SGX launches 'comply or explain' rules

Last month, the SGX launched four sustainability indices comprising 84 companies - including blue chips such as CapitaLand, Keppel Corp and Singapore Press Holdings - seen as good ESG performers.
Last month, the SGX launched four sustainability indices comprising 84 companies - including blue chips such as CapitaLand, Keppel Corp and Singapore Press Holdings - seen as good ESG performers.ST FILE PHOTO

Listed companies will have to conduct annual review of their sustainability from 2018

The Singapore Exchange (SGX) yesterday officially laid out new requirements for listed companies to conduct an annual review of their sustainability - such as environmental or governance issues.

Market watchers largely welcomed the new rules - based on proposals tabled in January for public consultation - but some remain cautious over the learning curve and resources required by companies to prepare the reports.

The "comply or explain" sustainability reporting framework takes effect in 2018, for financial years ending on or after Dec 31 next year.

All listed companies must report - or explain their decision to not do so - within five months of the end of a financial year, but a grace period of up to 12 months will be given to the publishing of the first report.

A company will determine which environmental, social and governance (ESG) issues are relevant enough to its business to address in the report, which will then list the company's policies and performance in this regard. The firm is also expected to outline its sustainability targets for the upcoming year.

These requirements are largely unchanged from the January proposals, which sought to enhance the previous framework that asked companies only to conduct sustainability reporting voluntarily.

Listed companies had shown "overwhelming support" for the latest initiative by the bourse, SGX special adviser and former chief regulatory officer Yeo Lian Sim said at a media briefing yesterday.

"Having more transparency in reporting speaks to the quality of management that recommends the company to investors," she said.

"There is increasing interest among investors in not just returns, but how returns are produced. The principles for responsible investment (PRI) cover some US$60 trillion (S$80.6 trillion) in assets under management… By making these reports, the companies are opening themselves to a wider market."

The PRI is a network supported by the United Nations to promote responsible investment globally.

Ms Yeo said the framework is flexible enough that firms are not hampered, but she stressed that investors must use their own judgment on what to take from the reports.

Around 160 listed companies already conduct corporate social responsibility reporting regularly, some including sustainability review.

Last month, the SGX launched four sustainability indices comprising 84 companies - including blue chips such as CapitaLand, Keppel Corp and Singapore Press Holdings - seen as good ESG performers.

Still, there are concerns that the requirements may pile burdens on companies amid the already difficult business environment.

A Catalist-listed healthcare firm chief executive, who declined to be named, said that "for some smaller companies or the ones that are trying to survive, I think this process can be quite a pain, if not irrelevant".

A property firm CEO said: "It's definitely a big burden on smaller companies that are already tight on resources. Complete compliance will require extensive preparation and it's not as easy as it may seem."

Mr Adrian Chan, Singapore Institute of Directors' former vice-chairman and a board member of five listed companies, agreed the learning curve may be challenging at first.

SGX will organise a series of workshops and meetings to prepare listed companies for the regime. Details will be announced later.

A version of this article appeared in the print edition of The Straits Times on June 21, 2016, with the headline 'SGX launches 'comply or explain' rules'. Print Edition | Subscribe