All Singapore REITs (S-REITs) have made climate-related disclosures in their latest sustainability reports, with over half issuing such disclosures for the first time. However, S-REITs are falling short of their global peers in terms of setting metrics and targets for decarbonisation, say EY and the REIT Association of Singapore (REITAS).
The findings, released on Sept 13, are drawn from the “Climate risk disclosures in real estate investment trusts (REITS)” study, which reviewed the coverage and quality of climate-related disclosures by the 40 S-REITs traded on the Singapore Exchange (SGX), based on the Task Force on Climate-related Financial Disclosures (TCFD) recommendations.
Singapore Exchange Regulation (SGX RegCo) has mandated climate reporting for all issuers on a “comply-or-explain” basis, effective for financial years starting on or after Jan 1, 2022.
According to EY and REITAS, 45% of S-REITs began their climate reporting prior to FY2022 and “have some level of maturity” within their climate reporting.
The study assessed disclosures on their coverage and quality, where coverage refers to a company disclosing some level of information compliant with each of the TCFD recommendations, regardless of the quality of information provided; and quality refers to the extent to which a company’s disclosures meet all 11 TCFD recommendations.
On average, S-REITs outperform their global real estate peers in the coverage of their climate-related reporting in the four TCFD pillars: governance (S-REITs 100% versus global 84%), strategy (87% vs 80%), risk management (S-REITs 92% vs global 83%), and metrics and targets (S-REITs 86% vs global 85%).
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Similarly, S-REITs score better than their global peers in the quality of their reporting in most of the pillars: governance (S-REITs 63% versus global 43%), strategy (39% vs 38%), risk management (44% vs 36%), except for metrics and targets (37% vs 43%).
While S-REITs have done well in their coverage and quality of climate-related disclosures, there is “certainly still room” for improving the disclosure of metrics and targets used to assess and manage material climate-related risks and opportunities, especially those related to Scope 3 emissions across the value chain, says Nhan Quang, partner, climate change and sustainability services at Ernst & Young.
“Integrating discussions on metrics and targets into the overall risk management and strategic planning processes such as investment and budget planning, and using technology to enable greater granularity in performance measurement can help,” adds Quang.
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Net-zero commitments lacking
Just 30% of S-REITs have disclosed their net-zero commitments. These range in ambition, note EY and REITAS, from “net-zero operational carbon” to “net-zero whole life carbon” commitments.
Net-zero roadmaps, filled with intermediate targets, are typically established alongside long-term commitments. However, only a handful of S-REITs have publicly disclosed how their net-zero commitments align with that of the Science Based Targets initiative (SBTi).
The SBTi promotes best practice in emissions reductions and net-zero targets in line with the Paris Agreement goals.
EY and REITAS offer four recommendations for companies seeking to improve their climate risk management and disclosures.
First, companies should take a holistic approach and integrate climate risks into overall risk management and strategic planning.
Second, companies should collaborate and engage with stakeholders, such as investors, regulators, tenants, employees and suppliers; to align expectations, business needs and operational challenges against sustainability commitments.
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Third, companies should leverage technology in measuring and monitoring sustainability performance.
Finally, companies should look beyond decarbonisation and also consider improving other sustainability factors, such as social and governance matters.
Low Chee Wah, president of REITAS, says: “The S-REIT sector is 21 years old this year. As we look forward to the industry’s next phase of growth, we recognise the critical role of sustainability issues, including climate risk management and decarbonisation efforts, in the industry’s future success.”
It takes a village to implement climate-related disclosures and make the net-zero transition, says Lee Wei Hock, deputy Singapore assurance leader at Ernst & Young. “For S-REITs, achieving the net-zero targets and benchmarks is understandably more challenging given the vast geographies and on-the-ground infrastructure across their collective portfolios. The sustainability journey of S-REITs also influences tenants, employees and communities to adapt their practices. Further, as S-REITs invest in more countries outside of Singapore, they may effectively export and steward sustainability practices to the rest in the industry.”
SGX RegCo to seek feedback by year-end
SGX announced in 2021 a phased approach to mandatory climate reporting based on the recommendations of the TCFD, starting with listed companies in five prioritised industries. Climate reporting is mandatory for issuers in the financial and energy industries and those in the agriculture, food and forest products industry from the financial year starting 2023.
All other listed companies, including S-REITs, are required to apply the TCFD recommendations to their climate-related disclosures on a “comply-or-explain” basis.
Following the release of the International Sustainability Standards Board’s (ISSB) inaugural IFRS Sustainability Disclosure Standards in June, SGX RegCo will consult on any possible changes to current listing rules by the end of the year, say SGX RegCo chief executive officer Tan Boon Gin, and head of the sustainable development office Michael Tang, who is also head of listing policy and product admission.
The ISSB standards — IFRS S1 and S2 — ask for information about a company’s climate transition plan as part of its strategy, and are consistent with the recommendations of the TCFD, which published a transition guide in October 2021. Together, they create a common language for disclosing the effect of climate-related risks and opportunities on a company’s prospects.
Companies with robust transition plans that are well-disclosed will stand a better chance of maintaining access to capital markets, including benefitting from green and transition finance, say Tan and Tang. “Companies will also find it easier to plug into global supply chains if they are able to meet international supplier due diligence requirements.”
