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SGX joins Hong Kong exchange in moving to tighten climate rules

Sustainability reporting to be made stricter as bourses prod listed companies

The Singapore Exchange cut the required market cap for SPACs by half after consultation revealed that stakeholders found the previous level prohibitively high.   © Reuters

SINGAPORE -- The Singapore Exchange intends to tighten its sustainability reporting rules over the next three years, as it joins the ranks of Asian bourses pressing companies to take action on climate change.

The SGX on Thursday announced it will seek public consultation on a plan to make climate-related disclosures mandatory in companies' sustainability reports, based on recommendations from the Task Force on Climate-related Financial Disclosures.

The TCFD was created in 2015 by the Financial Stability Board -- itself endorsed by the Group of 20 economies -- to develop consistent climate-related financial risk disclosures for use by companies, banks and investors.

Among other things, SGX will ask companies to disclose the metrics they use to assess climate-related risks, describe targets and processes for managing those risks, and reveal the actual and potential impact on the environment from the conduct of their business.

The Singapore bourse also wants listed companies to disclose the amount of greenhouse gasses -- a key contributor to global warming -- emitted from purchased electricity used to power their businesses.

In addition, companies are expected to disclose direct greenhouse gas emissions from sources owned or controlled by them, such as motor vehicles and facilities used in the line of business.

"Our companies must start giving better climate information to meet the demands of their investors, insurers and lenders, or risk being marginalized in terms of allocation of capital and access to financial facilities," said Tan Boon Gin, chief executive officer of SGX RegCo, the regulatory arm of the Singapore stock exchange.

He said the urgency of the matter has been raised by others, including the United Nations' Intergovernmental Panel on Climate Change, which recently warned that the effects of climate change will be widespread, rapid and intensifying.

Earlier this month, the IPCC said Asia will face stronger monsoons and flooding in the coming decades as global temperatures continue to rise, even under the best scenario for greenhouse gas emissions.

Average global temperatures are on track to warm by 1.5 C within 20 years, a decade sooner than predicted in 2018, according to the report from the panel.

SGX is initially targeting sectors such as agriculture, energy and transportation for its mandatory climate reporting regime, though the list of sectors is expected to grow over the next three years.

"This new reporting requirement will help raise the competitiveness of our local companies on a global stage, by highlighting and encouraging action on the risks and opportunities of climate change," said Esther Chang, executive director of Global Compact Network Singapore, the local chapter of the UN Global Compact corporate sustainability advocacy initiative.

Rival Stock Exchange of Hong Kong has also moved to require more climate transparency from companies. In April, it encouraged its issuers to adopt TCFD recommendations when disclosing climate-related information.

In late 2019, the HKEX introduced mandatory disclosure requirements to include reporting of significant climate-related issues that have impacted or may impact companies. The requirement took effect for financial years commencing on or after July 2020.

More recently in July, Hong Kong's Green and Sustainable Finance Cross-Agency Steering Group announced that it will seek to make progress toward mandating climate-related disclosures aligned with TCFD recommendations by 2025 across relevant sectors.

Bourses in Australia, New Zealand, the U.K. and U.S. have also looked to TCFD bench marks in asking listed companies to explain the impact of their activities on climate change.

SGX will accept feedback on its climate reporting proposal until Sept. 27, with the requirements expected to come into effect from January next year.

The exchange has also proposed requiring companies to have their sustainability reports assessed by internal auditors to ensure the data being reported is accurate and complete.

"In principle, these SGX proposals make sense but I am always worried about form over substance," Mak Yuen Teen, an associate professor at the National University of Singapore Business School who specializes in corporate governance told Nikkei Asia.

Companies listed in the city-state have previously been flagged for questionable company disclosure standards.

In a study released in May by corporate development advocate the Singapore Institute of Directors and NUS' Centre for Governance and Sustainability research outfit, companies listed on the SGX were ranked to be less transparent than their peers in Thailand and Malaysia.

The study highlighted the practice of company disclosures as a key area to be fixed in order to improve the situation.

"SGX is proposing having the internal auditors provide that assurance, with the option of having the external auditors or other external service providers do it," said Mak of the Singapore bourse's mechanism for oversight on sustainability reporting.

"Like many things, it may just end up as another box-ticking exercise, giving a false sense of assurance to stakeholders."

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