Climate change and sustainability disclosure: Why we must start

SGX head of listing policy and product admission Michael Tang explains why companies should move quickly to adopt the recent recommendations made by the Exchange’s Task Force on Climate-related Financial Disclosures.

Companies are currently facing disruption from technological innovation but there is another disruptive force which is all around you: climate change.

The increasing focus on climate change has resulted in calls for a transition to a lower-carbon economy. While this directly impacts companies in more obvious sectors – such as energy, transportation, construction and agriculture – it will also affect most economic sectors and industries.

It is therefore unsurprising then that four Singapore-listed companies have voiced their support for the final recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) established by the Financial Stability Board straightaway, namely CDL, Olam, Singtel and SGX.

Significantly, DBS, Singapore’s largest bank, on 12 December 2017 joined these companies and other global financial institutions in endorsing these recommendations, underscoring the impact of this new perspective on Singapore companies.

Why the TCFD recommendations matter

The TCFD’s four widely adoptable recommendations allow companies to provide specific climate-related disclosures in their financial filings. The disclosures are on governance, strategy (including a +2˚C scenario), risk management and targets and metrics. They were formulated in answer to the need for climate change considerations to be incorporated into financial and business decisions.

The recommendations represent market solutions agreed by reporting companies, investors and financial institutions – those who produce and use the information. In signing on to this initiative, banks, insurers, asset owners and asset managers will require their clients and investee companies to make climate-related disclosures, in order to satisfy their own sustainability processes and their TCFD commitments to in turn make disclosures to their clients.

For listed companies to tap into capital, whether debt or equity, they will need to meet the expectations of the financial community. Using the TCFD recommendations would enable companies to effectively address questions on how climate change imparts financial risks and opportunities to their businesses and how they are responding, now and for the future.

All companies need to assess their climate opportunities and risks periodically as they do for the rest of their businesses, although not all may identify material matters. This exercise dovetails with what companies are already expected to do when reporting on sustainability.  

Many companies have been voluntarily reporting sustainability for several years. To them, the taxonomy of TCFD recommendations is familiar and some have been progressing along the route outlined by TCFD.

For listed companies to tap into capital, whether debt or equity, they will need to meet the expectations of the financial community.

Adopting TCFD recommendations, like the rest of sustainability, is a journey. Companies can adopt some recommendations now, and share their plans and timelines, charting their way forward.

As appreciation of the impact of climate change grows, consumer preferences will change, technologies will develop and alternatives will rise. Governments will respond with new regulations. These trends will impact bottom lines, and companies will need to overhaul their business models to varying degrees to maintain relevance and competitiveness.

Climate change ultimately affects a company’s financial viability and investors, lenders and insurers are therefore placing increasing importance on how companies are dealing with climate-related risks and opportunities. DBS is the first Singapore bank to embrace the TCFD recommendations and it certainly will not be the last.

Consistent with this trend, mandatory sustainability reporting was introduced in 2016 for Singapore-listed companies, and the first reports under that requirement will be published in 2018.

SGX is committed to assisting our listed companies in their sustainability reporting journey. The TCFD recommendations on climate-related financial disclosures contribute to a more comprehensive understanding of financial investments. We will be including these recommendations within existing guidance as additional resources for companies when they have implemented the current reporting requirements.

 

Michael Tang is head of Listing Policy & Product Admission, Singapore Exchange. This article is republished from SGX with permission. 

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