Keeping up to speed with Singapore ESG regulations

Singapore’s regulations on environmental, social and corporate governance (ESG) are rapidly evolving and companies need to keep up to speed.

Q: What ESG disclosure requirements have been implemented in Singapore?

A: Listed companies must integrate climate reports into their annual sustainability reporting on a “comply or explain” basis. This means complying with certain regulations, or explaining why not. Under the Singapore Exchange (SGX) Mainboard Rules, a sustainability report must be issued no later than four months after the financial year end, or no later than five months, if the company has conducted external assurance. Such reporting is mandatory for listed companies in the financial, energy, agriculture, food and forest sectors from the 2023 financial year onwards, extending to listed companies in the transportation, materials and building sectors from the 2024 financial year.

Listed companies must also set and disclose their board diversity policy in annual reports, with gender specified as an aspect of diversity that should be encapsulated. The policy should cover skills, experience and any other relevant aspects of diversity that can serve the needs and plans of the organisation, and indicate targets for achieving such diversity, accompanying plans and timelines.

The Monetary Authority of Singapore (MAS) published a circular in July 2022 on the Disclosure and Reporting Guidelines for Retail ESG Funds, which requires these funds to provide clear disclosures on their ESG investment objectives and approach, along with relevant criteria, metrics and regular updates on how these objectives are being met.

Separate MAS Guidelines on Environmental Risk Management require banks, asset managers and insurers to implement risk management practices and provide regular disclosures. Generally, such organisations must identify, assess and monitor material environmental risks and mitigate their exposure to such risks. Stemming from this, the Green Finance Industry Taskforce published a set of recommended and best practices in its Handbook on Implementing Environmental Risk Management.

Q: What are the current updates or trends in the ESG space in Singapore?

A: One key area to watch is the carbon exchange and marketplace co-established between the SGX, various banks and Temasek Holdings, known as Climate Impact X (CIX).

Singapore does not adopt a cap-and-trade mechanism. Currently, carbon tax is implemented as an effort to reduce greenhouse gas emissions. From 2024, carbon credits will be allowed to replace up to 5% of the amount of greenhouse gas emissions subject to carbon tax. CIX is part of the government’s efforts to grow Singapore’s carbon services ecosystem, providing a platform for various players to connect and create meaningful partnerships with enablers such as experts, carbon footprinting firms, technology providers and financiers.

Greenwashing has become another issue of intensified concern and regulation, due in part to inconsistent ESG taxonomies across jurisdictions. The MAS has indicated that mandatory disclosure requirements for financial institutions will be set up once a global baseline sustainability reporting standard is established by the International Sustainability Standards Board, expected towards the end of the second quarter of 2023.

Q: What challenges are envisaged for businesses trying to comply with ESG in Singapore?

A: The biggest challenge is that some entities still think that ESG remains a “feel good” concept and are waiting for the market to develop before taking more concrete action. This delaying is not ideal because transition costs and potential business disruption need to be properly and expeditiously managed or there may be significant financial and regulatory downsides.

Helmsman has been working in this space with a diverse range of clients in shipping, bunkering, banking and finance, commodity trading and non-profits looking at carbon reduction projects.

To help clients achieve focused and useful approaches, it is important to understand their specific business, the regulations surrounding ESG compliance in Singapore and, most importantly, the operating environment and current state of adoption in each different sector.

Q: How can businesses integrate ESG into their operations to meet the disclosure requirements?

A: This involves seeing ESG as part of the business rather than a compliance cost. It’s a long journey that begins with exposure to what ESG really means, and the longer the runway a company has, the better placed it will be to consider various options. Companies need to realise that ESG is about an entire ecosystem that involves suppliers, vendors, and critically, customers and users.

The boards of companies must ensure they have a sufficient knowledge of ESG. Management must have a clear and defined, time-specific implementation strategy and budget for transition that can be periodically checked against for accountability and adjusted if necessary.

Lynette Koh is a director at Helmsman in Singapore