SGX move to mandate sustainability report long overdue

By Jessica Cheam, Published TODAY, 31 Oct 2014

The Singapore Exchange (SGX) made an announcement two weeks ago that may have slipped under corporate Singapore’s radar but will no doubt have long-lasting implications for a large swathe of these firms.

At the Singapore Compact CSR (corporate social responsibility) Summit held on Oct 17, SGX chief executive Magnus Bocker said the bourse will be mandating that all listed companies publish sustainability reports in a “comply or explain” approach.

It has embarked on a one-year study to work out what these reporting guidelines should look like. After this, a realistic timeline for the implementation is about two years, he said on the sidelines.

This announcement is a timely move and long overdue.

Elsewhere in Asia, such as in China, Taiwan and Malaysia, bourses mandate some form of sustainability reporting.

As a leading capital market, and given Singapore’s ambition and positioning as a global city leading on sustainable development, it is surprising that this has not happened sooner.

In recent years, SGX had hinted it may make this compulsory. It launched its Sustainability Reporting Guide for listed companies in 2011, but as Mr Bocker noted himself, take-up has been, frankly, slow.

There are about 770 listed companies in Singapore, and yet only 27 — a mere 3.5 per cent — produce sustainability reports, the Global Reporting Initiative (GRI) database showed. The GRI is the most widely-used sustainability reporting standard.

Mr Bocker noted that companies are waiting for SGX to get serious and make it a rule.

Well, that time has come.

BENEFITS OF SUSTAINABILITY REPORTING

So what is sustainability reporting exactly and why is it important?

Put simply, it requires a company to measure and report on the environmental and social impact of its business on top of its financial and governance performance, which is already part of the regulatory disclosure practised today.

This includes a wide range of issues such as biodiversity loss and greenhouse gas emissions (environmental); workplace health and safety and employee relations (social); and bribery, corruption and business ethics (governance).

So a property developer publishing a sustainability report, for example, would have to measure and disclose its resource consumption from energy use to raw material, employee turnover rate, and health and workplace injury rates.

At the heart of this concept is the belief that what gets measured gets improved. Both businesses and wider society stand to gain.

Companies that disclose these metrics will be spurred to do better as transparency drives improvement.

Benefits include better reputation, better employee retention, improved access to capital, increased efficiency and waste reduction, leading to cost-savings.

This is backed by recent evidence, such as a report launched by international non-profit CDP last month, which found that S&P 500 companies that build sustainability into their core strategies secure an 18 per cent higher return on investment than companies that are not — and 67 per cent higher than companies that refuse to disclose their emissions.

Sustainability reporting can be an effective crystal-ball gazing or scenario-planning exercise to help firms prepare for the future and evaluate environmental and social risks that have material impact on their business and share prices.

Consumers also gain from higher-quality goods and services and, increasingly, they are demanding that firms operate in a responsible manner in all respects of their business. Social media, in particular, has made it easy for people to expose any company’s less-than-desirable behaviour.

Nowhere is this more evident than in the transboundary haze issue that is playing out on our doorstep.

For years, palm oil, and pulp and paper companies have been fingered for driving deforestation in Indonesia and causing the haze pollution that has plagued neighbouring Singapore and Malaysia.

Environmental groups, such as Greenpeace International, have successfully campaigned against these companies by urging big consumer companies such as Unilever and Nestle to stop buying from these firms, and for consumers to boycott unsustainable palm oil-linked products.

Singapore has even introduced legislation that transcends national boundaries and actively targets companies suspected of actions that result in haze here.

INCREASING TRANSPARENCY

To a large extent, requiring sustainability reports from our largest companies will automatically raise transparency levels across all sectors of the economy.

Firms that resist this change will be those that fear they will fare badly when benchmarked against their peers or those that are operating irresponsibly and benefit from having less-than-transparent standards.

Globally, sustainability reporting has already moved out of the CSR domain to become a mainstream movement.

Earlier in March, United States advocacy group Ceres — whose Investor Network on Climate Risk boasts more than 100 institutional investors with collective assets totalling more than US$12 trillion (S$15.3 trillion) under management — submitted a proposal to the World Federation of Exchanges (WFE), which comprises 60 stock exchanges including SGX, to adopt a uniform standard for sustainability reporting.

In another indication that sustainability has become a serious financial concern, assets under management by signatories to the United Nations-supported Principles for Responsible Investing (PRI) now stand at more than US$45 trillion, up from US$4 trillion at the PRI’s launch in 2006.

It is time for Singapore to show leadership in this area.

After all, it has made a mark for itself over the past decades on being a clean and green city, and leading in many environmental technologies such as water.

Interestingly, the World Wide Fund for Nature’s recent Living Planet Report 2014 showed that Singapore had the seventh-largest ecological footprint in the world, up from its 12th spot in 2012.

The Ministry of the Environment and Water Resources has taken issue with the report for not considering Singapore’s unique circumstances as a small island city-state with no hinterland.

But this demonstrates why it is even more important that Singapore, as Asia’s hub for many industries, should be a steward when it comes to setting sustainability standards for companies.

As Mr Bocker puts it, Singapore is very good in terms of financial reporting and governance. Sustainability reporting can be viewed as taking it to a higher level.

Jessica Cheam, who writes frequently on current affairs, is an editor of Eco-Business, an Asia-Pacific sustainable business publication.