Sustainability Reporting For Asset Managers

What is Sustainability Reporting?

Sustainability reporting is the disclosure and communication of a company’s environmental, social and governance (“ESG”) objectives and how well it has been tracking towards these goals. It includes disclosing both the positive and negative contributions towards the goal of sustainable development. There are many benefits that suitability reporting can bring to an organization, including but not limited to building confidence in stakeholders, improving risk management through earlier detection of potential emerging issues or trends and even attracting potential sources of new capital for the company.


Sustainability Reporting in Singapore

Sustainability reporting is not new in Singapore. In 2016, the Singapore Stock Exchange (“SGX”) introduced the requirement for listed companies to prepare a sustainability report to complement the financial reporting that these companies are already doing.


In 2021, the Monetary Authority of Singapore (“MAS”) launched a sustainability report, setting out the strategy and focus on climate resilience and environmental sustainability of the financial sector to environmental risks. In addition, MAS issued Guidelines on Environmental Risk Management for Financial Institutions, including Asset Managers, will come into effect in June 2022.


The focus of this Guidelines is on the environmental aspect within the notion of sustainability and will be applicable to all asset managers with discretionary authority over the investments of the funds/mandates that they are managing.


The Guidelines cover the following aspects of an asset manager’s investment process and operations:

Governance and strategy - Clarification that asset managers are required to identify, address and monitor material environmental risks pursuant to certain existing risk management regulations in Singapore.


Research and portfolio construction - To embed relevant environmental risk considerations in the research and portfolio construction process.


Portfolio risk management - To monitor, assess and manage material potential and actual impacts of environmental risk on both individual investments and portfolio on an ongoing basis.


Stewardship - Shape the corporate behaviour of investee companies through engagement, proxy voting and sector collaboration.


Disclosure - To disclose the approach adopted by asset managers in managing environmental risks to its stakeholders, including existing and potential investors.


TCFD Disclosures

Asset managers are expected to disclose their approach to managing environmental risk in a manner that is clear and meaningful to their stakeholders. This disclosure should be in accordance with well-regarded international reporting frameworks such as the followings


Task Force on Climate-Related Financial Disclosures (“TCFD”)


TCFD was established by the Financial Stability Board to develop recommendations for more effective climate related disclosures that could promote more informed decisions through enabling stakeholders to better under the climate related risks involved in the financial sector and financial system. In 2017, TCFD proposed disclosure recommendations structured around four thematic areas that are central to how organization operate – governance, strategy, risk management and metrics, and targets.


To cater to different stakeholders with varying reporting requirements, TCFD organized the financial sector into four major industries based on its business activities: banks, insurance companies, asset managers and asset owners.


For asset managers, disclosures will central around the relevance of climate-related risks and opportunities to key variables such as investment styles and objectives, the asset classes in which it invests, the investment mandates and other relevant factors. For more information on the recommendations, you may refer to this report.


CDSB Disclosures

Climate Disclosure Standards Board (“CDSB”)


CDSB is an international consortium of businesses and non-governmental organizations committed to provide material information for investors and financial markets through the integration of climate change-related information into mainstream financial reporting. CDSB has developed a framework for reporting environmental and climate change information and the framework is align with the recommendations of TCFD. For more information, you may refer to CDSB.


GRI Standards

Global Reporting Initiative (“GRI”)


GRI was founded in Boston in 1997 following the environmental damage of the Exxon Valdez oil spill. Its aim is to develop a common set of standards for use by business and organizations worldwide for their sustainability reporting efforts.


The GRI standards are a modular system comprising of three series of Standards: the Universal standards, Sector standards and Topic standards. The Universal standards apply to all reporting organizations. Sector standards are to be used for the specific sector that the reporting organizations are operating in for example, oil and gas, agriculture and fishing. The topic specific standards contain disclosures for providing information on topics that maybe material for reporting organizations such as waste, occupational health and safety, and tax. You may refer to the link for a short introduction to GRI standards.


VRF Disclosures


VRF is a merger between the International Integrated Reporting Council and the Sustainability Accounting Standards Board (“SASB”), formed in June 2021. VRF offers a comprehensive suite of resources including,


• Integrated Thinking Principles – guide the board and management in planning and decision making

• Integrated Reporting Framework – a comprehensive set of guidance of corporate reporting

• SASB Standards – a powerful tool to inform investor decision making as part of the investment processes


For more information on VRF, please refer to valuereportingfoundation.org.


IOSCO Standards

The Board of the International Organization of Securities Commission ("IOSCO") is an association of organizations that regulate the world’s securities and futures markets, and its members are typically the main financial regulators from each country. International Financial Reporting Standards Foundation ("IFRS") is a nonprofit public interest organization established to develop a single set of globally acceptable and enforceable accounting standards to be used by various jurisdictions.


An important focus of IOSCO is to improve the consistency, comparability and reliability of sustainability reporting, as it has been observed that investor demand for sustainability-related information is currently not being properly met with companies referencing differing frameworks and reporting such information selectively. The need for a globally recognized set of consistent standards is further echoed by the G7 Finance Ministers and Central Bank Governors concurrence towards IFRS Foundation’s program of work to develop a “baseline standard under robust governance and public oversight, built from TCFD framework and the work of sustainability standard-setters”.


Conclusion

Investors, both passive and active, are increasingly demanding sustainable investing strategies and related disclosures from asset managers. Similarly, regulators are expecting companies and financial firms to ensure their sustainability reporting framework are in line with government regulations. This wave of change is underway and it is inevitable. Asset managers should ruminate on their current set-up and recognize sustainability as an opportunity for their business as opposed a cost.


Established since 2013, Lymon has been providing regulatory compliance and risk management services to financial institutions and their fund products. To find out more about how we can assist with your regulatory or structuring needs, do reach out to your usual contact at Lymon or our specialist below:


internal audit, compliance consulting, regulatory compliance, internal audit outsourcing, internal audit services

Jovi Gan, Director

+65 6709 4110

jgan@lymon.com.sg



Internal Audit, VCC Singapore