ACRA, NUS study finds larger listed companies on track for mandatory climate reporting in FY 2025: Allen & Gledhill

30 July 2024

On 8 July 2024, the Accounting and Corporate Regulatory Authority (“ACRA”) reported in a press release that a study by ACRA and the Sustainable and Green Finance Institute at the National University of Singapore (NUS) found that larger listed companies are making good progress in climate reporting (“Study”). The Study also recommends strategies to strengthen climate-related disclosures to meet investors’ expectations and mandatory reporting requirements. Details from the press release are set out below.

By way of background, Singapore will introduce mandatory climate reporting to help companies ride the green transition, in line with Singapore’s national agenda on sustainable development. The mandatory climate reporting, to be implemented in a phased approach, will start from financial year (“FY”) 2025, with listed issuers reporting using International Sustainability Standards Board (“ISSB”) aligned requirements. Larger non-listed companies will start to report from FY 2027, with some exceptions.

The following are key findings of Study which examined the climate-related disclosures of 51 larger listed issuers for the FY 2022 based on the Task Force on Climate-related Financial Disclosures Framework:

Governance: Almost all companies studied have assigned roles or formed committees to deal with climate risks and opportunities, demonstrating a strong commitment to these matters. Notably, around three-quarters have fully described their process of reporting to and involving their Boards in climate matters. The Study noted the need to strengthen the disclosure on how Boards are involved in shaping performance objectives as this would allow investors to assess the Board’s involvement and strategic alignment with climate goals.
Strategy: Most of the companies studied have disclosed the physical and transitional risks related to climate, but only close to two-thirds have disclosed the related opportunities. While three-quarters of the companies studied have carried out scenario analyses to assess how well their operations and financial positions or performance could withstand the effects of climate change, the report states that they should explain why they chose certain scenarios, clarify the assumptions they relied on, and describe how resilient and effective their strategy is. Only a few of the companies studied have fully disclosed how they incorporate climate risks in their financial planning.
Risk management: More than two-thirds of the companies studied fully disclosed how they identify, assess, and manage climate-related risks. However, only around a quarter of the companies studied made full disclosures on the significance of climate-related risks compared to other risks and only around a tenth of the companies studied explained their potential magnitude. The report explains that this suggests room for improvement, as such information is necessary for investors to evaluate the company’s readiness in facing the upcoming economic and regulatory changes, including the transition to a lower-carbon economy.
Metrics and targets: The report states that the companies studied did well in setting out metrics and targets, with commendable disclosures for Scope 1 and 2 greenhouse gas emissions and notable progress for Scope 3 emissions. Most companies studied have set targets and timeframes to reduce emissions, indicating a strong commitment to becoming more environmentally friendly. However, the report notes that more could be done in terms of setting interim milestones to track tangible and timely progress. Transparency could also be enhanced in disclosures for opportunity metrics and how executive pay was tied to climate performance.

The Study shows how some local and overseas companies disclose climate-related information, which can serve as a guide for best practices. The Study also recommends strategies on how companies can enhance their climate reporting, such as prioritising progress over perfection, making meaningful links to financial reporting, and working towards future-proofing their strategy and business model.

ACRA explained the following initiatives that have been launched to assist companies in meeting the upcoming reporting requirements:

Sustainability Reporting Grant: In view of the increasing demand for companies to publish climate-related disclosures, including upcoming regulations to mandate climate-related disclosures for some Singapore-incorporated companies, the Singapore Economic Development Board and Enterprise Singapore will launch a Sustainability Reporting Grant to provide funding support for companies who may be impacted by mandatory reporting requirements (i.e. large companies with annual revenue of $100 million and above), to produce their first sustainability report in Singapore, before mandatory reporting takes effect. This will help companies kickstart their sustainability strategy and sustainability performance reporting journey. The disclosures are to be consistent with the ISSB standards.
Green Skills Committee: The Ministry of Trade and Industry and SkillsFuture Singapore, in collaboration with the private sector, have established the Green Skills Committee to develop skills and training programs for the low-carbon economy. With sustainability reporting and assurance as one of its focus areas, the initiative aims to upskill workers within companies and assurance providers in sustainable reporting capabilities to keep pace with the demand to transit into a sustainable, lower-carbon economy.
Advanced Digital Solutions (“ADS”) scheme: The Infocommunications Media Development Authority (“IMDA”) has curated a list of digital sustainability solutions under the ADS scheme to help eligible enterprises kickstart their sustainability journey by measuring, monitoring and managing their emissions, enabling them to stay competitive with customers and improve the oversight and reporting of Scope 3 emissions within their supply chain. Beyond the ADS scheme, IMDA is also supporting enterprises who are keen to collaborate with value chain partners to drive sustainability through digitalisation.
Emission Factors Registry: A Singapore Emission Factors Registry is being created by Government and private sector partners to provide conversion factors that translate different business activities into corresponding greenhouse gas emissions, thus supporting the existing reporting solutions in the ecosystem.
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