Navigating the ESG Reporting Landscape in Singapore

Experts from Morgan Lewis offer a comprehensive look into the dynamic and continuously evolving ESG regulatory landscape in Singapore.

As international momentum around sustainability accelerates, Singapore has taken a proactive stance by implementing a robust regulatory framework. This framework is designed to achieve three key objectives:

The Singapore government has focused on sustainable development as a policy priority well before it became a key global concern. It has generally adopted a long-term approach, with gradually increasing regulatory increases, it initially refrained from overly prescriptive measures, which allowed companies the appropriate time and incentives to adapt to evolving sustainability standards.

Though scoring strong on several governance metrics, Singapore companies were slower to embrace environmental and social initiatives. This could be attributed to several factors:

  • Ownership structure: A large number of government-linked or family-owned companies have less pressure from institutional investors to prioritise ESG.
  • Data scarcity: Historical and comparable ESG data was limited, making it difficult to benchmark progress.
  • Limited awareness: The link between strong ESG integration and long-term investment performance was not fully understood.
  • Flexible regulations: The initial regulatory approach offered more leeway than in other countries.

However, Singapore’s ambition to become a leading sustainable finance hub has prompted a shift in approach. The government and other regulatory bodies are increasingly promoting ESG initiatives, and the guarded attitude towards ESG regulations and reporting is gradually evolving.

The SGX and Sustainable Reporting

Since 2016, the Singapore Exchange (SGX) has adopted a phased approach to mandatory climate disclosures, based on the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations, to ensure listed issuers are well-equipped to navigate the evolving landscape.

Under this approach, listed issuers must report:

  • Material ESG factors: This involves clearly defining and explaining the environmental, social, and governance (ESG) factors most relevant to their business and the process used to identify them.
  • Choice of framework: Companies can choose a sustainability reporting framework that best suits their industry and business model, allowing for flexibility and relevance.
  • Detailed performance and targets: Companies need to outline their policies, practices, and year-on-year performance for each material ESG factor, setting specific targets for future improvement.Board oversight: A board statement is required, confirming that sustainability issues are considered in company strategy and that oversight of material ESG factors is in place.
  • TCFD-aligned climate disclosures: Following TCFD’s four pillars (governance, strategy, risk management, and metrics & targets), companies must detail their approach to climate-related risks and opportunities.

Phased implementation of climate disclosures

If an issuer is unable to report on any of these primary components, it is required to explain what it does instead and its rationale. However, from 1 January 2023 to 31 December 2023, climate related disclosures are mandatory for issuers in the (a) energy industry, (b) agriculture, food, and forestry products industry, and (c) financial industry.

From 1 January 2024 to 31 December 2024, mandatory climate related disclosures will extend to the (i) materials and building industry, and (ii) transportation industry.

The SGX offers a list of 27 recommended core ESG metrics for easy reference, simplifying sustainability reporting. It also has produced a dedicated Sustainability Reporting Guide, alongside other resources, to guide companies through the process.

The SGX is proactively encouraging and enabling its listed companies to embrace sustainability reporting and integrate it into their long-term strategies. This commitment positions Singapore as a leader in the transition towards a more sustainable future.

MAS Guidelines on Environmental Risk Management

Since launching its Green Finance Action Plan (GFAP) in 2019, the Monetary Authority of Singapore (MAS) has taken steps to position Singapore as a green finance hub in Asia. At the core of this strategy lies the implementation of increasingly prescriptive Environmental Risk Management (ERM) Guidelines for banks, insurers, and asset managers. These guidelines require:

  • Integration of environmental considerations into business strategies and plans.
  • Development and active monitoring of environmental risk management frameworks and policies.
  • Regular disclosure of environmental risks and mitigation strategies.

For asset managers, the guidelines apply to those with discretionary investment authority. They must:

  • Develop sector-specific guidance for high-risk sectors.
  • Retain overall responsibility for ERM, even when delegating tasks.

Supplementing these guidelines, the Green Finance Industry Taskforce (GFIT) has published a Handbook on Implementing Environmental Risk Management. This resource includes best practices and aligns with recommendations from the TCFD for better climate-related financial disclosures.

