SINGAPORE – Charities will be expected to put in place environmental, social and governance (ESG) practices under a revised code governing how they raise funds and spend money. Larger charities will also be expected to set a 10-year board term limit.

The new code, which takes effect from Jan 1, 2024, was published on Tuesday by the Charity Council, whose members are appointed by the Government.

Speaking in November 2022 about the revision, Minister for Culture, Community and Youth Edwin Tong said it was time to take stock of the code as public expectations of charities have changed, and the charity sector has matured.

The code of governance for charities, which was introduced in 2007 and reviewed in 2011 and 2017, is aimed at providing board members with a framework to help them act in the interests of the charity. It also aims to boost public confidence in the charity sector by setting the standards for governance.

Charities are encouraged to review or consider amending their governing instrument, by-laws and policies as necessary to comply with the code.

A public consultation from May to June 2022 and four dialogue sessions with 134 charities took place with a view to formulating the revised code. The charities gave feedback on board term limits and the adoption of ESG practices during the dialogues.

The new code lays out six principles, along with an explanation and guidelines, to help charities better understand how the code is applied. Principles include the charity being accountable and transparent, as well as being well managed and planning for the future.

The 10-year board term limit for all Institutions of a Public Character (IPCs) and large non-IPC charities – or Tier 2 charities – is meant to encourage board renewal and succession planning.

Charities should impose a maximum term limit of 10 consecutive years for all board members, with the option to re-elect board members to serve subsequent terms, said the council.

It added that the code will still operate using a “comply or explain” approach. Charities which have difficulty meeting the requirement can share their reasons. Should they decide it is necessary to retain a board member beyond 10 years, they should put the proposal to a vote during the election process at general meetings.

The revised code will also encourage charities to incorporate ESG factors in their programmes and work with partners to train charities on ways to do this, said the council. “Charities are encouraged to keep their activities environmentally friendly and sustainable, maintain good relationships with their stakeholders and (maintain) high governance standards.”

It added that while it initially wanted to make it a requirement for Tier 2 charities to set an internal ESG policy, it removed the requirement after charities said it would be too costly to develop an ESG framework, and the process to measure and report the impact for ESG would be too tedious.

The council also said it will work with partners to develop ESG guides and templates, as well as train charities on ESG and ways to incorporate ESG factors in their policies and programmes.

In the new code, the number of categories of charities will be reduced from four tiers to two tiers. Tier 1 will include small and medium charities with gross annual receipts or expenditure from $50,000 to less than $10 million.

Tier 2 charities, which include IPCs and large charities with gross annual receipts or expenditure of $10 million or more, will be subjected to additional guidelines.

IPCs must be held to higher standards of accountability along with the benefits of the IPC status they enjoy, said the council. IPCs are authorised to issue tax deduction receipts for qualifying donations they receive.

Large charities will also have sufficient resources to put in place measures to comply with the extra guidelines, said the council.

The new code will also see the council using a point allocation system instead of a point deduction system to assess charities on their compliance.

Presently, failure to comply with guidelines will result in the deduction of points on a compliance scoring matrix, called the governance evaluation checklist, which can result in the IPC status renewal period being shortened.

Due to feedback that a point deduction system is demoralising to IPCs that are putting effort into complying with the code, the council will change it to a point allocation system.

Two points will be allocated for compliance to each guideline, one point for partial compliance, and no point for non-compliance.

When assessing an IPC’s application to extend its status, as well as the length of extension, the sector administrators will consider the extent of compliance and reasons for partial or non-compliance.

Prompt submissions of financial documents and governance evaluation checklist scores above 80 per cent, or a minimum of 61 points, will be considered favourably when charities submit their IPC applications, said the council.

The revised code can be found on the Charity Portal at www.charities.gov.sg