Lack of climate risk expertise and data are main obstacles to climate financial disclosure in Singapore and the Philippines, according to a recent survey conducted by global advisory, broking and solutions firm WTW.
Among Singaporean companies surveyed, only 34% of firms have disclosed information on their board’s oversight of climate-related risks and opportunities and their management’s role in assessing and managing climate risk, while 43% have or are preparing to disclose information on their management’s role in assessing and managing climate-related risks and opportunities.
That said, slightly more than half of the Singaporean respondents have a process for identifying, assessing and managing climate-related risks and opportunities.
In the Philippines, 24% of firms have disclosed or are ready to disclose their processes for identifying, assessing and managing climate-related risks or opportunities. More than half of the Filipino respondents (55%) intend to disclose this information but need to do more preparation work.
Released on Aug 31, WTW surveyed 50 companies in Singapore and the Philippines, inclusive of listed names.
Advances in data, analytics and technology have made risk assessment more timely, precise and quantitative, says James Wong, director of strategic risk consulting, Asia at WTW.
See also: Sembcorp and NYSE-listed Bloom Energy to bring low-carbon solutions to Singapore
“Understanding financial impact of climate risks and opportunities provides a much-needed decision support on risk mitigation and adaptation of investments,” says Wong to The Edge Singapore. “There may be a variety of cost-benefit analyses to be done… For example, a practice that we are seeing more often is companies evaluating the current and future physical hazards of prospective locations as part of the risk assessment process for major investment decisions.”
Two-thirds of respondents have had discussions on the financial impact of climate change at the board level. While half of the firms surveyed consider climate change under their sustainability agenda, only a quarter view it as a key strategic issue.
See also: Unlocking opportunities in Asean while managing governance and compliance risks
Companies need to identify the key climate related risks and opportunities they will face in the near and long term, says Wong. “In addition, there is a need for them to understand investor, consumer and regulator expectations on how they will manage these risks and capitalise on these opportunities.”
From 2023, listed companies in Singapore will progressively be required to disclose their climate-related risks based on Task Force on Climate-related Financial Disclosure (TCFD) recommendations, while those in the Philippines will be required to comply with the sustainability reporting guidelines set by the country’s Securities and Exchange Commission (SEC).
According to WTW, key challenges faced by companies include a shortage of in-house capability on climate risk. followed by a lack of data availability and standardised metrics.
Half of companies say they need advice and support on scenario modelling. Other key areas include setting climate-related metrics and targets; conducting a transition risk assessment; and identifying an approach or format for TCFD reporting.
With more companies in the region obliged to undertake climate financial reporting based on recommendations by TCFD, WTW notes varying states of readiness among companies.
Wong says: “Companies who are early in this journey should seek benchmarking against relevant peers in similar industry and geography to gauge what best practice looks like and what may or may not work for them.”
After companies assess their TCFD alignment, they can decide on next steps, says Wong. “For instance, setting up a climate change steering committee, collecting relevant climate-related metrics that are appropriate and tailor-fit to both their starting point — where they are now — and their goals — where they want to be. This is an important first step to determine the data, technology and expertise investments to be made internally and to partner with the right external consultants to implement next steps.”
To stay ahead of Singapore and the region’s corporate and economic trends, click here for Latest Section
On Sept 12, the Singapore Exchange (SGX) and the Monetary Authority of Singapore (MAS) launched ESGenome — a digital disclosure portal that helps listcos generate sustainability reports.
From Sept 12, companies can use the portal for baseline sustainability reporting based on 27 SGX core environmental, social and corporate governance (ESG) metrics. SGX arrived at the 27 core metrics last December after reviewing the most common data points in companies’ sustainability reports — a compulsory annual document for listcos since 2016.
Money talks
WTW calls for climate objectives to extend into employee remuneration policies. “The principle is very straightforward — what gets measured gets done and more importantly what gets rewarded definitely gets measured and done. Linking environmental, social, and governance (ESG) measures to remuneration is an important way to accelerate change,” says Wong. “Once the risks and opportunities are identified, realistic change objectives and goals can be set.”
Only 14% of Filipino and Singapore respondents have fully implemented or started to incorporate climate-related targets in their executive incentive metrics, while 28% are now considering or are likely to introduce such targets in executive incentive plans.
“With increasing regulatory and investor pressure on climate change, it is likely that these numbers could rise in the foreseeable future,” says Wong.
From FY2023, SGX listcos in the financial, agricultural, food, forestry and energy sectors face mandatory climate-related disclosures.
While some sectors may face scrutiny earlier than others, all businesses will face similar challenges on understanding the requirements, says Wong. These include sourcing the relevant data, figuring out what to do with the data and developing the disclosures.
“Through working with companies, our experience tells us that the common considerations are: first, taking a multi-year approach to continuously build and enhance climate reporting; second, the long-term viability of the business; and lastly, grappling with setting boundaries and measuring Scope 3 emissions, which can be substantial for most industries,” says Wong.
He adds: “Although the current actions are primarily focused on satisfying compliance requirements, regulators, exchange rules and basic investor or consumer expectations, it is critical for business leaders to integrate climate, and by extension, ESG actions, into its company strategy and operations where these drive specific and quantified business opportunities in their climate transition journey.