Disclosure and Reporting Guidelines for Retail ESG Funds

To mitigate greenwashing in the growing retail ESG fund market, MAS issued in 2022 a circular on disclosure and reporting guidelines for retail ESG funds, which came into effect on 1 January 2023. Following this guidance, these funds must now:

  • Employ inclusive sustainable investment strategies.
  • Invest at least two-thirds of their net asset value responsibly.
  • Comply with specific disclosure and reporting requirements.

In the same year, the Singapore Ministry of Finance released the Singapore Green Bond Framework. This framework aligns with international best practices and guides public and private sector issuers in financing environmentally conscious projects that support the Singapore Green Plan 2030. MAS has been actively promoting green and transition financing solutions and markets, which includes its existing grant schemes for sustainable bonds and loans to offset the expenses incurred for review of sustainable debt instruments.

Through these comprehensive initiatives, MAS is demonstrating its commitment to fostering a responsible and transparent green finance ecosystem in Singapore.

Project Greenprint: Building a Transparent ESG Ecosystem Through Technology

Launched in 2020 by MAS, Project Greenprint leverages technology and data to enhance transparency in the ESG landscape, utilizing several key platforms:

  • ESGpedia Registry: This blockchain-powered platform aims to become a comprehensive record of ESG data from various certification bodies and verified sources across different sectors. It tackles greenwashing by facilitating the tracking and analysis of sustainability commitments. Currently, it focuses on agri-food, building & construction, transport & logistics, carbon credit, and renewable energy sectors.
  • ESGenome Portal: This platform helps companies improve access to their ESG data. Companies can upload data mapped against various sustainability standards and frameworks, granting authorised recipients consent-based access.
  • Data Orchestrator: This platform aggregates sustainability data from multiple sources, including ESG data providers, utilities, the ESG Disclosure Portal, and other sectoral platforms. Authorised recipients can access this data with consent for deeper analysis to inform investment and financing decisions.
  • Green Taxonomy: Developed by the Green Finance Industry Taskforce (GFIT), this taxonomy defines activities classified as “green” and “transitioning towards green.” Notably, it includes a “traffic light” approach, categorizing activities as green, amber (transition), or red (harmful) based on their climate change impact. This innovative approach has gained traction globally, including in ASEAN and the EU.
  • Greenprint Marketplace (launching 2023): This platform connects green fintech and green technology providers with investors, financial institutions, and corporates, fostering partnerships and innovation in the sustainable finance sector.

Project Greenprint is paving the way for a more transparent and data-driven ESG ecosystem in Singapore and beyond.

Singapore Sustainable Finance Association

Earlier this year, MAS launched the Singapore Sustainable Finance Association (SSFA) with the goal of fostering collaboration between the financial and non-financial sectors to promote the growth of the sustainable finance ecosystem in Singapore and support the low carbon transition and sustainable economic growth within the region.

The SSFA includes representatives from financial institutions, financial industry associations, corporates and service providers such as ESG rating agencies.

Conclusion

As international momentum around sustainability accelerates, Singapore has taken a proactive stance by implementing a robust regulatory framework. This framework is designed to achieve three key objectives:

  • Cultivate credible sustainable financial products and markets: This includes combating greenwashing by setting clear standards for green finance offerings and ensuring their integrity.
  • Encourage (and where necessary, mandate) responsible ESG practices: The framework incentivises companies and financial institutions to integrate ESG considerations into their operations, aiming for positive environmental and social impact.
  • Promote standardised ESG disclosures: Facilitating transparent and comparable ESG reporting fosters greater investor confidence and enables better assessment of sustainability performance across the market.

Singapore’s regulatory landscape in this sphere is dynamic and continuously evolving. Companies operating in Singapore will want to monitor these developments and ensure they are well-equipped to navigate the changing environment, allowing them to remain at the forefront of responsible and sustainable business practices.

 —

By George Cyriac, Widya Rianita, and Yujie Zhang at Morgan Lewis in Singapore. 

 

To Top
Share via
Copy link
Powered by Social Snap