Thank you for having me.
1. A year ago, everything seemed so straight forward. A consensus had been reached at COP26. Everybody was making net zero pledges. ESG investing was booming.
2. Today, as we get down to the nitty-gritty of implementing these commitments, we run into questions about the trade-off between climate security and energy security, questions about the right balance between cost and benefit, inflation, as well as questions about the integrity of climate reports. It bears reminding that the long-term answers remain the same. There must be investment in new solutions, infrastructure, and technology. The estimated green investment needed in ASEAN alone is US$200B per year till 2030.
3. Other risks and opportunities will arise from the penalties and incentives introduced to change behaviour, to switch to clean energy and to curb emissions.
4. The stakes are high, making it critical for the market to have accurate climate information to drive decision making. The biggest threat to this right now is greenwashing. That is the topic that I want to focus on this morning, in view of the relevance to today’s event.
5. So, what is greenwashing? Simply put, greenwashing is claiming that something is green, when it is not, or greener than it is. Greenwashing is usually associated with public representations, for example, an exaggeration in the sustainability report of a company or the portfolio composition of a fund.
6. But it can also be found in an internal representation, for example, to the board or employees of a company. This can be equally insidious. Employees may be joining the company on the purported strength of its environmental credentials. The board may be misled in the oversight of the company’s sustainability practices.
7. When we think of greenwashing, we also tend to think of it as deliberate. But again, that is not always the case. Mistakes may have been made in data collection, or less than thorough due diligence may have been conducted on parts of the supply chain.
8. Why is greenwashing such a big deal? What is so bad about it?
9. First and foremost, it is false and misleading information. This is particularly damaging in a disclosure-based regime where the accuracy of the information on which decisions are based determines how effective the market is in the pricing and allocation of capital .
10. Second, it results in an un-level playing field. Greenwashing left unchecked will allow companies that do not incur the cost of greening to enjoy the climate incentives and avoid the penalties that I mentioned earlier. In addition, such companies can compete more effectively for the green dollar, against others which have incurred such costs.
11. In the long run, the genuinely green companies and products may end up failing, because, if the market cannot tell the difference, it may choose the lower-cost greenwashed companies.
12. So, we as regulators must do something about greenwashing. What to do? To my mind, three things are necessary, some of which are already underway:
a. Make information available
b. Make information comparable
c. Make information trusted
Making information available
13, Let me start with making information available. There are two dimensions to this. The first is the disclosure requirement, and the second is the access requirement.
14. Starting with the disclosure requirement, as you are aware, SGX-listed companies, have been mandated to do sustainability reporting since 2016. Last year, we mandated climate reporting in accordance with the recommendations of the Task Force on Climate-related Financial Disclosures. This will be introduced in phases. The first phase is for companies to do climate reporting on a comply or explain basis in 2022. Subsequently, climate reporting will become mandatory for more and more companies, starting with the companies in the most carbon intensive industries such as the (i) financial, (ii) agriculture, food and forest products and (iii) energy industries.
15. Turning to the access requirement, the market provided strong feedback that it wants all the companies’ climate disclosures available in a single platform that users can easily access. We had previously consulted on a proposed digital data portal where investors can access ESG data in a structured format as reported by issuers in accordance with our disclosure requirements. This proposal was well received and is something that we are currently developing, called the ESGenome disclosure portal. Apart from giving users a single point of access, we also hope to develop features that will help issuers, such as guiding companies to enter the necessary information to meet our disclosure requirements and autogenerating sustainability reports.
16. If we want ESG data to drive behaviour, then digitalizing such data is key. This would help investors and stakeholders manage and process the data. One of the options we are now considering is whether to mandate all listed companies to prepare their sustainability reports using a common digital format. ESGenome may be one such solution to achieving this.
Making information comparable
17. Up to now, we have had a lack of consistency and comparability in terms of climate disclosures, with different issuers reporting against different standards and frameworks, to the frustration of the users of such information. This includes not just investors but even the companies themselves as they try to benchmark against their peers. That is why we mandated reporting against the TCFD recommendations, which is a widely accepted framework.
18. Looking ahead, ISSB, the International Sustainability Standards Board, which was set up to develop a global baseline standard for sustainability reporting, has released two Exposure Drafts for public comment. The first is on general sustainability disclosures, and the second is focused on climate-related disclosures. If all goes well, these standards will be issued by the end of the year.
