SINGAPORE (Dec 4): Sustainability reporting, while made mandatory for Singapore listed companies since 2017, “definitely” has “some room for improvement”.

This is according to a joint review released Wednesday by Singapore Exchange Regulation (SGX RegCo) and the Centre for Governance, Institutions and Organisations (CGIO) at the National University of Singapore (NUS) Business School.

“A well-structured sustainability report usually contains a leadership statement, materiality assessment, stakeholder engagement, performance and targets,” SGX RegCo and CGIO note in the report.

Singapore-listed companies have garnered an overall average sustainability reporting score of 60.6 out of 100 points. 

The reporting scorecard weighed companies’ sustainability reporting on several components: General scope (10%), Material environmental, social and governance factors (20%), Policies, practices and performance (20%), Targets (20%), Sustainability reporting framework (15%) and the Board statement (15%).

On a positive note, the joint review showed that almost all listed companies have produced their sustainability reports on a timely basis following the mandating of the requirement.

About 80% of companies reported for the first time, and the number of reporting companies was five times that of a year earlier, SGX RegCo and CGIO add.

The review covered some 495 SGX-listed issuers who had released their sustainability reports on SGXNet as at end-December 2018. The remaining companies were noted to be in the process of report preparation.

Speaking at the launch of the joint review on Wednesday, Minister for the Environment and Water Resources Masagos Zulkifli highlighted that businesses are not spared of climate change effects. 

“The trend towards sustainable consumption is an opportunity to be seized,” says Masagos. “Consumer demands are shifting, and millennial generations are beginning to consider sustainability when making consumption decisions.” 

“Global demand for responsible investing is growing and more corporates are responding to this development by integrating sustainability considerations with business strategy,” notes Tan Boon Gin, CEO of SGX RegCo. 

“What we have seen over the past couple of years is an astronomical rise in the level of interest in sustainability,” he adds.  

Real estate sector outperforms 

Benchmarked against the average sustainability reporting score, listed issuers from the real estate sector fared the best with a score of 66.7, followed by those in the health care, communication services and consumer staples sectors which attained scores of 64.0, 63.9 and 63.6 respectively. 

“The positive outcome in respect of the real estate sector suggests that the various inputs and efforts by the government, the private sector and consumers in relation to supporting sustainable business practices within the sector have translated to quality reporting,” noted the report. 

The report attributed the early success of the real estate sector to multi-stakeholder partnerships between civil society and the private and public sectors. 

“It is entirely conceivable that other sectors adopting a similar approach could also reach that same level of achievement,” read the report, adding that sectors such as energy, information technology and utilities scored lower than the overall average score on the back of heavy environmental or societal footprints. 

“In the longer run, changes in consumer preferences or policy changes may require these listed issuers to make more information available in their sustainability reports, which in turn could require them to increase their commitments to sustainability efforts,” the report adds. 

“In this review, some sectors such as energy, information technology and utilities scored lower than the overall average score despite having heavy environmental or societal footprint. In the longer run, changes in consumer preferences or policy changes may require these listed issuers make more information available in their sustainability reports which in turn could require them to increase their commitments to sustainability efforts.”

Small cap companies a concern

The report noted a positive correlation between market capitalisation and sustainability reporting scores. Listed issuers from the ‘big cap’ group took top spot in average sustainability reporting score ranking. With 344 listed issuers, small cap companies garnered the lowest average score of 57.3, while the remaining two groups’ scores exceeded the overall average. 

“As good sustainability reporting score is an indicator of responsible business activities, it could add value to market capitalisation. Having a sustainable operating business system, listed issuers are more capable to manage potential risks and build business resilience, ultimately to attract investors’ interests,” said the report. 

Associate Professor Lawrence Loh, Director of CGIO at NUS Business School, noted that there was room for improvement in the ‘small cap’ segment, stressing that any improvement on sustainability reporting by the group would have a substantive impact on the overall quality of reporting for the entire market, as well as a tangible impact on actual sustainable business practices among listed issuers. 

“On the reporting front, our assessment showed that ‘small cap’ listed issuers could extend greater effort towards stakeholder communication and ESG factors management or risk negative impact on their revenue and/or higher costs,” adds the report. 

Room for improvement

SGX RegCo’s Tan was quick to note that although the regulatory framework focuses on mandating ESG reporting by companies, there is still some room for improvement. 

For a start, Tan highlighted how the non-prescriptive format of reporting could well bring about some negative implications. “While this means that companies have greater flexibility to choose the material matters to report, it also means that the data produced is less comparable and it is less useful for investors,” shares Tan. 

“We are going to start by engaging investors who look at ESG investing globally, for their views on how to improve the quality of the reports our listed companies have produced. From there, we can provide more guidance to companies about producing ESG data that is more useful to investors, and we expect to do this over the next six months” adds Tan. 

For a start, the report noted how listed issuers from both the Mainboard and Catalist boards should continue to take a proactive role in achieving sustainable goals and enhancing sustainability performance.  Mainboard-listed issuers scored on average just 1.0 point higher than the average score of Catalist-listed issuers, which had come as a surprise to the regulation, according to Loh. 

In addition, some 20% of listed issuers did not disclose any geographical information of the operations they covered in their sustainability reports. The review said that listed issuers should follow either the SGX Sustainability Reporting Guide or an internationally recognised sustainability reporting framework when disclosing their reporting scope. 

Other areas to work on include the improvement of consultation processes with stakeholder groups during materiality identification, the inclusion of future targets with practical measures and timeline, as well as the disclosure of the performance of only some material ESG factors as opposed to the full materiality list. 

“We are committed to helping our listed companies on their sustainability journey and will utilise this review to continue to work with them on improving their ESG disclosures,” says Tan.