The Singapore Exchange (SGX) has recognized that more investors are paying attention to issues involving environmental, social, and governance (ESG) issues, and as of August 28, is the first securities exchange in Asia to encourage listing companies to begin sustainability reporting.
For now SGX only suggests voluntary sustainability reporting from the issuers of securities and derivatives that sell on the Exchange. Nevertheless, the announcement is significant. SGX’s market capitalization, at about US$480 billion, is hefty when considering Singapore’s size—this is no wallflower of a stock market. The small country, about the same size as Chicago and home to 5 million, has reinvented itself over the past 50 years, changing from a sleepy backwater to a dynamic hub of logistics, foreign exchange trading, and engineering. Singapore ranks highly on indices that measure accountability, transparency, innovation, and competition. If an Asian tiger known for its friendly business climate can encourage companies to issue sustainability (or corporate social responsibility) reports, perhaps other exchanges and regulatory agencies around the world can follow Singapore’s lead.
According to the SGX’s “Proposed Policy Statement and Guide to Sustainability Reporting for Listed Companies,” it is up to a company’s Board of Directors to consider issues related to sustainability as it leads and directs a company’s strategy and operations. Currently the SGX does not advocate any standards, but hints that the Global Reporting Initiative’s ESG reporting guidelines is the way forward, as the nature of Singapore’s economy—much of it export driven–allows for cross-jurisdictional comparability as well as working towards the development of best practices on issues related to ESG. Many bemoan the effects that globalization and international trade have on environmental and labor issues—Singaporean companies very well could be the model for other companies struggling with these issues.
Sustainability reporting advocates may not be satisfied with the call for only voluntary reporting, but the odds are high that eventually SGX will make sustainability disclosures a requirement. For now only a few countries require any form of sustainability reporting. Denmark requires its 1100 largest firms to integrate sustainability reports with financial disclosures, and the Johannesburg Stock Exchange requires its listed companies to disclose ESG-related information. The US Securities and Exchange Commission has set guidelines climate change-related disclosures, and the UK’s new coalition government is mulling mandated reporting of non-financial information.
SGX’s policy proposal is under public review until October 29. The shift towards more corporate accountability on non-financial matters will be long and protracted, but even during a global recession, sustainability/CSR/ESG reports will become one more part of a company’s disclosure routine. The trick is articulating the qualitative information in a way that a company’s stakeholders can understand. CFOs and other professionals in finance had better start planning for the change now.