Under fresh requirements announced recently by the Singapore Exchange (SGX), all listed companies will need to disclose their sustainability practices or explain why they have not done so. Taking effect from Dec 31, 2017, these changes have been applauded by sustainability-minded stakeholders.

The SGX has joined the list of other exchanges that are early movers in implementing the change. The Johannesburg Stock Exchange, the Stock Exchange of Hong Kong, Bursa Malaysia, the Australian Securities Exchange and the Toronto Stock Exchange are among those requiring their listed companies to report on sustainability in some form.

Given the unique role stock exchanges can play in capital allocation, and their mandate to promote good corporate governance and market stability, many are following this trend.

Furthermore, investor interest in material non-financial disclosures has also been growing over the last few years, as demonstrated by the growth of investor networks such as the Principles for Responsible Investment (PRI).

This growth in non-financial data reporting can also be measured by the increase in companies using the Global Reporting Initiative (GRI) guidelines over the last decade.

By 2015, GRI was being used by 72 per cent of the 4,350 global companies surveyed in a KPMG study.

Many publicly listed companies in Singapore reporting on sustainability using the GRI guidelines are asking how the new SGX requirements affect their reports. While the SGX requirements are closely aligned with the most recent G4 iteration of the GRI, there are some noteworthy differences.

Perhaps the most apparent difference is that in GRI, a statement on sustainability and a verification of material aspects is needed from the "most senior decision maker", which is often the CEO or a member of the board.

Unlike the GRI, SGX requires the board itself, not just a representation of the board, to state that they have "considered sustainability issues as part of its strategic formulation, determined the material ESG factors and overseen the management and monitoring of the material ESG factors".

 

What it means for the board

The board will need to consider if the company's sustainability vision and strategy align with its business vision and strategy.

In addition, they should verify that sustainability governance is fully integrated into existing governance structures.

The boards would also want to put in place robust reporting lines to ensure effective management and monitoring of ESG risks and opportunities.

It is well accepted that sustainability good practice includes fully embedding sustainability into the company's business.

By ensuring the integrity and competitive positioning of sustainability information published, boards can use their reports to communicate their management of risks and long-term value.

Companies will only maximise the value that sustainability can bring to the business if it is fully integrated and this SGX component ensures that this is done.

A second notable difference is that the SGX requirements ask companies to disclose their performance targets for the "forthcoming year" for every ESG factor identified as material.

Under GRI, targets are touched on, but not in great detail and are not required for every material aspect for the upcoming 12 months.

The introduction of targets encourages companies not only to disclose, but commit to an action plan to manage their impacts year on year. This again safeguards the benefits that reporting provide by ensuring that companies act on risks and opportunities identified in a timely and effective fashion.

Another difference is in the frequency of reporting.

GRI rules do not stipulate the frequency of reporting, whereas SGX requires an annual report that is produced within 5 months of the end of the company's financial year (companies have been given the option of extending this deadline to 12 months for their first SGX-compliant report).

By completing this annual health-check, companies can continue to monitor their performance, identify any new opportunities and avoid any new risks. Urging annual reporting remains in line with SGX's aspiration to get the most out of sustainability reporting.

While the end of 2017 seems far away, starting early not only promotes timely compliance, but will provide companies with more time to understand how the new processes involved can better serve their business interests.

The article is contributed by Ian Hong, Partner, Sustainability and Advisory Assurance, KPMG in Singapore. The views expressed here are his own.