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August 18, 2022

SGX’s green bond disclosure regime faces concerns over metrics

Singapore Exchange is the leader in green and sustainable bond listings in Asia and is also setting the pace for regional rivals on corporate disclosure criteria. But it faces criticism of the voluntary reporting metrics it has chosen.

By Adrian Murdoch

Herry Cho of Singapore Exchange says it is looking to International Sustainability Standards Board criteria for its mandatory reporting regime. (Photo courtesy of SGX)
  • Almost half (46%) of green, social, sustainability and sustainability-linked bonds issued in Asia last year are listed on the Singapore Exchange (SGX).
  • SGX has mandated sustainability reporting since 2016, and from January climate reporting has been mandatory…
  • …but the bourse’s voluntary disclosure metrics are facing criticism from the financial sector.

Singapore Exchange (SGX) boasts by some distance the biggest listed volume of green, social, sustainability and sustainability-linked (GSSS) bonds in Asia, a market that is smaller than Europe’s but similarly fast-growing.

GSSS debt issuance more than doubled last year to $99bn, according to the International Capital Market Association. Almost half of these bonds (46%) are listed on SGX, and Hong Kong is next in line, with 26% (see chart).

The Singapore bourse is also ahead of the regional – and arguably even global – curve on setting disclosure requirements for green bond issuers. But it faces criticism from some quarters on the voluntary reporting metrics it has chosen, something that Herry Cho, SGX’s group head of sustainability and sustainable finance, addresses in an interview with Capital Monitor.

A priority for the SGX – which committed in March to achieving net-zero operational emissions by 2050 and whose head, Loh Boon Chye, is on the CEO steering committee of the Glasgow Financial Alliance for Net Zero – has been the harmonisation of standards, Cho says. The bourse is “embracing a mandatory regime around climate-related disclosures”, she adds, in particular the International Sustainability Standards Board (ISSB) criteria.

When the ISSB standards are issued, SGX will start incorporating them into listing rules as mandatory disclosure requirements, said Tan Boon Gin, CEO of Singapore Exchange Regulation, the regulatory arm of SGX, in a speech last month. Reporting to a common global standard would “promote more consistent and comparable disclosures”, he added.

Mandating sustainability reporting

The SGX has had voluntary sustainability reporting in place since 2016, though it has not endorsed the adoption of specific disclosure standards and frameworks.

From January this year, climate reporting has been mandatory on a comply or explain basis for all SGX-listed companies, in line with the Task Force on Climate-related Financial Disclosures (TCFD). As of next year it will be compulsory for issuers in the following sectors: finance; agriculture, food and forest products; and energy. Joining that list in 2024 will be the materials and buildings industry and transportation.

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Hong Kong Exchanges and Clearing, SGX’s largest regional rival, is not making climate-related reporting mandatory until 2025.

Bursa Malaysia, meanwhile, is only now heading towards mandatory disclosures, said its CEO, Muhamad Umar Swift, at Bloomberg’s Sustainable Business Summit in Singapore on 27 July. “What we’ve seen is very good [voluntary] compliance, but the quality of reporting is not quite where we want it,” he added.

SGX is even ahead of Europe in this respect. Europe’s green bond standard for issuers remains voluntary, which some feel should change. But Julie Becker, CEO of the Luxembourg Stock Exchange, the leader by GSSS volumes in Europe, told Capital Monitor in June that she opposed making it mandatory.

The Singapore bourse, meanwhile, has been pushing ahead with a set of 27 voluntary metrics, which may be used by issuers in conjunction with their sustainability reporting. Launched in August last year after a public consultation, these include greenhouse gas emissions, energy and water consumption and waste, gender- and aged-based metrics, and anti-corruption disclosures.  

SGX has been working on a portal and platform with the country’s central bank, the Monetary Authority of Singapore, via which companies can report the data. It underwent a soft launch this summer and will formally go live later this year, Cho says.

Like other exchanges, SGX faces the challenge of striking a balance between making issuer requirements rigorous but not too burdensome for smaller companies.

After all, investors need to be sure that proceeds of green or social bonds are being used for appropriate purposes or that the key performance indicators for sustainability-linked bonds are credible and robust enough, particularly given growing market scepticism around such transactions.

Criticism of SGX reporting metrics

While there are no available public responses from corporate issuers on SGX’s ESG reporting standards, it is unlikely that they will welcome the greater disclosure burden.

However, Mak Yuen Teen, professor of accounting and former vice dean of the National University of Singapore Business School, said he was “not enthused” by the metrics calling them “ad hoc and selective”. His comments appeared in an article he published on his Governance for Stakeholders website in September last year.

SGX’s “overly simplistic dashboard” is more likely to mislead than illuminate, Mak added, raising concerns that the bourse’s core set of ESG metrics would simply add to the already crowded market of conflicting ESG ratings.

Financial institutions were also critical of the metrics chosen.

US fund house BlackRock provided a written response to SGX in October last year. In it, Shinbo Won, head of investment stewardship for Asia ex-Japan, and Winnie Pun, head of public policy for Asia-Pacific, described the list of 27 metrics as “non-exhaustive”, arguing that it lacked any on executive pay.

A similar point was made by Yvette Kwan, ESG executive adviser at the Asia Securities Industry & Financial Markets Association in Hong Kong: “Issuers should be encouraged to report additional metrics that are sector-specific, financially material and relevant to investment decision-making.”

Without going into specifics, she said issuers could look to metrics developed by the Sustainability Accounting Standards Board.

Asked why SGX did not include metrics suggested by the respondents to the consultation, such as executive pay, Cho said the 27 metrics were distilled from over 330 issuers' reports and "rooted in the reality of the current reporting landscape". In addition, the bourse had received feedback from listed companies and had wanted to ensure the list of metrics was "manageable" and not overly cumbersome for smaller companies to report on.

While pay-related metrics are not included in the 'core set' now, they are available on the wider platform, so companies will be able to report on them, Cho adds.

"This is just the beginning and we will be continuously reviewing the list as the market evolves, and the needs of companies and investors change," she says.

Something that respondents to the consultation did not comment on was the voluntary nature of the metrics. Asked whether they might become mandatory, Cho was non-committal. "Our current focus now is on onboarding listed companies onto the data portal. In time, we hope companies will see the value of disclosing ESG data that are consistent, comparable and accessible to their stakeholders."

Supporting smaller issuers

In any case, Kwan feels the current list of metrics could help focus the mind for first-time issuers. “It would be especially helpful for smaller issuers, or companies early in their sustainability reporting journey, to focus first on common material ESG metrics.”  

This is something SGX is focused on. “The green bond as an instrument is still limited by the type of company,” Cho says, adding that corporates cannot come to the market unless they are of a certain size. Many companies that are right at the frontier of sustainable development, especially in emerging market contexts, she adds, are just not able to tap into that capital just yet.

An estimated $200bn a year of green investment will be needed in the Asean region until 2030 if the region is to have any chance of achieving the UN’s Sustainable Development Goals by 2030, according to a November 2017 report from Singaporean bank DBS and the UN Environment Inquiry into the Design of a Sustainable Financial System.

Getting new issuers to market can help achieve this, Cho says. That is, of course, assuming that the capital raised from such bonds reaches the right destinations – for which exchanges must bear some responsibility. Enforcing sufficient transparency, as SGX is seeking to do, seems eminently sensible.

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