SGX RegCo issues consultation paper on incorporation of ISSB standards in sustainability reporting: Allen & Gledhill

4 April 2024

On 7 March 2024, Singapore Exchange Regulation (“SGX RegCo”) issued a consultation paper titled “Sustainability Reporting - Enhancing Consistency and Comparability”, inviting comments on details of how the International Sustainability Standards Board (“ISSB”) standards (“ISSB Standards”) are to be incorporated into its sustainability reporting (“SR”) rules for climate-related disclosures in line with the Sustainability Reporting Advisory Committee’s (“SRAC”) recommendations announced on 28 February 2024. The SRAC was set up by the Accounting and Corporate Regulatory Authority and SGX RegCo.

SGX RegCo is seeking feedback on proposed changes to the Listing Rules (Mainboard), the Listing Rules (Catalist) (together, “Listing Rules”), and its Sustainability Reporting Guide (which provides guidance to issuers on reporting matters), to implement the recommendations. The consultation closes on 5 April 2024.

For more details on the SRAC’s recommendations, read our article “ACRA, SGX RegCo respond to feedback from consultation on Sustainability Reporting Advisory Committee recommendations: Mandatory climate reporting for listed issuers and large non-listed companies”.

Key consultation areas

SGX RegCo seeks feedback on the following:

Alignment with ISSB Standards: (a) Proposed amendments to the Listing Rules and the Sustainability Reporting Guide to incorporate the ISSB Standards in the SR regime, and (b) whether an issuer should only be required to make a statement that its climate-related disclosures are in compliance with the ISSB Standards as applicable for climate-related disclosures in its sustainability report from the financial year commencing on or after 1 January 2027, and that in the interim, whether the issuer should describe in its disclosures that its climate-related disclosures are prepared with reference to the ISSB Standards.
Move from “comply or explain” basis to mandatory basis for primary components: Whether the SR regime for reporting on the primary components of a sustainability report should be enhanced from a “comply or explain” basis to a mandatory basis.
Reporting timeframe: Whether the sustainability report should be issued together with the annual report from the financial year commencing on or after 1 January 2026 and whether the first sustainability report for a newly listed issuer should be in respect of its first full financial year after listing.

Background

Sustainability reporting was introduced to SGX-listed issuers on a voluntary basis in 2011. It was made mandatory in 2016 with description of the primary components on a “comply or explain” basis.

Climate reporting based on the recommendations of the Task Force on Climate-related Financial Disclosures (“TCFD”) was mandated for financial year (“FY”) 2022 on a “comply or explain” basis for all issuers, and FY 2023 and FY 2024 for issuers in certain carbon intensive industries, on a mandatory basis in phases.

The requirement for issuers to issue a sustainability report for each FY is set out in the Listing Rules (“SR regime”). The Listing Rules provide that the sustainability report must describe the issuer’s sustainability practices with reference to six primary components, namely, (1) material ESG factors, (2) climate-related disclosures consistent with the recommendations of the TCFD, (3) policies, practices, and performance, (4) targets, (5) sustainability reporting framework, and (6) a statement from the board of directors (“Board”) and associated governance structure for sustainability practices (“primary components”).

The SR regime also comprises a sustainability reporting guide which provides guidance to issuers on reporting matters (“Sustainability Reporting Guide”).

Align with ISSB Standards

SGX RegCo is proceeding to implement the SRAC recommendations to incorporate the ISSB Standards in respect of climate-related disclosures as part of the Listing Rules, and is seeking feedback on the following proposed amendments to the Listing Rules and Sustainability Reporting Guide:

To align the section on balanced reporting in the Sustainability Reporting Guide with the ISSB Standards;
While SGX RegCo will not prescribe that the ISSB Standards are to be used for sustainability-related disclosures beyond climate-related disclosures at this stage, issuers are encouraged to do so as the ISSB Standards were developed as a comprehensive global framework of sustainability-related financial disclosures;
Issuers should refer to both ISSB’s “IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information” and “IFRS S2 Climate-related Disclosures” in preparing climate-related disclosures, including any (permanent) structural and (temporary) transition reliefs;
Issuers should disclose Scope 1, Scope 2, and Scope 3 greenhouse gas (“GHG”) emissions and the measurement approach;
Issuers should disclose industry-based metrics and cross-industry metric categories relevant for climate-related disclosures;
For climate-related disclosures, an issuer may only make reference to other reports published by the same entity (and not the sustainability reports of its operating subsidiaries), in alignment with the ISSB Standards; and
In relation to internal review, if an issuer has reviewed that certain or all key aspects of the sustainability report have been externally assured, the issuer can determine that no further internal review on such aspects of the sustainability report are required under a risk-based approach. As the International Standards for the Professional Practice of Internal Auditing has been replaced by the Global Internal Audit Standards which were released in January 2024, references to the applicable standards will be updated.

