The International Sustainability Standards Board (ISSB) issued on June 26 its inaugural standards — IFRS S1 and S2 — a landmark move that aims to align sustainability-related disclosures in capital markets worldwide.
Corporates and investors now have a common language to disclose the effects of climate-related risks and opportunities on a company’s prospects. This will help set a global baseline for disclosures among companies.
With the standards, companies will provide sustainability-related information alongside their financial statements in annual reports starting from 2024. However, countries must decide whether to mandate reporting by the standards.
Between the two standards, S1 helps companies disclose sustainability-related risks and opportunities over the short, medium and long term, while S2 targets climate-related disclosures. Both fully incorporate the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), and corporates must adhere to both S1 and S2 requirements in their reporting.
“Today represents the outcome of more than 18 months of intense work to deliver an inaugural set of sustainability disclosure standards for the global capital markets,” says Emmanuel Faber, ISSB chair. “The ISSB standards have been designed to help companies tell their sustainability story in a robust, comparable and verifiable manner. We have consulted closely with the market to ensure the standards are proportionate and will result in relevant disclosures for investment decision-making.”
Coming soon to Singapore
According to Singapore Exchange S68 (SGX) Group chief executive officer Loh Boon Chye, Singapore’s listed companies can expect to adopt the standards soon.
Speaking at the International Capital Markets Association’s (ICMA) Ninth Annual Conference of the Principles on June 28, Loh says the exchange will look into incorporating the ISSB standards into its listing rules as mandatory disclosure requirements for its listed companies.
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“In preparation for this process, SGX RegCo has set up a Sustainability Reporting Advisory Committee with the Accounting and Corporate Regulatory Authority (Acra). The committee comprises all our major stakeholders to ensure a smooth and practical implementation tailored to our market,” says Loh.
The ISSB builds upon the TCFD recommendations for climate reporting, and applies them to sustainability reporting as a whole, said Tan Boon Gin, CEO of SGX RegCo, in July 2022. “So, issuers already using TCFD for climate reporting will find it familiar and relatively easier to apply to the rest of their sustainability reporting.”
Tan said then that the bourse would “consider very carefully” the pace and cadence at which it adopts the ISSB standards.
SGX announced in 2021 a phased approach to mandatory climate reporting based on the recommendations of the TCFD. 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.
At an ISSB workshop for corporates on June 28, Tan says the standards “might be the best chance we have” at achieving “globally consistent baseline standards” for quality sustainability information. “This is why SGX RegCo wants to incorporate ISSB standards into our reporting requirement.”
SGX and the Monetary Authority of Singapore (MAS) announced on June 27 a collaboration with the Climate Data Steering Committee (CDSC) to strengthen global access to climate transition-related data.
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Michael Bloomberg created the CDSC in June 2022 “to build a broadly accessible foundation of high-quality climate data”. At last year’s COP27, the CDSC released a pilot version of the Net-Zero Data Public Utility (NZDPU), an open, free and centralised climate transition-related data repository.
ESGenome, a sustainability reporting digital portal launched by SGX and MAS in September 2022, will allow reporting companies to transmit their Scope 1, 2 and 3 greenhouse gas emissions data to the NZDPU.
Work is also underway to extend ESGenome’s capabilities to support disclosures by the broader corporate universe, notably SMEs, adds SGX’s Loh. “This collaboration is a significant step towards allocating public and private capital towards financing transition.”
‘Short-term pain’
Acra and SGX RegCo launched on July 6 a public consultation on recommendations by the Sustainability Reporting Advisory Committee (SRAC). The recommendations require listcos to report ISSB-aligned climate-related disclosures starting from FY2025, while non-listed companies with annual revenue above $1 billion will follow suit in FY2027.
Acra and SGX RegCo set up the SRAC in June 2022. City Developments’ chief sustainability officer Esther An chairs the committee, which also comprises leaders from DBS, BlackRock, Temasek and NUS Business School, among others. The public consultation will run until Sept 30.
Non-listed companies make up more than 99% of the companies incorporated in Singapore, and some are larger than people may think, says Bong Yap Kim, senior technical director at the sustainability reporting office of Acra. “They also have the ability and the opportunity to drive change through their value chain.”
Speaking at a June 27 panel organised by the ISSB and the Asean Capital Markets Forum, Bong says 78% of multinational companies have said they plan to remove suppliers that could endanger their carbon transition plans by 2025.
Citing a 2021 Standard Chartered survey, Bong says that 57% of those MNCs were prepared to replace emerging market suppliers with developed market suppliers to hit decarbonisation targets. “Although it is going to be [a] short-term pain, you are steering the company in the right direction for the long haul,” says Bong. “Today, customer expectations are changing, and it will come faster and more furious, especially with the younger generation.”
On a later panel that same day, Eric Lim, chief sustainability officer at United Overseas Bank U11 , says widespread adoption of ISSB can make sustainability-linked loan instruments more efficient for lenders and companies. “Today, when we do sustainability-linked financing, we create these structures referencing sustainability performance targets (SPTs). Now, this process is very bespoke [and] very manual: banks and companies sit down, talk about what the company is trying to do [and] they set the right SPTs. Then, these SPTs are regularly reported back to the bank,” says Lim.
In a world where ISSB is “well-understood” and “well-accepted”, he adds all key initiatives that are material to a company will be expressed in an ISSB-aligned sustainability report. “So, instead of a bank and a company going on a bespoke conversation about certain SPTs, you can reference the ISSB report… It creates a consistent basis upon which many market participants can start to interact in a much more effective way.”
Photo: SGX Group, Bloomberg
