[vc_row][vc_column][vc_column_text]Since the Paris Agreement, an international treaty on climate change, came into force on 4 November 20161, there has been increasing pressure for countries to meet the overall goal to limit global warming to below 2 degrees Celsius compared to pre-industrial levels.
As part of Singapore’s commitment to the Paris Agreement, the country has aimed to reach net zero emissions by 2050.
The Singapore Government has taken the lead towards sustainable development under the Singapore Green Plan 20302. One of the key initiatives undertaken by the Singapore government is to import around 30% of our electricity from low carbon energy sources by 20353. Since 23 June 2022, Singapore imports up to 100 megawatts of renewable hydropower (renewable energy) from Laos4. With our government taking the lead at the country level, this would spur our private sector’s responses to incorporate sustainability practices into our businesses.
Globally, companies are facing pressure from their regulators to mitigate climate risks and incorporate sustainable practices into their business strategies.
Not only that, customers and investors are seeking companies they buy from or invest in, to justify their sustainability efforts. Hence companies need to deal with corporate responsibility in sustainability so as to maintain customer and investor trust in the long run.
>>> Corporate Sustainability Responsibility needs to be embedded in the entire value chain
But we also recognize that the journey for all businesses to meet global and/or local standards of the Environmental, Social and Governance (“ESG”) pillars is no mean feat, whether as a supplier, manufacturer, distributor / retailer or customer. There is currently no one single standard that is mandated for use by everyone. Local standards in different countries also differ or are still in the works.
What is ESG?
ESG means Environmental, Social and Governance, where specific and measurable criteria are set in the following areas:
- Environmental: focus is on protecting our environment. Focus areas include climate change, pollution, carbon and greenhouse gas emissions.
- Social: focus is on human interdependencies and human relationships. Focus areas include gender diversity and mental health.
- Governance: focus is on the governance processes to run an organization. Focus areas include board composition and hiring practices.
The discussion below centres on the Environmental pillar of ESG, which is a big topic on its own. Let’s look at some of the ESG standards that your company can look into as a start to build in sustainable practices as part of your business strategy and risk management:
Global ESG Standards
There are various ESG frameworks and disclosure standards set by different bodies:
- Global Reporting Initiative (“GRI”), a non-profit institution: sets the GRI Standards (global framework) covering topics such as biodiversity, tax, waste and emissions5;
- Task Force on Climate-related Financial Disclosures (“TCFD”), task force set up by the Financial Stability Board: published climate-related financial disclosure recommendations structured around four areas that represent core elements of how organizations operate – governance, strategy, risk management, and metrics and targets6.
- Sustainability Accounting Standards Board (“SASB”), a non-profit institution: sets the SASB Standards that focus on ESG issues expected to have a financially material impact on a company. These standards can be used by companies as a tool for implementing the principle-based framework recommended by TCFD7.
- International Sustainability Standards Board (“ISSB”), global standard setting board: ISSB would be delivering a global baseline of sustainability-related disclosure standards to provide investors and other capital market participants with information about companies’ sustainability-related risks. A draft was issued on 31 March 2022 for consultation, with target issuance of the new standards by end 20228.
ESG Standards in Singapore
For listed companies,
Singapore Exchange (“SGX”) mandates listed companies to issue an annual sustainability report. SGX also introduced a phased approach for mandatory climate reporting by listed companies based on TCFD’s recommendations, starting from financial year commencing between 1 January 2022 and 31 December 20229.
For the financial services industry,
The Monetary Authority of Singapore (“MAS”) convened the Green Finance Industry Taskforce in 2021, which published an implementation guide for climate-related disclosures by financial institutions. This guide adopted the TCFD’s recommendations. MAS also issued the Guidelines on Environmental Risk Management for banks, asset managers and insurers which took effect in June 202210.
For the general industries,
SGX RegCo and the Accounting and Corporate Regulatory Authority recently set up a committee to advise on a roadmap for sustainability reporting by Singapore-incorporated companies. This would include providing inputs on the suitability of international sustainability reporting standards for implementation in Singapore11.
Where do businesses stand now?
Some industries such as energy and transportation are moving faster than others in adopting ESG standards. The financial services industry is also getting up to speed to adopt TCFD recommendations, among other guidance that can be applied to their sub-sector (i.e. banks, asset managers, insurers).
As a company, you would already be impacted from the ESG type of questions coming from banks or investors as they are setting expectations on your sustainability practices. This could affect your ability to borrow from banks and seek capital injection from investors in future.
It is therefore critical for any company to be able to learn and embrace ESG in your business practices.
It is not going to be easy, but we can get there.
LEARN MORE in our articles on ESG terms to kickstart your
Corporate Sustainability Responsibility journey!
Footnotes
1/ United Nations Climate Change – The Paris Agreement: The Paris Agreement | UNFCCC
2/ SG Green Plan: www.greenplan.gov.sg
3/ Speech by Minister Gan Kim Yong at Singapore Energy Lecture (25 October 2021): www.mti.gov.sg
4/ Media Release (23 June 2022) by Energy Market Authority: Singapore commences first renewable energy electricity import via regional multilateral power trade: www.ema.gov.sg
5/ GRI website: www.globalreporting.org
6/ TCFD website: www.fsb-tcfd.org
7/ SASB website: www.sasb.org
8/ IFRS website for information about ISSB: IFRS – International Sustainability Standards Board
9/ Sustainability Reporting by SGX: www.sgx.com
10/ Guidelines at MAS website: www.mas.gov.sg
11/ Media Release (21 June 2022) by SGX: ACRA and SGX RegCo set up a Sustainability Reporting Advisory Committee: www.sgx.com[/vc_column_text][/vc_column][/vc_row]
