SGX consults on mandatory climate and board diversity disclosures

9 September 2021

In a move to help listed issuers better address immediate and increasing interest in sustainability amid urgent demand for such information from lenders, investors and other key stakeholders, Singapore Exchange (“SGX”) issued two consultation papers on 26 August 2021 seeking feedback on proposals relating to disclosure of climate-related information, assurance of sustainability reports and sustainability training for directors. Proposals are also made to mandate disclosures on board diversity.

To implement these changes, amendments will be made to the SGX-ST Listing Rules (Mainboard) and the SGX-ST Listing Rules (Catalist) (together “Listing Rules”).

If implemented, SGX proposes that issuers will be required to adopt these enhancements for their sustainability reports and annual reports for financial years commencing on or after 1 January 2022.

Both consultations close on 27 September 2021.

Mandatory climate-related disclosures based on TCFD Recommendations

SGX proposes mandatory climate-related disclosures (“climate reporting”) under a phased approach whereby issuers initially provide climate-related disclosures consistent with the recommendations of the Task Force on Climate-related Financial Disclosures (“TCFD”) (“TCFD Recommendations”) on a “comply or explain” basis. After an appropriate transition period, issuers in some sectors for which reporting would be most impactful will be required to provide climate-related disclosures on a mandatory basis. Thereafter, more sectors of issuers will sequentially be required to do so.

It is proposed for the roadmap towards mandatory climate-related disclosures in issuers’ sustainability reports to be implemented sequentially in stages:

For financial year commencing Baseline reporting practice Calendar year in which report published
1 January 2022 All issuers to adopt climate reporting on a “comply or explain” basis. 2023
1 January 2023 Climate reporting will be mandatory for some sectors of issuers while “comply or explain” will remain the approach for the others. 2024
1 January 2024 More sectors of issuers will adopt mandatory climate reporting with the rest doing so on a “comply or explain” basis. 2025


(Source: SGX Consultation Paper on “Climate and Diversity: The Way Forward”)

Prioritisation of issuers for mandatory climate-related disclosures

The issuers will be prioritised for mandatory climate-related disclosures based on their industry classification to facilitate comparability between issuers in the same industry. Sectors with the highest climate-related risks should be prioritised as this would be most impactful. Taking reference from the TCFD, SGX notes that the TCFD has identified the financial industries as well as certain non-financial industries as potentially most affected by climate change and the transition to a lower-carbon economy. The non-financial industries are (a) agriculture, food and forest products, (b) energy, (c) materials and buildings, and (d) transportation. The TCFD has also published sector-specific guidance on implementing the TCFD Recommendations.

SGX also seeks views on alternatives for prioritisation of issuers for mandatory climate-related disclosures, such as a “size-based” approach which may be pegged to the issuer’s listing board (i.e. Mainboard or Catalist), market capitalisation or other thresholds.

Proposed key amendments to Listing Rules

The following amendments and enhancements to incorporate the TCFD Recommendations in the Listing Rules are proposed:

  • Requiring issuers, in identifying the material environmental, social and governance (“ESG”) factors, to take into consideration the relevance or impact of these factors to financial planning, in addition to the business, strategy, business model and key stakeholders;
  • Enhance the Board statement to specifically provide that the Board has considered sustainability issues in the issuer’s business and strategy; 
  • A description in the sustainability report of the roles of the Board and the management in the governance of sustainability issues; and 
  • New sections on “climate-related disclosures” and “policies, practices and performance” in the sustainability reporting guide of the Listing Rules (“Sustainability Reporting Guide”), which will set out the following requirements for issuers:
    • Disclose the Scope 1 and Scope 2 greenhouse gas (“GHG”) emissions, and if appropriate, the Scope 3 GHG emissions. An internationally accepted GHG accounting system, such as the GHG Protocol, should be used to measure the GHG emissions. The methodologies and emission factors used should also be disclosed.
    • Conduct climate-related scenario analysis to describe how resilient strategies are to climate-related risks and opportunities. In particular, issuers should take into consideration a transition to a lower-carbon economy consistent with a 2°C or lower scenario, and where relevant, scenarios consistent with increased physical climate-related risks.
    • Devise policies and processes to adequately and effectively manage the risks associated with the identified material ESG factors, and describe key features of mitigation.
    • Integrate ESG risk management structures into existing enterprise risk management structures or apply existing enterprise risk management structures to ESG risk management structures.

A phased approach over a three-year period will be suggested in the Sustainability Reporting Guide for issuers to progressively adopt the climate reporting practices.

