Sustainability Reporting


The importance of Sustainability Reporting for companies should not be overlooked, here is a look as to why.


As a robust financial hub, Singapore is ranked 1st among 42 countries in the Asia Pacific region for economic freedom [2020 [1]]. According to the Heritage Foundation, “Economic freedom is the fundamental right of every human to control his or her own labor...individuals are free to work, produce, consume and invest in any way they please... the government allows labor, capital, and goods to move freely...brings greater prosperity. The Index of Economic Freedom documents the positive relationship between economic freedom and a variety of positive social and economic goals."


Perhaps a precursor and sustained effort to the country’s success in rank, in 2016 the Singapore Exchange (SGX) introduced annual Sustainability Reporting for all companies listed on the stock exchange on a “comply or explain” basis, the guideline requires report to include 1) the company's most material environmental, social and governance (“ESG”) factors; 2) policies, practices and performance; 3) targets; 4) the sustainability framework used; 5) and a statement from the Board [2]. A report published by SGX in December 2019 found that 80 percent of listed issuers submitted their first-ever sustainability report.


Sustainability reporting includes economic, environmental and social impacts of a firm’s activities. Incorporation of such reporting helps companies measure, understand and communicate its governance performance to its key stakeholders. It is synonymous with other non-financial reporting such as triple bottom line and, corporate social responsibility (“CSR”). It is also considered an intrinsic element of integrated reporting; the combination of financial and non-financial performance.


The 2018 World Economic Forum Global Risks Report reported that almost half of all major business risks are environmental. A CFA Institute article states that true value that a firm could create cannot be fully captured in a balance sheet if only financial performance is taken into account. Such practice tends to overlook investment opportunities and risks that may be detrimental to the business [3]. Reporting that includes both ESG and financial indicators is a more nuanced approach to reflect the relationship between financial and nonfinancial data of a firm.


What are the Benefits of Sustainability Reporting:


Making for a better investment option; portfolios that had high ESG scores is found to outperform competing investments [4]. There was a positive correlation between companies with sustainability reporting and its higher market capitalisation. It demonstrates the capacity to manage potential risks and the ability to maintain resilience, leading to an increased value to market capitalisation [5].


An MSCI study showed that the S&P 500 ESG index had a higher long-term return and lower volatility when paired against the S&P 500 index [6]. This insight invites the idea that disclosure of ESG information can balance the interest between external stakeholder and companies which results in the stable development of the capital market.


Another study found that sustainability reporting is positively related to a company’s market value independent of sector or firm status such as government-linked organisations or family business [7].


How is Sustainability Framework Should I Use?


The Global Reporting Initiative (GRI) has been recognized by SGX as one of the accepted a reporting frameworks for SGX’s Sustainability Reporting. GRI is the first and most widely adopted global standards for sustainability reporting. Their pioneering input has helped businesses and government worldwide understand and communicate impact on sustainability issues, enabling social, environmental and economic actions for all.


Lymon Pte. Ltd. is a trusted boutique compliance firm that offers regulatory compliance consultancy, advisory support and training for financial institutions in Singapore since 2013. We offer a range of compliance training including GRI Certified Training reporting as a GRI Certified Trainer. For updates and more information, sign up through link below and redeem 10% off our GRI Certified Training course.


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References:

[1] https://www.heritage.org/index/country/singapore

[2] https://www.sgx.com/regulation/sustainability-reporting

[3]https://www.ifac.org/knowledge-gateway/contributing-global-economy/discussion/sustainability-reporting-will-create-long

[4] http://research-center.amundi.com/page/Article/2019/01/The-Alpha-and-Beta-of-ESG-investing

[5]https://api2.sgx.com/sites/default/files/2019-12/Sustainability%20Reporting%20-%20Progress%20and%20Challenges.pdf

[6] Ma, X.; Wang, J.; Qin, E. Listed company’s ESG information disclosure system. China Finance. 2016, 16, 33–34.

[7]https://www.researchgate.net/publication/321140723_Sustainability_Reporting_and_Firm_Value_Evidence_from_Singapore-Listed_Companies




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