19. I have no doubt that reporting to a common global standard will promote more consistent and comparable disclosures. When the ISSB standards are issued, we will begin the process of incorporating the ISSB standards into our listing rules as mandatory disclosure requirements for our listed companies. In preparation for this process, we have set up a Sustainability Reporting Advisory Committee together with the Accounting and Corporate Regulatory Authority (ACRA). The committee comprises all our major stakeholders to ensure a smooth and practical implementation tailored to our market.
20. The ISSB builds upon the TCFD recommendations for climate reporting, and applies them to sustainability reporting as a whole. So issuers already using TCFD for climate reporting will find it familiar and relatively easyer to apply it to the rest of their sustainability reporting.
21. There are a few key differences between the ISSB climate-related disclosures and the TCFD recommendations. One key difference is that the ISSB climate-related disclosure standard mandates Scope 3 greenhouse gas emissions (meaning the indirect emissions throughout a company’s value chain, both upstream and downstream), as a cross-industry metric. The other differences are in the level of prescription and detail. The ISSB climate disclosure standard, for example, has a more detailed industry classification and disclosure topics and metrics for each industry, which I personally think is more helpful to preparers of climate reports.
22. One of the things we will definitely consider very carefully is the pace and cadence at which we adopt the ISSB standards. This is particularly true for Scope 3 emissions. In fact, one of the purposes of the Sustainability Reporting Advisory Committee is to advise on a sustainability reporting roadmap for Singapore companies including non-listed companies as well. This is relevant for Scope 3 emissions because without accurate climate reporting by non-listed companies, it will be difficult for companies to disclose their Scope 3 emissions as not all their suppliers and customers will be listed.
Making information trusted
23. Information must not only be available and comparable, it must also be reliable. Governance is key, which is why the first pillar in both the TCFD and the ISSB frameworks is governance. This reflects the important role that the board of directors plays in policing climate information and is one of the reasons why we mandated compulsory training for directors in this area. I have also spoken on other occasions about how climate information is becoming as material as financial information and we could see the same kind of enforcement action being taken for material gaps and misstatements in climate disclosures. Indeed, regulators such as the SEC have already set up a Climate and ESG Task Force in their Enforcement Division.
24. We have also required issuers to minimally subject the climate reporting process to internal review by their internal audit functions. In respect of external assurance, this is still a developing area and there is a lack of globally recognised standards or frameworks in relation to assurance on sustainability and climate information. Hence, we have not mandated external assurance, though we have provided further guidance in our Sustainability Reporting Guide for issuers that do conduct external assurance.
25. The International Auditing and Assurance Standards Board has since then, last month to be exact, announced it is targeting to propose new sustainability assurance standards for public comment during the second half of 2023.
26. A couple years back, I spoke about the dangers if corporate accounts cannot be relied upon. The very same risk affects sustainability disclosures. How should we approach the assurance of ESG information in a way that avoids the pitfalls of a lack of trust? This is something that I’m sure will be the subject of many discussions going forward. On our part, we will certainly keep a close eye on this space.
Conclusion
27. In conclusion, I want to draw attention to the findings on ASEAN sustainability reporting resulting from the study Prof Loh and his team conducted. One of the key takeaways for me is that Singapore has a number of companies that excel in sustainability reporting. But there is also a long tail of companies that hasn’t done as well. We will focus in the coming year on closing this gap and helping more companies get up to speed.
28. The study notes a lack of short- to medium-term strategy on the ESG front across many companies. Not having a coherent plan lends itself to careless action, such as greenwashing. This resonates as directors and CSOs have shared with me the importance of breaking down very long-term targets into shorter term ones. This enables progress towards meeting the targets to be meaningfully tracked. I hope what I have covered in today’s speech will help companies with their short- to medium-term ESG plans.
29. Finally, SGX has since 2016 helped companies with capacity building as sustainability reporting transitioned from voluntary to mandatory. We have started workshops on TCFD and climate reporting which is the next stage of the journey for reporting. I also spoke earlier about mandatory director training for sustainability. The response has been positive, and we have in fact received feedback that capability building for Board and management levels should be an ongoing process and not just a one-off. Companies can expect more of such efforts ahead.
Let me wrap up then by wishing all of you an insightful discussion and session. Thank you.
