In the fight against greenwashing, regulators must ensure information is available, comparable and trusted, says Tan Boon Gin, CEO of SGX Regulation (RegCo).
False and misleading information results in an unequal playing field, Tan adds, and may even affect “genuinely green companies and products”.
“When we think of greenwashing, we also tend to think of it as deliberate. But again, that is not always the case. Mistakes may have been made in data collection, or less than thorough due diligence may have been conducted on parts of the supply chain,” says Tan.
In his keynote speech at a NUS Centre for Governance and Sustainability seminar on July 19, Tan says the stakes are high in the energy transition and accurate climate information is critical to drive decision-making.
Available information
Firstly, there are two dimensions to making information available, says Tan. “The first is the disclosure requirement, and the second is the access requirement.”
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Companies listed on the Singapore Exchange (SGX) have been mandated to issue sustainability reports since 2016. For the financial years starting from Jan 1, 2022, companies will also have to issue climate reports in accordance with the Task Force on Climate-related Financial Disclosures, or TCFD.
The first phase is for companies to do climate reporting on a “comply-or-explain” basis in 2022. Subsequently, climate reporting will become mandatory for more and more companies, starting with the companies in the most carbon-intensive industries such as the financial, agriculture, food and forest products and energy industries.
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On access to information, SGX RegCo is developing the ESGenome disclosure portal. “Apart from giving users a single point of access [to ESG data], we also hope to develop features that will help issuers, such as guiding companies to enter the necessary information to meet our disclosure requirements and auto-generating sustainability reports.”
Digitising ESG data is key to drive adoption, says Tan. “This will help investors and stakeholders manage and process the data more efficiently according to their own needs.”
According to Tan, SGX RegCo is considering a common digital format for sustainability reporting, such as ESGenome.
Comparable information
Secondly, ESG reporting has been inconsistent due to a myriad of reporting standards and frameworks. Hence, the SGX RegCo has mandated reporting against the TCFD recommendations.
Looking ahead, Tan points to the International Sustainability Standards Board (ISSB), which was set up to develop a global baseline standard for sustainability reporting.
The ISSB has released two “exposure drafts” for public comment. The first is on general sustainability disclosures, and the second is focused on climate-related disclosures. “If all goes well, these standards will be issued by the end of the year,” says Tan.
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SGX RegCo will incorporate ISSB standards into its listing rules as mandatory disclosure requirements for SGX-listed companies. “In preparation for this process, we have set up a Sustainability Reporting Advisory Committee together 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 Tan.
The ISSB builds upon the TCFD recommendations for climate reporting. “So, issuers already using TCFD for climate reporting will find it familiar and relatively easier to apply it to the rest of their sustainability reporting,” says Tan.
One key difference, however, is that the ISSB climate-related disclosure standard mandates Scope 3 greenhouse gas emissions, or the indirect emissions throughout a company’s value chain, as a cross-industry metric.
In addition, the ISSB standard has a more detailed industry classification and disclosure topics and metrics for each industry.
Says Tan: “One of the things we will definitely consider very carefully is the pace and cadence at which we adopt the ISSB standards. This is particularly true for Scope 3 emissions. In fact, one of the purposes of the Sustainability Reporting Advisory Committee is to advise on a sustainability reporting roadmap for Singapore companies, including non-listed companies.”
He adds: “Without accurate climate reporting by non-listed companies, it will be difficult for companies to disclose their Scope 3 emissions as not all their suppliers and customers will be listed.”
Trusted information
Finally, information must also be reliable, says Tan. SGX RegCo has mandated five compulsory training for directors in policing climate information.
Climate information is becoming as material as financial information, he adds. “We could see the same kind of enforcement action being taken for material gaps and misstatements in climate disclosures. Indeed, regulators such as the US Securities and Exchange Commission (SEC) have already set up a Climate and ESG Task Force in their enforcement division.”
SGX RegCo requires issuers to at least subject the climate reporting process to internal review by their internal audit functions. “In respect of external assurance, this is still a developing area and there is a lack of globally recognised standards or frameworks in relation to assurance on sustainability and climate information. Hence, we have not mandated external assurance, though we have provided further guidance in our Sustainability Reporting Guide for issuers that do conduct external assurance,” says Tan.
The International Auditing and Assurance Standards Board announced last month that it will propose new sustainability assurance standards for public comment around the second half of 2023.
Tan says: “A couple of years back, I spoke about the dangers if corporate accounts cannot be relied upon. The very same risk affects sustainability disclosures. How should we approach the assurance of ESG information in a way that avoids the pitfalls of a lack of trust? This is something that I’m sure will be the subject of many discussions going forward. On our part, we will certainly keep a close eye on this space.
Photos: Albert Chua/The Edge Singapore
