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Governance 6 min read Published Updated Credibility 40/100

Governance Briefing — February 28, 2024

SGX RegCo’s February 2024 consultation would hardwire IFRS S1/S2 climate reporting, phased assurance, and board competency disclosures into listing rules from FY2025, demanding rapid upgrades to governance, data, and scenario analysis.

Zeph Tech Research Lead

Research lead, Zeph Tech

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Executive briefing: On 28 February 2024 Singapore Exchange Regulation (SGX RegCo) released a consultation proposing to embed IFRS S1/S2 climate disclosure standards into SGX Mainboard and Catalist listing rules. The blueprint would phase mandatory reporting for financial years (FYs) beginning on or after 1 January 2025 for issuers with market capitalisation of at least S$1 billion and for FYs beginning on or after 1 January 2027 for all remaining issuers. Boards would assume explicit accountability for scenario analysis, transition plans, and climate-related metrics subject to external assurance.

The consultation seeks feedback through 5 April 2024 on governance disclosures, greenhouse-gas (GHG) assurance timelines, and sector-specific metrics. SGX RegCo signals alignment with the International Sustainability Standards Board (ISSB) core content while tailoring requirements for Singapore’s financial sector, energy, and real estate issuers. Companies must therefore begin mobilising enterprise risk management, finance, sustainability, and assurance teams to meet the accelerated timelines.

Proposed requirements

  • Governance disclosures. Issuers would need to describe board and management oversight of climate risks, including skill matrices, ongoing education programmes, and how climate competence factors into director nominations. Boards must confirm they reviewed and approved scenario analysis assumptions, risk appetite thresholds, and transition plan budgets.
  • Strategy and transition plans. IFRS S2-aligned reporting would require material climate-related risks and opportunities, resilience assessments across at least two scenarios (including one aligned with 1.5°C), and detailed transition plans covering decarbonisation levers, interim targets, capital allocation, and dependencies on carbon credits. Financial institutions must disclose financed and facilitated emissions using recognised methodologies such as the Partnership for Carbon Accounting Financials (PCAF).
  • Metrics and targets. Scope 1 and Scope 2 emissions disclosure would be mandatory from the first year, with Scope 3 required if material or if issuers have set Scope 3 targets. SGX proposes phased limited assurance: large issuers would obtain limited assurance over Scope 1 and Scope 2 from FY2027 reporting (published in 2028), while other issuers would follow from FY2029. Audit committees must oversee assurance planning, controls testing, and remediation of deficiencies.
  • Connectivity with financial statements. Issuers must explain how climate-related risks influence financial statement line items, critical accounting estimates, impairment testing, and capital expenditure plans. They must also address how climate considerations affect remuneration policies and strategic planning horizons.

Key compliance checkpoints

  • Board readiness. Conduct gap analyses of director competencies relative to SGX’s proposed climate governance expectations. Develop training roadmaps, succession plans, and charters that assign oversight to dedicated sustainability committees or risk committees. Document board touchpoints throughout the reporting cycle.
  • Scenario analysis. Strengthen modelling capabilities to run physical and transition risk scenarios that satisfy ISSB requirements. Coordinate with external climate analytics providers where internal capabilities are limited. Ensure outputs translate into financially quantifiable impacts that can be traced to enterprise risk registers.
  • Data architecture. Map data sources for emissions, energy, water, financed exposures, and climate-related revenue. Implement controls over data lineage, version control, and segregation of duties. Integrate sustainability data platforms with ERP, risk, and regulatory reporting systems to support audit trails.
  • Assurance readiness. Align internal audit, finance, and sustainability teams on evidence requirements for limited assurance. Establish documentation protocols, sample testing procedures, and management review controls to support external assurance providers.
  • Stakeholder engagement. Engage investors, lenders, and regulators on planned transition targets, financing needs, and the reliability of reported metrics. Prepare communication strategies for sustainability reports, AGM disclosures, and continuing obligations.

Implementation roadmap

  1. 2024 (consultation period): Submit feedback to SGX RegCo, summarise consultation requirements for executive committees, and secure budget for data systems and training. Launch maturity assessments against ISSB disclosure pillars.
  2. FY2024 preparation: Begin collecting ISSB-aligned data on a voluntary basis to test controls. Update enterprise risk management frameworks to integrate climate metrics and scenario thresholds. Establish cross-functional steering committees chaired by CFOs or CSOs.
  3. FY2025 reporting (large issuers): Implement governance enhancements, finalise scenario narratives, and produce ISSB-aligned climate reports. Conduct mock assurance engagements to identify control weaknesses before limited assurance becomes mandatory.
  4. FY2026–FY2027 (other issuers): Scale reporting processes, expand Scope 3 coverage, and refine transition plans. Align disclosures with Singapore’s Green Finance Industry Taskforce (GFIT) taxonomy and carbon pricing mechanisms (e.g., carbon tax increases to S$45/tCO2e in 2026).
  5. Assurance go-live: Coordinate with external auditors to integrate limited assurance into the annual reporting cycle, ensuring independence requirements and audit committee oversight are satisfied. Develop remediation plans for control deficiencies discovered during assurance.

Governance integration

Boards should embed climate oversight into existing governance structures. Recommended actions include amending board charters, updating risk appetite statements to reflect climate thresholds, and linking executive remuneration to decarbonisation milestones. Audit committees must oversee climate data controls and assurance engagements, while nominating committees monitor director competency matrices. Management should provide quarterly dashboards that track emissions performance, climate risk indicators, scenario outcomes, and capital expenditure alignment with transition plans.

Companies with dual listings or global operations should harmonise SGX requirements with other regimes, such as the UK’s Climate-related Financial Disclosure obligations, the EU’s Corporate Sustainability Reporting Directive (CSRD), and Hong Kong’s ISSB-aligned proposals. Aligning data definitions, control frameworks, and reporting calendars will avoid duplication.

Risk management and controls

Implement three-lines-of-defence controls covering data capture, consolidation, and reporting. First-line business units must maintain documentation for emissions calculations, scenario assumptions, and transition investments. Second-line risk and sustainability teams should perform independent reviews, stress testing, and policy updates. Internal audit should plan assurance engagements focusing on data governance, scenario modelling, and alignment between climate disclosures and financial statements.

Key risk indicators (KRIs) should include data completeness rates, number of material adjustments identified during assurance, variance between actual and forecast emissions, and progress toward financed emissions targets. These metrics support early detection of control weaknesses and inform board discussions.

Technology and data enablement

Leverage sustainability reporting platforms capable of ingesting activity data, performing emissions calculations, and generating ISSB-compliant disclosures. Integrate with carbon accounting tools, climate scenario services, and data visualisation dashboards. Ensure systems support audit logs, user access controls, and segregation of duties to withstand assurance scrutiny.

Stakeholder communications

Prepare to articulate transition narratives to investors, rating agencies, and lenders. Highlight how capital allocation aligns with Singapore’s net-zero commitments, carbon pricing trajectories, and the Monetary Authority of Singapore’s (MAS) supervisory expectations. Transparent disclosures on financing needs, carbon offsets, and resilience investments will strengthen credibility.

Next steps

SGX RegCo will finalise rules after reviewing consultation feedback, with a view to issuing rule amendments in the second half of 2024. Issuers should monitor companion guidance, including checklists, sample disclosures, and assurance protocols. Proactive implementation will position companies to meet investor expectations and regulatory timelines while demonstrating robust climate governance.

Sources

Zeph Tech supports SGX-listed issuers with climate governance operating models, ISSB-aligned reporting, and assurance readiness programmes.

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