SINGAPORE: Recent developments such as new international standards on climate-related disclosures have helped to clear the air for firms reporting on their sustainability.
Even though most smaller companies here are not required to measure and report sustainability metrics, experts told The Straits Times that those which start early will have an advantage in ensuring business continuity and attracting investors and customers.
“Sustainability is not always a cost centre, and companies can leverage sustainability to drive top-line growth,” said Singapore Business Federation (SBF) chief executive Kok Ping Soon.
For example, monitoring energy and water use as well as waste, as part of the sustainability reporting process, allows small and medium enterprises (SMEs) to pinpoint areas with excessive resource consumption and implement measures for more sustainable use.
Measures taken to reduce consumption can translate into cost savings that go straight to the bottom line, said Kok.
Sustainability reporting covers environmental, social and governance (ESG) themes and includes climate disclosures, which have gained prominence as the need to combat climate change has become more urgent.
Companies listed on the Singapore Exchange (SGX), including SMEs, have had to publish sustainability reports since 2017, though it was up to them what frameworks to adopt in preparing their reports.
Efforts have been made over the years, both internationally and locally, to standardise and accelerate climate reporting.
For example, SGX-listed companies from certain industries are required to make climate disclosures aligned with recommendations by the Task Force on Climate-Related Financial Disclosures (TCFD) from fiscal year 2023 or 2024.
All other listed companies are required to follow TCFD recommendations on a “comply-or-explain” basis.
In June 2023, the International Sustainability Standards Board (ISSB) set out a new global baseline of standards for sustainability disclosures, which fully incorporate the TCFD recommendations.
Singapore’s Sustainability Reporting Advisory Committee then proposed in July 2023 to progressively require listed and large non-listed companies to report ISSB-aligned climate-related disclosures, starting from financial year 2025.
The three-month public consultation on the proposals ended on Saturday.
The proposals do not cover non-listed SMEs. SMEs are defined by Singapore’s Department of Statistics as having a group revenue of up to S$100mil or employing up to 200 people.
However, as reporting requirements become more prevalent, SMEs which cannot account for their carbon footprint might be unable to supply to specific vendors or reach certain market segments like multinational corporations, said Esther Ho, deputy principal of Nanyang Polytechnic and chair of its sustainability coordination committee. This could impact their business continuity in the long run.
Professor Lawrence Loh, director of the Centre for Governance and Sustainability at the National University of Singapore Business School, said: “Sustainability regulations are very developed in the European Union, and SMEs risk being squeezed out of the market if they do not do proper reporting.”
There is also a trickle-down effect from firms that are required to make disclosures.
Dennis Quek, director of Republic Polytechnic’s centre of innovation for supply chain management, said responsible large and listed companies which are accounting for their Scope 3 emissions will require SMEs which collaborate with them to account for and manage their own Scope 1 and Scope 2 carbon emissions.
Scope 1 emissions refer to direct emissions incurred by a company, say, from its facilities or transport vehicles, while Scope 2 refers to indirect emissions such as from the electricity it buys from power-generation companies.
Scope 3 emissions refer to indirect emissions incurred by a company as part of its value chain, such as from the use of its products or from goods and services it buys.
Ho noted that there is increasing momentum this year in the US and by the ISSB to make reporting Scope 3 emissions mandatory. Another benefit of climate reporting for SMEs is that they may improve their reputation and attractiveness to customers, said Ho.
Singapore Management University associate professor of finance Liang Hao added that socially responsible investors rely on ESG disclosures to decide whether to invest in a company.
“If you want to have access to responsible capital, you’ll have to make disclosures,” said Liang, who is co-director of the Singapore Green Finance Centre.
But even if SMEs want to start reporting on sustainability, they face challenges.
For example, Aquaponics farm BlueAcres Organic Farm was started in 2019 with sustainability at its roots, but it does not track sustainability metrics due to a lack of resources, said its co-founder Kee Boon Hian. The firm has six full-time and four part-time employees.
“Tools are not readily available to the public and businesses to conduct carbon accounting and sustainability reporting on their own with ease,” he said, adding that the rarity of these resources and of widespread knowledge on these topics drive up the cost of hiring professionals for this purpose.
Stevie Ooi, chief executive of location technology firm W-Locate, said it faces some confusion about what standards or frameworks it should apply in incorporating sustainability reporting processes.
He added that the plethora of sustainability courses available online from various training providers can be overwhelming.
Still, the firm, which employs 25 people, has tried to go green by switching to electronic delivery orders to use less paper, and is exploring technologies such as electric vehicles.
Loh suggested that SMEs looking to start sustainability reporting first map out what ESG factors are most important to the business, and set out strategies, metrics and targets to work on.
SMEs will get funding support by the end of 2023 to adopt selected carbon accounting solutions to help them measure their Scope 1 and Scope 2 emissions, under Enterprise Singapore’s Productivity Solutions Grant, EnterpriseSG chairman Peter Ong had said at an event in August.
SBF’s Kok said access to fit-for-purpose emissions tracking and reporting solutions tailored to SMEs’ scale of operations will help them get up to speed in sustainability reporting.
A number of guides are available. SGX has a guide on sustainability reporting on its website and EnterpriseSG is also developing a guidebook on the topic. — The Straits Times/ANN