In response to concerns about making a statement that the climate-related disclosures are “in compliance with the ISSB Standards” as applicable for climate-related disclosures in the initial years of adopting the ISSB Standards, SGX RegCo proposes that in the initial years of preparing climate-related disclosures in accordance with the ISSB Standards, an issuer may describe in its disclosures that the climate-related disclosures are prepared “with reference to the ISSB Standards” as applicable for climate-related disclosures. In preparing these disclosures, an issuer is expected to adhere to all requirements in the ISSB Standards as applicable for climate-related disclosures. It is proposed that an issuer will only be required to make a statement that its climate-related disclosures are “in compliance with the ISSB Standards” as applicable for climate-related disclosures in its sustainability report from the FY commencing on or after 1 January 2027.

“Comply or explain” basis to mandatory basis for primary components

Feedback is also sought on SGX RegCo’s proposal to make mandatory the reporting on the primary components from the current “comply or explain” basis. Under the current “comply or explain” basis, if an issuer does not include any primary component of the sustainability report, it must state what it does instead and the reasons for doing so.

SGX RegCo explains that with issuers now familiar with the SR regime and maturity in reporting since 2017, it is timely to evolve the SR regime into a mandatory regime to reflect the improvements in reporting. Under the mandatory regime, issuers will still be able to tailor their sustainability disclosures to their own circumstances, for example by choosing the ESG factors most material to them and to set their own targets.

Reporting timeframe

SGX RegCo is seeking feedback on its proposal for the sustainability report to be issued together with the annual report from FY commencing on or after 1 January 2026. To give issuers more time to adapt to the new timeline, this is one year later than the requirement to provide climate-related disclosures in accordance with the ISSB Standards as applicable for climate-related disclosures.

To give additional time for newly listed issuers, SGX RegCo is also proposing that their first sustainability report issued would be in respect of their first full FY after listing. The timeline to issue the sustainability report would be that prevailing for that FY. In an example cited in the consultation paper, an issuer with a December FY-end that listed its equity securities on SGX-ST in October 2024 would need to issue its first sustainability report by April 2026.

Other updates

SGX RegCo provided the following updates in its consultation paper:

Digital reporting: SGX RegCo is not currently proposing to mandate digital filing of climate-related disclosures. Since the SRAC made its recommendation that climate-related disclosures be filed in a digital structured format to facilitate the consumption of data, ISSB has closed its consultation on the IFRS Sustainability Disclosure Taxonomy and is aiming to issue the final digital taxonomy in Q2 2024. As the climate-related disclosures may need to be filed with different regulators in the future, SGX Group will continue to work with the relevant regulators to streamline the processes of filing such disclosures.
External assurance: SGX RegCo is not currently proposing to mandate external assurance in light of the following developments and will review the developments at a future date:
- The International Auditing and Assurance Standards Board (“IAASB”) has released its proposed International Standard on Sustainability Assurance (“ISSA”) 5000, “General Requirements for Sustainability Assurance Engagements”, to serve as a comprehensive, stand-alone standard suitable for any sustainability assurance engagements. IAASB is targeting to give the final approval of the ISSA 5000 by September 2024.
- The implementation details for certain SRAC recommendations (e.g. assurance standards, registration criteria for climate auditors, and details of bridging courses) are still being finalised. A consultation will also be conducted on the relevant amendments to be made to the Companies Act 1967.
Transition plans: While disclosure of transition plans is not currently proposed to be mandated under the Listing Rules, issuers are encouraged to consider formulating transition plans to harness green and transition opportunities. SGX RegCo will continue to monitor international developments on and local adoption of transition plan-related disclosures before making any rule proposals. Recent developments include the following:
CDP, a not-for-profit charity that runs the global disclosure system for investors, companies, cities, states and regions to manage their environmental impacts, has issued a technical note to provide guidance on how companies disclosing through CDP can demonstrate that they have a credible climate transition plan in place.
- In September 2023, SGX RegCo issued a regulator’s column on developing and executing a credible climate transition plan.
- In October 2023, Monetary Authority Singapore (“MAS”) issued a set of consultation papers proposing guidelines on transition planning by banks, insurers, and asset managers. The guidelines set out MAS’ supervisory expectations for financial institutions to have a sound transition planning process to enable effective climate change mitigation and adaptation by their customers and investee companies in the global transition to a net zero economy. MAS is reviewing the responses to the consultation.