets,’ she explains. ‘It shows where we stand and how much more work needs to be done to get to where we want to be.’
Yeo says the report’s target audiences include investors, regulators and the public. The climate-related information reported is guided by the TCFD framework, against which DBS has been reporting since 2018. She uses the climate change risks to which the business is exposed as an example of how the firm approaches reporting.
‘We follow the TCFD recommendations for identifying, assessing and measuring climate change risks,’ she says. ‘We recognize climate change as one of our material risks from both a financial performance and an environmental standpoint. We report against our high-impact sectors and publish the corresponding public footprint of these sectors.’
DBS has also reported a weighted average carbon intensity since 2018 and publishes a related narrative to explain this measure.
It continues to examine how to better support its more carbon-efficient customers and help customers on their decarbonization journey. In addition, the business constantly refines how it collects and measures the data for its sustainability report.
‘We are continually exploring new approaches,’ says Yeo. ‘For instance, we have installed new metering protocols across our operations that are located in spaces not owned by DBS. These include new energy and water meter scales and measuring devices. This system allows us to close the gaps when it comes to water and energy use across markets including China, India, Indonesia, Hong Kong and Taiwan, in addition to Singapore.
‘These markets all have different utilities environments and unique local infrastructure, which makes data collection and verification very challenging. We have to make sure the information we collect is comparable across the markets. We leverage technology such as self-sensor metering to scope our carbon emissions compilations.’
Yeo says investors are increasingly interested in how the business reports its carbon emissions, and they are becoming more sophisticated in their ability to analyze this information.
‘There is a much deeper understanding of ESG risks now,’ she points out. ‘Investors are using some of our public disclosures to substantiate their own analytics. Some investors also collect emissions information from third-party independent public sources such as ratings agencies to conduct their own assessment.
'But they also like to speak to the companies directly to better understand the associated climate risks and opportunities across their portfolios. It’s interesting to hear investors change their perspective and talk about the opportunities in this space.’
Jaclyn Yeo, DBS
Rising interest It’s worth noting that there are different levels of sophistication when it comes to investors’ ability to decipher ESG data. At one end of the scale are investors with dedicated ESG teams and at the other end are analysts who have had ESG aspects added to their responsibilities. Overall, however, the level of interest and questioning is rising.
DBS is a member of the Net-Zero Banking Alliance, which requires a high level of engagement with its customers to determine suitable decarbonization pathways and create realistic milestones as the bank works toward net-zero carbon emissions by 2050. It sets medium and longer-term goals, with intermediary targets set every five years from 2030 onwards.
‘We are working toward publishing our emissions by absolute amounts and by intensity, because that allows us to better track this information and compare our data across different sectors. And we’re looking to release our assessments in the first half of 2022,’ says Yeo.
Cherine Fok, director of sustainability services and KPMG IMPACT at KPMG in Singapore, says when it comes to climate change disclosures, companies should be guided by industry standards for governance and professional ethics. ‘A true and fair view of the companies’ affairs should be made transparent, with accountability being key,’ she says. ‘Business leaders should also stand ready to defend or refine their climate disclosures when any of their underlying assumptions are questioned or scrutinized.’
Fok agrees that technology is integral to climate data collection, particularly as ESG crosses sectors and disciplines and impacts the value chain. ‘But companies should take care not to over-rely on these solutions, which should act more as information depositories and facilitation tools,’ she warns.
‘There is a need to build expert knowledge and a deep understanding of the contexts in which data collection and verification takes place.’
Companies that dare to challenge the Old Boys' Club mentality are looked on more favorably
New board diversity rules Woo says most SGX-listed large-cap firms already have a board diversity policy. SGX is proposing to mandate that issuers have a board diversity policy disclosed in their annual reports including targets, accompanying plans and the timeline for achieving the stipulated board diversity as well as a description of how the combination of skills, talents, experience and diversity of directors on the board serves the needs and plans of the issuer.
‘More and more Singaporean firms can demonstrate board diversity,’ Woo says. ‘While board diversity metrics including skills, knowledge, experience and age are important, a diversity policy must address gender to be credible. Among the SGX proposals are questions on whether such a policy should include gender and whether the proportion of women’s board and senior management representation should be disclosed as part of the ESG metrics.’
A 2021 report by Grant Thornton shows women hold 33 percent of senior management positions in Singapore. Data published by Singapore’s Council for Board Diversity in December 2020 indicates women hold about 18 percent of board seats in the top 100 companies listed on SGX.
‘Ten companies appointed first-time female directors in the first six months of 2021. It won’t be long before more large caps have female directors,’ notes Woo. He explains that gender-diverse boards are now a key voting consideration for major fund managers, including AXA Investment Managers, BlackRock, Fidelity International, Legal & General Investment Management and State Street Global Advisors.
Gender diversity is also being measured by the likes of the UN’s Sustainable Stock Exchanges and Bloomberg’s Gender-Equality Index. ‘Firms that don't address board gender diversity risk being shunned by those that own and direct capital,’ Woo adds.
Jeannie Ong, group chief investor relations officer at communications service provider MyRepublic, says companies with board diversity tend to challenge conventional wisdoms: ‘Companies that dare to challenge the Old Boys' Club mentality are looked on more favorably.’
Jeannie Ong, MyRepublic
Diversity supports sustainability A key part of DBS’ sustainability report is its diversity policy. Yeo says the firm welcomes SGX’s mooted new rules requiring listed companies to have a board diversity policy in place, as well as disclose diversity targets and their accompanying plans and timelines for achieving these targets. While the new rules are still to be finalized, it’s expected they will be implemented in the next few years.
‘We expect this will level the playing field and encourage more diversity, which will help businesses develop more skills and experiences to support longer-term value creation,’ says Yeo, adding that DBS has received investor questions around its board diversity policy in the past. ‘This is clearly a focus for investors,’ she says.
DBS has removed female directors over the past few years to meet requirements to periodically refresh board members and welcome new ones. Investors want to understand these board changes.
Fok notes that Singaporean companies have demonstrated a more formalized approach to board diversity and have become more willing to have difficult conversations about diversity and inclusion. ‘There is often a healthy appetite for respectfully challenging perspectives, and board members give due respect to divergent views,’ she points out.
Beyond recognizing a diversity of skills and background, Singapore and countries around the world are also paying attention to other aspects of board diversity, such as age and race.
These discussions reflect evolving societal expectations and boards must understand and adapt to these societal issues and concerns to remain relevant.
