How will Sustainability Reporting Shape Singapore’s Businesses in the Future?
Table of Content
What Is Sustainability?
Sustainability is our efforts on how we take responsibility towards our future. It’s a societal goal. Sustainability and business go hand in hand thus making businesses and corporations the pivotal players in manifesting sustainability.
There are three dimensions to sustainability- environmental, social and governance (ESG).
Environmental considerations are greenhouse gas emissions, energy consumption, water consumption, and waste generation.
Social considerations are gender diversity, age-based diversity, employment, development and training, and occupational health and safety.
Governance considerations are board composition, management diversity, ethical behaviour, certifications, alignment with frameworks, and assurance of sustainability report.
Companies that do not consider these environmental, social and governance risks may face unforeseen financial risks and investor scrutiny.
Sustainability reporting is the disclosure and communication of these above environmental, social, and governance (ESG) goals—as well as a company’s progress towards them.
A good sustainability report should make it possible to understand a proactive and ambitious vision, resolutely oriented towards the future, supported by sustainability objectives that project the company towards years to come.
Mandate by the Singapore Exchange (SGX)
Annual sustainability report is a mandatory requirement under SGX regulations.
Primarily, sustainability report must include the following components:
- Material ESG factors
- Climate-related disclosures consistent with the TCFD recommendations
- Report should set out the issuer’s targets for the forthcoming year in relation to each material ESG factor identified.
- Selecting an appropriate sustainability reporting framework as per the industry and business model.
- Board statement and associated governance structure for sustainability practices
Why is Sustainability Reporting important for your business?
Sustainability endeavors often make good business sense, promising to deliver revenue gains, cost savings, and other benefits that lift enterprise value.
In a McKinsey global survey published in 2020, respondents across the spectrum say they would be willing to pay about a 10 percent premium for a company with an overall positive record on ESG issues over a company with an overall negative record, if considering a hypothetical opportunity to acquire a new business.
A majority of surveyed executives and investment professionals (57 percent) agree that ESG programs create shareholder value.
A 2019 survey of global real estate investors by the United Nations Environment Programme Finance Initiative (UNEP FI), REALPAC and Bentall Kennedy, found that 80% of investors consider building sustainability benchmarking data in investment decisions.
There have been empirical studies in the Singapore market to suggest that sustainability reporting is positively related to a firm’s market value.
Similarly, a study by the London Business School and Harvard Business School, found that over a period of 18 years, companies that embraced sustainability significantly outperformed those that didn’t in terms of market returns. They also performed better in terms of return-on-equity (ROE) and return-on-assets (ROA).
Things to note in a sustainability report-SGX Guidelines
1. Look out for the material ESG factors and understand how are they important to the company, and the risks the Company is facing.
2. Compare the targets and performance against those from the previous year, or the expected targets and performance from year to year to have a better overview of the Company.
3. Check if the management of ESG risk is distinct from other non-ESG risks faced by the company as part of its disclosure on the overall risk management of the company.
4. Look for what the company discloses about the financial impacts of ESG actions. They may affect items such as investment, capital and cash flow.
5. Take into account the sustainability of the company’s value chain, from suppliers through to its customers to understand the company’s present and future prospects.
6. Do compare your company’s report with those of other companies in the same sector.
7. Pay attention to metrics published as they are indicators of what the company is tracking in managing its material ESG factors.
Sustainability is a journey, not a destination. Companies should build credible strategies, execution plans and actions to future-proof revenue, market share and capital raising, whilst capturing opportunities that come with a generational and seismic shift towards a sustainable economy.
Customers and employees care about how ESG factors are managed. For example, more than half of Singapore consumers prefer sustainable brands as they believe businesses have a responsibility to prevent environmental damage
Poor management of ESG factors can hurt a company’s reputation and brand, ultimately affecting business and financial performance.
- A food company was forced to cease operations of an outlet for 2 weeks due to unhygienic conditions.
- A construction company had to exit from a contract before project completion due to poor workplace safety as a structure the company had been working on had collapsed, killing one worker and injuring several others.
- Another construction company was fined $130,000 for multiple safety lapses.
Governments all over the world and in Singapore are introducing policies on ESG. For example
- From 2019, a carbon tax of $5 per tonne of Greenhouse Gas (GHG) emissions will be applied to large emitters upstream,
- Emitters of 2,000 tonnes or more will be required to report on their emissions annually.There is also a growing desire among Singapore consumers to verify the sustainability credentials of the products they buy .
Many investors care about how ESG factors are managed. These investors use ESG information as an indication of the quality of management; hence making sustainability reporting not just a regulatory requirement but having a role in improving the financial performance of the company as well.
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Frequently Asked Questions
SGX is flexible and allows companies to either publish their reports online or print hard copies.
Companies have up to 12 months from the end of the financial year to produce their first Sustainability Reports, rather than the usual five months, if they choose to prepare the Sustainability Reports independently from the Annual Report.
As an exchange and market regulator, SGX believes that investors should have access to relevant information when making investment decisions. SGX-listed companies will consider and measure how their businesses interact with the environment (including climate change) by requiring issuers to integrate sustainability information into their annual reporting and produce an annual sustainability report, among other things. Investors will have a better understanding of the company, enabling them to make better investment decisions.
The outcomes also help to advance sustainable development in the communities where businesses operate.
Applicants are not allowed to receive funding from more than one government grant scheme for the same project. However, applicants can still seek funding from other non-government sources. Applicants will be required to declare their funding sources in the application form.