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9 August, 2016
SGX announced on 20 June 2016 their launch of the Sustainability Reporting listing rules and guide.
AMENDMENTS TO LISTING RULES
Under Chapter 7 of the Listing Manual on Continuing Listing Obligations1, new Rules 711A and 711B have been introduced, and will come into effect on 20 July 2016. The new Rules apply to financial years ending on or after 31 December 2017, and SGX has also given issuers a longer 12-month deadline for the first year of reporting. Please refer to the section titled "Phased Approach" below for further details.
Rule 711A requires an issuer to issue a sustainability report for its financial year, no later than five (5) months after the
end of the financial year.
Rule 711B states that the sustainability report must describe the issuer’s sustainability practices with reference to the following primary components:
(a) material environmental, social and governance factors;
(b) policies, practices and performance;
(c) targets;
(d) sustainability reporting framework; and
(e) Board statement.
If the issuer excludes any primary component, it must disclose such exclusion and describe what it does instead, with reasons for doing so.
In line with the introduction of Rules 711A and 711B, the specific provision applicable to mineral, oil and gas companies to disclose their sustainability policies and practices in Rule 1207(21)(d) will be deleted with effect from 20 July 2016.
NEW PRACTICE NOTE: SUSTAINABILITY REPORTING GUIDE
There is a new Practice Note 7.6, being the Sustainability Reporting Guide (“Guide”), also effective from 20 July 2016.
The Guide updates the “Guide to Sustainability Reporting for Listed Companies” which was issued in 2011.
The Guide provides guidance on the expected structure, contents and preparation of the sustainability report. The Guide also elaborates on the primary components set out in Rule 711B(a) to (e).
Background
The sustainability report supplements the financial report by providing descriptive and quantitative information on how business is conducted and the sustainability of the current business into the future.
SGX believes that the addition of sustainability reporting to financial reporting provides a more comprehensive picture of
the issuer: statements of financial position and comprehensive income provide a snapshot of the present and an account of the past year, while sustainability reports of environmental, social and governance factors (“ESG factors”) show the risks and opportunities within sight, managed for future returns; taken together, the combined financial and sustainability reports enable a better assessment of the issuer’s financial prospects and quality of management.
Board’s Responsibility
The Guide (paragraph 3.1) underlines the Board’s responsibility for sustainability governance and sustainability reporting.
Principles and Considerations
The principles that underlie sustainability reporting as summarised in Practice Note 7.6 include:
- Consideration and reporting of both risks and opportunities.
- Balanced reporting of positives and negatives.
The issuer’s response in the event of underperformance should be reported as well.
A good performance measurement system, enabling benchmarking against stated objectives and comparison over time and across entities.
Linking sustainability risks and opportunities with performance measures and performance incentives, as well as other organisational risks and operational indicators, will enhance understanding and performance improvement and accountability.
Prioritising globally-recognised frameworks and disclosure practices to guide the issuer’s reporting.
The issuer’s choice of framework should be explained.
Global frameworks that are referred to in the Guide include the Global Reporting Initiative (GRI) Sustainability Reporting Guidelines, the International Integrated Reporting Council’s Framework (<IR>) for integrated reporting, and the Sustainability Accounting Standards Board (SASB)’s standards. For industries sensitive to environmental matters, the provisions of the Climate Disclosure Standards Board or the Carbon Disclosure Project may be particularly relevant, and the standards of the Roundtable on Sustainable Palm Oil may be chosen by an issuer in that industry.
The chosen framework should be followed year to year. Only major changes in business strategy and/or model or regulatory changes are likely to require a change in framework.
Regular and sustained stakeholder engagement, and reporting on the material outcome.
These are relevant to sustainability across the issuer’s value chain and will inform the issuer’s identification of material ESG factors, giving issuers an updated picture of their sustainability within their business and physical environments.
Independent assurance.
Issuers should consider adopting independent external assurance, particularly after several annual exercises.
Issuers should also consider, even in the initial years, whether it would be worthwhile to undertake external assurance on selected important aspects.
In identifying material ESG factors, the following points highlighted in the Guide are worth noting:
- Corruption is a factor on which many investors require reassurance, whether inducement is being offered to employees or by employees to others.
- Diversity (of gender, skills and experience) greatly enhances the issuer’s capacity for breadth of input and perspectives into decision making, risk alertness and responsiveness to change. The issuer should assess whether diversity (through broad levels of staff and also importantly, in the Board) is a material social factor in its business. It should engage stakeholders in assessing the necessity of reporting on this matter.
- If corruption or diversity is not assessed to be a material ESG factor by the issuer, where stakeholders express sufficient interest in the information, the issuer is advised to state its policy and safeguards on its website.
- Outsourced and downstream processes which constitute integral parts of the issuer’s value chain and business need to be included in the issuer’s sustainability report.
Form of Sustainability Reporting
The sustainability report may be published in the issuer’s annual report (in which case it should abide by the annual report deadline) or on a standalone basis (in which case the annual report may include a summary). It should be made available both on SGXNet and on the issuer’s company website.
Phased Approach
An issuer in its first year of reporting may report within 12 months of the end of its financial year.
Sustainability reporting takes effect for any financial year ending on or after 31 December 2017, though early adoption is encouraged.
For the first year of sustainability reporting, the issuer should have at least the assessment of material ESG factors, policies and/or practices to address the factors. If their reporting is lacking in qualitative or quantitative descriptions, they need only state progressive targets for reaching maturity of reporting and do their best to meet them in subsequent years.
1 – The Catalist Rules also have equivalent amendments.
For further information, please contact:
Annabelle Yip, Partner, Wong Partnership
annabelle.yip@wongpartnership.com
