Singapore Exchange considers compulsory ESG reporting guidelines

The Singapore Exchange wants public feedback on proposals requiring listed companies to review their environmental, social, and governance issues in an annual sustainability report. The reporting guidelines will be on a "comply or explain" basis - listed companies must issue the report, or explain their failure to do so – in order to give investors a better view of corporate performance and management. Current requirements to report on sustainability, effective since 2011, are voluntary. The proposed guidelines come amid increased focus on the governance standards of listed companies following the regional haze crisis last year, which exposed potential corporate negligence. The Association of Banks in Singapore's guidelines on responsible lending last October asked banks to avoid financing firms with environmental and governance issues.

The Singapore Exchange (SGX) wants public feedback on proposals requiring listed companies to review their environmental, social and governance issues in an annual sustainability report.

The reporting guidelines will be on a "comply or explain" basis - listed companies must issue the report, or explain their failure to do so. This will give investors a better view of corporate performance and management, SGX said yesterday.

Under the proposed guidelines, companies must release a sustainability report within five months of their financial year-end, starting in 2018, for the financial year ending on or after Dec 31 next year.

They have to identify the environmental, social and governance factors to be disclosed in the report, which will also set out their policies and performance related to the factors, and the targets to achieve.

The guidelines are up for public consultation until Feb 5.

Sustainability reporting is not new to SGX, but the current requirements - effective since 2011 - only ask companies to do so voluntarily. About 170 firms including CapitaLand, Keppel Corp and SGX itself have issued reports.

Stronger compliance on this front can benefit both the firms and their investors, SGX special adviser and former chief regulatory officer Yeo Lian Sim said yesterday.

"For investors, sustainability reporting shows how a company is addressing its risks and opportunities in the environment it operates in, the social impact it has and its governance. This gives investors a better idea of how a company is being managed..." she added.

What investors are interested in will be of interest to a company's other stakeholders, such as its suppliers and customers, she said.

Ms Yeo said the guidelines have been drawn up with flexibility in mind, to help companies manage the cost involved and overcome difficulties in reporting.

Firms can choose the framework of their sustainability report, and while compliance starts in 2018, they can gradually improve their reporting quality in the years after. External auditing of the report is encouraged but not required.

The idea for "comply or explain" sustainability reporting requirements was first mentioned by former SGX chief executive Magnus Bocker in October 2014.

The proposed guidelines come amid increased focus on the governance standards of listed companies following the regional haze crisis last year that exposed potential corporate negligence.

The Association of Banks in Singapore's guidelines on responsible lending last October ask banks to avoid financing firms with environmental and governance issues.

While the new SGX guidelines do not specify any penalty for non- compliance, Ms Yeo stressed that the new regime is not toothless, as the bourse is ready to dole out punishment according to its current non-compliance rules.

Mr David Gerald, chief executive of the Securities Investors Association of Singapore, expects SGX to further tighten up requirements. "Chief regulator Mr Tan Boon Gin has announced that fines will be imposed against companies which do not offer explanation for non-compliance with the Corporate Governance Code. I believe it's a matter of time for the same to happen for sustainability reporting," he said.