Proposed ESG metrics

SGX will not be prescribing specific sustainability reporting frameworks or ESG indicators for adoption by all issuers given that this is a developing area. However, recognising that there is a need for some basic level of convergence on data definition to alleviate the difficulties faced by financial institutions, investors and other financial market participants, SGX has distilled a core set of 27 quantitative metrics commonly reported by issuers and is concurrently consulting on the core metrics.  Each metric is mapped against globally-accepted reporting frameworks, such as the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), TCFD Recommendations and the World Economic Forum’s (WEF) recommended set of metrics and disclosures. SGX encourages all issuers to report against this list of metrics as a baseline.

SGX is also considering an ESG data portal where investors can access ESG data in a structured format as reported by issuers in accordance with aligned metrics and disclosure requirements, while issuers are guided in providing ESG disclosures.

SGX is also watching the International Financial Reporting Standards (IFRS) Foundation’s development of globally comparable baseline sustainability reporting requirements for all businesses with interest, and will consider adopting these standards should they gain market acceptance.

Guideline on materiality

SGX recognises that issuers may initially be unfamiliar with how to apply the materiality test to sustainability information. Hence, as guidance for issuers, the Sustainability Reporting Guide provides a working guideline on materiality. SGX is of the view that it is a practical matter to retain the aforesaid working guideline on materiality, which focuses on the business and investors’ decisions. It also serves as a common baseline for all issuers. SGX is consulting on whether the working guideline on materiality should be retained.

Assurance of sustainability reports

SGX proposes to require issuers to subject their sustainability reports to internal assurance, with assurance provided by their internal auditors. The scope of such assurance should minimally include assurance on whether data being reported is accurate and complete. Currently, assurance of sustainability reports is voluntary.

Alternatively, issuers may choose to have their reports externally assured through their auditors or an independent assurance services provider. SGX is of the view that the growing investors’ demand for consistent, comparable and reliable information must ultimately be met by external assurance of sustainability reports.

Feedback is sought on whether particular aspects of sustainability reports should be covered by external assurance, and whether issuers should be required to disclose in the sustainability report that internal assurance or external assurance has been conducted, and the content of such disclosures.

Training for directors on sustainability

The Listing Rules require a first-time director of an issuer listed on SGX-ST to undergo prescribed training on the roles and responsibilities of such a director. SGX seeks views on whether the training should include a component on sustainability and, if so, the topics to be covered.

SGX further proposes that all directors (whether or not a first-time director) must attend a prescribed one-time training on sustainability and that issuers should provide a confirmation that all of their directors have attended such training in the first sustainability report following the amendments to the Listing Rules.

Reporting timeframe for sustainability reports

Issuers are required to issue their sustainability reports on an annual basis. Currently, issuers may either embed the sustainability report within their annual report, which must be issued within four months of the end of the financial year, or issue a full standalone sustainability report within five months of the end of the financial year, with a summary included in the annual report.

To allow the sustainability reports to be read together with issuers’ financial information contained in their annual reports, SGX is considering whether to require issuers to issue their sustainability reports in accordance with the timeline for annual reports, that is, four months of the end of issuers’ financial year, instead of the existing five months. SGX is also seeking feedback on whether issuers who conduct external assurance may follow the existing reporting timeline of issuing a full standalone sustainability report within five months of the end of the financial year, with a summary included in the annual report. This is to facilitate reporting by issuers with cross-border operations and who may wish to obtain external assurance, as such issuers may find it challenging to meet the shorter four-month timeline for annual reports.

Mandatory board diversity policy

SGX proposes to mandate that issuers have in place a board diversity policy and disclose the following in their annual reports:

  • The board diversity policy, targets for achieving the stipulated diversity, accompanying plans, and timeline for achieving the targets; and
  • A description of how the combination of skills, talents, experience and diversity of directors in the Board serves the needs and plans of the issuer, taking into account the issuer’s Board composition and its current plan and future strategy.

The proposals would elevate the relevant provisions relating to the issuer’s board diversity policy in each of the Code of Corporate Governance (Provision 2.4 of the Code of Corporate Governance ) (which applies on a “comply or explain” basis) and Practice Guidance (Practice Guidance 2 and 4 of the Code of Corporate Governance ) (which applies on a voluntary basis), to mandatory compliance.

Feedback is also sought on whether gender diversity should be made a mandatory component in the board diversity policy.

Reference materials

The following materials are available on the SGX website www.sgx.com: