Sustainability Reporting guidance – Singapore

Posted on January 25, 2011 by

Recognizing the fact that more and more investors are paying attention to issues involving environmental, social, and governance (ESG) issues, Singapore Exchange (SGX) has recently issued consultation paper including a draft policy statement describing sustainability reporting. SGX has thus become the first securities exchange in Asia to encourage listing companies to begin sustainability reporting. Though the SGX suggests voluntary sustainability reporting, the announcement is significant given the market capitalization of SGX, which stands at around 480 billion USD. Singapore ranks highly on indices that measure accountability, transparency, innovation, and competition. If Singapore can encourage companies to issue sustainability (or corporate social responsibility) reports, other exchanges and regulatory agencies around the world can follow Singapore’s lead.

Key features of the documents including the Draft Policy and the Draft Guidance for reporting are as under

Draft Policy

The reporting will not be mandatory – but the policy statement notes that it is expected to generate awareness of the importance of this issue. Sustainability reporting in this context covers environmental, social and governance information. The policy has emphasized on how these three areas impact on organization’s performance, activities and outcomes in an integrated manner.

The key components of sustainability reporting encompass the principles as outlined

1. Comprehensive risk management framework that integrates environmental and social aspects in addition to the governance considerations in the company’s strategy

2. A performance measurement system that allows a company to benchmark its sustainability performance against stated objectives and allows for comparison with other companies

3. Disclosure of its sustainability policy, including broad assessment of key risks, performance data and other material information.

The role of board of directors in integrating environmental, social and governance considerations into company’s strategy is emphasized in the policy draft.

Draft Guide to Sustainability Reporting for listed companies

The guide does strongly encourage all listed companies to consider sustainability reporting as an integral part of good corporate governance. The following classes of companies are emphasized as the ones for which the sustainability reporting is particularly relevant

1. Companies operating in industries that are susceptible to environmental risks. This group includes oil & gas, mining & metals, raw material processing

2. Companies operating in industries that produce significant pollutants such as chemical and apparel industries

3. Heavy users of natural resources such as palm oil producers, forestry companies

4. Companies that are part of a supply chain where end customers demand that suppliers behave responsibly – this class includes suppliers to companies such as Ford and Wal-mart which are increasing focussing on sustainability efforts.

The guide suggests that companies should consider reporting on sustainability in their annual reports as well as on a continuing disclosure basis. In near future, sustainability issues are likely to become part of disclosure within listing manual in cases where these issues are likely to have a material effect on the price or value of company’s securities. Even in the cases where the mandatory linkage to stock market requirement does not exist, the guide suggests that companies should make disclosure where sustainability issues have wider and long-term implications on organizational performance.

The stock exchange has indicated in the draft guide that the applicants seeking listing will be expected to disclose material information relating to sustainability risks that affect applicant’s business and operations. Such disclosure is expected to include impact assessment and description of mitigation procedures.

The companies should consider the following matters when reporting on sustainability

1. Relevant laws, regulations, international agreements, or voluntary agreements with strategic significance to the organization and its stakeholders

2. Sustainability Policy

3. Risk management policies and processes arising from environmental and social concerns

4. Main topics of interest and future challenges for the specific industry sector in which the company operates as observed by peers and competition

5. Assessment of sustainability impacts, risks or opportunities

Additionally, the company is expected to take into account unique industry concerns, risks ad company specific characteristics in determining sustainability disclosure. Currently the SGX does not advocate any standards, but hints that the Global Reporting Initiative’s ESG reporting guidelines is the way forward

Contact Agneya Carbon Ventures for knowing more about GRI based sustainability reporting .

Posted in: Sustainability