How climate reporting can go from good to great

Singapore-listed companies have made good progress in climate reporting but more can be done.

In brief

• Singapore-listed companies have progressed in climate reporting but there are opportunities to improve the depth and breadth of disclosures.
• External assurance on climate reports is crucial to help strengthen decarbonization efforts and address concerns over greenwashing and greenwishing.
• To improve climate reporting, companies should set specific metrics to measure and manage material climate risks and take other key actions.

The looming specter of climate change has compelled businesses worldwide to reassess their environmental impact and embrace sustainable practices. Investors are increasingly expecting companies to report on climate impact in a considered and consistent way, and regulators are doing their part in pushing for greater transparency and commitment on climate disclosures.

Singapore is no exception. The Singapore Exchange (SGX) has mandated climate reporting in listed companies’ sustainability reports on a “comply or explain” basis from financial year (FY) 2022. Singapore is among a growing number of Asia-Pacific jurisdictions that either already mandated climate reporting based on the Task Force on Climate-related Financial Disclosures (TCFD) for listed companies or are slated to do so in the coming years. 

The imperative for consistency and comparability in climate reporting is also clearly growing. Issued by the International Sustainability Standards Board in June, the first two IFRS Sustainability Disclosure Standards — IFRS S1 and IFRS S2 — are expected to be integrated into Singapore’s reporting framework in the near future. IFRS S2 aligns with the TCFD recommendations, which means that issuers already prepared for TCFD implementation will be able to have a smoother transition to IFRS S2 reporting once it becomes mandatory in Singapore.

Underscoring the importance of climate reporting further, Singapore regulators are also exploring the possibility of requiring all listed companies to report climate-related disclosures from FY 2025 and large non-listed companies to do so from FY 2027. Therefore, climate disclosures are expected to become widely adopted soon and increasingly fundamental to corporate reporting and ultimately, corporate governance.

Quality matters

The regulatory push is certainly essential but only as effective as the quality of compliance in line with the spirit of the rule. An EY-CPA Australia report released in July on the current state of climate reporting among Singapore-listed companies revealed that while progress has been made on this front, there are still opportunities for improvement.

The report assessed the climate disclosures of 240 SGX-listed companies based on the four pillars of the TCFD recommendations: governance, strategy, risk management, and metrics and targets. It found that 65% of the companies started their climate-related disclosures in FY 2022.

In particular, 77% of companies in the agriculture, food and forest products industry, 88% in the energy industry and 75% in the financial industry initiated climate disclosures in FY 2022. Issuers in these sectors are mandated to do climate reporting in FY 2023 and many large-cap and mid-cap ones have led the way in this activity.

However, the report noted that many climate disclosures lacked depth and breadth. Only 10% of the 240 issuers sought external assurance on their climate reports.

External assurance is instrumental to the credibility of climate reports and expected to play a bigger role amid rising concerns over greenwashing and greenwishing. It can also help companies identify and address gaps in their climate reports, resulting in more robust disclosures and insights that can help them strengthen decarbonization efforts.