Singapore Mandates Corporate Climate Risk Disclosure to Mobilize Private Climate Finance

In Singapore, the government recognizes climate change as an existential threat and has established innovative measures for progressing toward the country’s 2050 net-zero target. This case study explores means by which Singapore has mandated corporate climate risk disclosures to drive net-zero-aligned finance and investment decisions. By requiring companies to measure and disclose the climate-related risks to which their businesses are subject, Singapore is working to ensure that businesses, including listed financial institutions, are making decisions that propel – rather than hinder – progress toward a net-zero economy.

In 2016, in view of international advancements in sustainability reporting and the many benefits that sustainability reporting brings to both investors and issuers, Singapore’s national stock exchange, the Singapore Exchange (SGX), introduced requirements for every issuer listed in the Exchange to issue an annual sustainability report for financial years beginning in 2017 according to an interview with the Monetary Authority of Singapore (MAS)The reports are to include five primary components on a ‘comply or explain’ basis:

• An overview of environmental, social and governance (ESG) factors across the business and value chain related to the business’ product or service
• Policies and practices companies are already undertaking, and performance in the context of previously disclosed targets
• Future sustainability targets
• A sustainability reporting framework
• A board statement that affirms that the company has considered sustainability issues as part of its strategic formulation, determined the material ESG factors, and overseen the management and monitoring of these factors

Following a public consultation in 2021 on proposed enhancements to its sustainability reporting regime which received broad support from stakeholder groups, SGX introduced a phased approach to mandatory climate-related disclosures (CRD) based on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). Industries identified by the TCFD as most affected by climate change and the transition to a lower carbon-economy were prioritized to provide mandatory climate-related disclosures progressively from FY2023.

As part of the Government’s efforts to help companies strengthen capabilities in sustainability, Singapore also announced in February 2024 that it will introduce mandatory CRD aligned with the International Sustainability Standards Board (ISSB) standards in a phased approach. This is in line with the recommendations from the Sustainability Reporting Advisory Committee (SRAC), after a public consultation exercise in 2023. This phased approach will be implemented as follows:

• From FY2025, all listed issuers in Singapore will be required to report and file annual CRD using requirements aligned with the ISSB standards. SGX is currently consulting on amendments to its listing rules to implement these requirements. Listed issuers will be required to disclose their Scope 3 GHG emissions from FY2026.
• From FY2027, large non-listed companies (defined as those with annual revenue of at least $1 billion and total assets of at least $500 million) will be required to do the same, apart from disclosures of Scope 3 GHG emissions. Singapore’s Accounting Corporate and Regulatory Authority will consult on the necessary legislative amendments to implement this in due course and review the experience of listed issuers and large non-listed companies before introducing reporting requirements for other companies.

For financial institutions, in 2020, MAS consulted on and issued guidelines on environmental risk management for asset managers, banks and insurers to enhance these financial institutions’ environmental risk management practices. Environmental risk is increasingly recognized as a key global risk, with climate change at the forefront of these concerns. These risks not only give rise to reputational concerns but also bear a financial impact on such institutions and the assets they manage on behalf of their customers.

The guidelines are a call to action for financial institutions to enhance their resilience to and management of environmental risks by through the integration of environmental risk considerations into asset managers’, banks’, and insurers’ financing and investment decisions, and supporting a gradual and smooth transition towards an environmentally sustainable economy through channeling capital through their green financing and investment activities.  Critically, the guidelines were co-created with representatives from the banking, insurance and asset management sectors.

According to the guidelines, which came out in 2022, disclosures must be made in accordance with internationally recognized frameworks, such as the TCFD recommendations. MAS expects financial institutions’  approaches for managing and disclosing environmental risk to mature as methodologies for assessing, monitoring and reporting this risk evolve. As a result, MAS will update the guidelines it has issued as appropriate to reflect the evolving nature and maturity of risk management practices.

Ultimately, Singapore’s climate risk disclosures push companies, investors, banks insurers, and others to rigorously assess the climate-related risks they face. In so doing, financial actors across the economy can more accurately identify and manage the real risks they face from climate impacts, ideally steering them away from decisions likely to maintain an orderly transition to net zero. In the years ahead, it will be critical to monitor how Singapore’s mandatory climate risk disclosure framework has driven companies, investors and others across the economy to plan for and mitigate climate-induced threats and pivot to seizing the many opportunities a green transition brings.