Erin Lyon, Executive Director, CSR Asia, takes a look at the Singapore stock exchange's new sustainability reporting requirements.

The long wait for the Singapore Exchange Ltd (SGX) sustainability reporting requirements is finally over. On the 20 June 2016, the SGX announced:

• new reporting requirements (Listing Rule 711A and 711B)
• a guide to implementation (Practice Note 7.6 Sustainability Reporting Guide), and
• plans for CEO briefing sessions, online portal and a series of workshops.

This comes on the back of the announcement last week introducing the new SGX Sustainability Indices. The new rules have been introduced following years of voluntary guidelines in place since 2010 that resulted in only a few companies disclosing sustainability information. The new requirements have been released following a month of consultation earlier this year. SGX reports that the consultation exercise met with strong support for the proposals. Notably, the Small and Middle Capitalisation Companies Association (SMCCA), said that it welcomes SGX's Sustainability Reporting Guide, it also noted that SGX has 'softened many requirements ... in view of reducing anxiety to small- and middle-capitalisation companies when implementing this report’. Companies have been preparing for this announcement for some time now – having been given ample notice that this reporting requirement was coming. Many companies have been preparing based on the consultation draft of the requirements, but there are some significant changes.

What are the requirements?

As part of a listed company's continuing obligations it must comply with the rules set out below. Where a company does not include any of the 'primary components’ it must disclose that these have been omitted and explain what the company does instead with reasons for doing so. Listed companies must issue a sustainability report on an annual basis no later than five months after the end of the financial year. SGX is allowing up to 12 months from the end of the financial year to publish the first report. This takes effect for any financial year ending on or after 31 December 2017. The sustainability report also must describe the sustainability practices with reference to the following primary components.

• Material environmental, social and governance (ESG) factors and describe both the reasons for and the process of selection, taking into consideration their relevance to the business, strategy, business model and key stakeholders (lengthy guidance is provided on this in the practice note).
• Policies, practices and performance in relation to the material ESG factors identified, providing descriptive and quantitative information on each of the identified material ESG factors for the reporting period. Performance should be described in the context of previously disclosed targets.
• The targets should be set out for the forthcoming year in relation to each material ESG factor identified.
• A sustainability reporting framework (or frameworks) to guide reporting and disclosure. The framework(s) selected should be appropriate for and suited to its industry and business model. Issuers are required to state the name of the framework(s), explain reasons for choosing the framework(s) and provide a general description of the extent of their application of the framework(s).
• A statement of the board confirming that it has considered sustainability issues as part of its strategic formulation, determined the material ESG factors and overseen the management and monitoring of the material ESG factors.

What are the key changes since the public consultation document?

SGX highlights that there have been three key changes since the draft document, one is the additional length of time allowed to prepare the first report and the other two are set out below.

1. The board statement

The revised Guide sets out the requirement mentioned in the last of the bullet points above (that is, the sustainability report should contain a statement of the board confirming that it has considered sustainability issues as part of its strategic formulation, determined the material ESG factors, and overseen the management and monitoring of the material ESG factors. The draft requirements would have meant that a board would have had to 'confirm compliance with the primary components’. This revision is a result of feedback that the requirement for a separate assurance from the board might lead to increased compliance costs as the board might require assurance from external auditors and/or consultants before confidently making the prescribed board statement. Companies have the discretion to decide on the wording of the board statement, as long as it adheres to the substance of the board statement provided in the Guide. This requirement is also arguably a requirement of the Singapore Code of Corporate Governance.

2. Corruption and diversity reporting

The revised Guide provides that in cases where corruption or diversity is not assessed to be a material ESG factor, it need not be included in issuers’ sustainability reports, but if stakeholders express sufficient interest in the information, issuers are advised to present information on their websites to satisfy the interest. It is also possible that issuers may discuss issues of corruption or diversity in their corporate governance reports or other sections of their annual reports. In this regard, SGX considers that it is sufficient for issuers to refer to that report or those sections of their annual reports. This removes the requirement that reporting on corruption and diversity are mandatory. Other notable things to consider are set out below. 1. The Principles for reporting, outlined in the Practice Note 7.6 Sustainability Reporting Guide:

• board responsibility
• ‘comply or explain’
• report risks as well as opportunities
• balanced reporting
• performance measurement system
• global standards and comparability
• stakeholder engagement
• independent assurance

2. Where holding companies and operating subsidiaries are both listed issuers having to undertake sustainability reporting, the operating entities can report on the ESG factors within their scope of operations. If the ESG factors are also material to the holding company, the holding company may make reference in its sustainability report to the sustainability reports of the operating subsidiaries. If the holding company has material investee companies which are not subsidiaries, its sustainability report should include the selection and management of these investee companies. 3. Companies should publish the sustainability reports on SGXNet and on the company website. After a few years of sustainability reporting, a company can maintain static information, such as, policies and historical sustainability information, on its website while presenting the current year's changes as well as performance in the annual sustainability report. 4. A phased approach is supported. Guidance on what a phased approach might look like is provided. 5. Companies should take note that SGX explicitly states ESG factors are not philanthropy or other charitable activities. The practice of reporting charity as ESG should stop.

What's next?

SGX is working with the Global Compact Network Singapore (GCNS) to organise training workshops by sustainability reporting consultants. CSR Asia is part of the network of consultants providing training and services to companies looking to report. SGX is also planning other initiatives including an online portal. Wilson Ang, Executive Director of GCNS, says 'The CEO briefings and series of workshops that we will be putting together will be essential for companies to understand how they can effectively implement their sustainability reporting and learn from some of the existing best practices. With this and other announcements, such as the upcoming launch of the latest update to the Singapore Sustainable Blueprint, the pressure on the private sector to engage with sustainability is non-negotiable. We now look forward to the first reports, with the voice of those like corporate governance specialist Mak Yuen Teen sounding a cautionary tale. 'As we have learnt from the comply or explain approach to the Code of Corporate Governance, issuers may, with the aid of consultants, issue boilerplate disclosures and explanations that are not useful at all. There needs to be monitoring and education initially, followed by monitoring and enforcement after some time,’ he said. Time will tell how SGX and other interested stakeholders look to enforce the new listing rules. Erin Lyon Executive Director, CSR Asia Copyright: CSR Asia. More information can be found in the new SGX-ST Listing Rules Practice Note 7.6 Sustainability Reporting Guide.