Singapore’s listed companies have largely commenced climate-related disclosures, but only a tenth of them have had those reports independently audited, according to a study by Ernst & Young LLP (EY) released on July 12.
Of 370 listcos surveyed, just three companies incorporated climate-related disclosures as part of their external assurance review process.
Listcos have made “notable progress” in disclosing climate-related information on their business activities since the Singapore Exchange mandated such disclosures on a “comply-or-explain” basis for the financial year starting 2022, says EY.
Of the listcos surveyed, two-thirds, or 240 of them, have started their climate reporting efforts. Those in sectors mandated for reporting in FY2023, such as the agriculture, food and forest products (77%); energy (88%); and financial (75%) industries began climate-related disclosures reporting in FY2022.
Conversely, one-third (130) of the 370 listcos that issued sustainability reports have yet to make climate-related disclosures, with over half (54%) looking to comply in the future and the remaining (46%) not mentioning any plans to comply, says EY.
Ken Ong, partner, assurance at Ernst & Young LLP says climate-related disclosures are crucial for transparency in business. “It is encouraging to see a significant level of adoption by companies that have started their climate reporting journey.”
Ong points to the public consultation for mandatory climate reporting by listed and non-listed companies, launched last week by the Accounting and Corporate Regulatory Authority (Acra) and Singapore Exchange Regulation (SGX RegCo).
A committee convened by both bodies has recommended that listcos issue mandatory climate-related disclosures from FY2025, before their large non-listed peers with annual revenue from $1 billion follow suit from FY2027.
Singapore regulators are keen to encourage companies to report on climate-related disclosures, adds Ong. “Beyond regulatory requirements, assurance provides confidence to stakeholders, such as regulators, investors and customers; that there are processes in place to manage critical sustainability matters and address any concerns about greenwashing.”
See also: Sembcorp and NYSE-listed Bloom Energy to bring low-carbon solutions to Singapore
Missed opportunities
EY notes a “predominant focus on climate-related risks”, which overshadow climate-related opportunities and quantifiable targets.
Of the listcos that have issued climate-related disclosures, a significant majority (79%) were focused on climate-related risks to their business, and less than half (47%) have outlined climate-related opportunities.
This imbalance raises concerns given the multi-faceted nature of climate change, says EY. “Companies should seek to identify key material climate-related risks as well as opportunities specific to their operations and their potential impact over the medium and long term.”
While the majority (66%) of listcos surveyed provided high-level observations on the potential impact of climate risks and opportunities, only a few quantified and disclosed the range of the financial impact, adds the professional services firm.
There is also a lack of specific metrics used to identify risks and opportunities, particularly physical risks. While 92% of companies have set some metrics on water, energy, emission, land use and waste management, they have not set quantifiable targets, according to EY.
In addition, two-thirds (68%) of companies with climate-related disclosures have not started scenario analysis on the impact of climate change on their operations.
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Scenario analysis is important as it helps companies evaluate and quantify potential climate-related risks and opportunities under various scenarios, says Praveen Tekchandani, partner, climate change and sustainability services at Ernst & Young LLP.
“By developing different future scenarios, companies can consider various pathways and their implications for the business. This can help companies gain a comprehensive understanding of the risks and opportunities associated with climate change, which can then be used to develop targeted risk management measures for material climate-related risks and formulate strategies to leverage potential climate-related opportunities,” he adds.
The report suggests five areas for companies to improve their climate disclosures for future reporting:
- Engage proactively with stakeholders in preparation for new climate reporting requirements
- Strengthen the understanding and assessment of climate risks, and explore climate-related opportunities for long-term resilience
- Leverage scenario analysis to better assess climate-related risks and opportunities
- Incorporate climate change considerations into budgeting and strategic planning
- Set meaningful quantitative targets and track performance
