Dissecting Singapore’s Sustainability Reporting
5 Frequently Asked Questions and Their Answers
What’s the overview on Singapore’s green taxonomy?
In 2019, Singapore launched a Green Finance Action Plan, which included a commitment to develop a green taxonomy to support sustainable finance. A green taxonomy is a classification system that identifies economic activities that are environmentally sustainable and helps investors to identify green investments.
The development of the taxonomy has been led by Singapore’s Green Finance Industry Taskforce (GFIT), an industry-led initiative convened by the Monetary Authority of Singapore (MAS), the city-state’s central bank and financial regulator. GFIT has been working on the development of a green taxonomy, and in February released its third and final consultation (having previously consulted in January 2021 and May 2022). The taxonomy is based on international standards, such as the EU Taxonomy for Sustainable Activities, and is customized to reflect the unique characteristics of Singapore’s economy and environment. It is expected to be finalized by June 2023.
It contains the same broad objectives as its European equivalent, with the major difference being the combination of the circular economy and resource resilience (including use of water) under one objective. Similar to the EU, it also contains its own version of “Do No Significant Harm”.
Proposed Singapore Taxonomy objectives:
- Climate change mitigation
- Climate change adaptation
- Protection of ecosystems and biodiversity
- Promotion of resource resilience and circular economy
- Pollution prevention and control
At present, criteria has only been proposed for the first objective of climate change mitigation. One novel feature of the Singapore Taxonomy is the inclusion of an “amber” category for transitional activities. While green represents activities that are on a 1.5 degree pathway, the “amber” designation is reserved for activities that are not currently on net zero path but are moving towards a green status within a defined time frame. It will apply only to existing activities or infrastructures, and not new projects.
The green taxonomy will help to standardize and improve the transparency of green investments, as well as provide guidance to financial institutions on how to integrate environmental considerations into their investment decisions. This is expected to contribute to the development of a more sustainable and resilient financial system in Singapore.
MAS has also launched a Green and Sustainability-Linked Loans Grant Scheme to recognize and promote green funds and other financial products. The scheme provides a framework for assessing the environmental sustainability of financial products and promotes the development of a robust green finance ecosystem in Singapore.
What reporting is expected from investors?
It is still not clear which institutions will need to report on the Singapore Taxonomy and by when. In December 2021, the Monetary Authority of Singapore (MAS) announced that it will require all financial institutions in Singapore to disclose their sustainability-related risks and opportunities, which could be extended to include their alignment with the green taxonomy. The new requirements will be phased in over several years.
Starting from 2023, banks, insurers, and asset managers will need to provide annual disclosures on their sustainability risks and opportunities, including their governance arrangements, strategies, targets, and metrics. They will also need to disclose their exposure to climate and environmental risks, as well as their plans to manage and mitigate these risks.
The disclosure requirements are based on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and are aimed at promoting greater transparency and consistency in sustainability reporting by financial institutions. The requirements are also designed to help investors and stakeholders make more informed decisions about the sustainability performance of financial institutions.
In addition, financial institutions will be encouraged to adopt the green taxonomy to classify and disclose their green investments. MAS has stated that it will provide guidance and support to financial institutions on how to adopt the taxonomy and report on their green investments.
What is the latest on the ASEAN Taxonomy?
Earlier in April, the Association of Southeast Asian Nations (ASEAN) delivered an update on its own sustainable taxonomy. It is intended as a building block for ASEAN nations as they develop their own taxonomies. The ASEAN comprises Singapore, Malaysia, Indonesia, Lao PDR, Cambodia, Brunei Darussalam, Thailand, Philippines, Vietnam and Myanmar. The latest update builds on an initial draft published in November 2021. It covers the technical screening criteria for the energy sector, with other sectors due to follow suit in further updates.
What about TCFD reporting requirements in Singapore?
The development of a Singapore Green Taxonomy is further evidence of the prioritization of the development of sustainable investment in the country. Other major developments include the implementation of the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and recently approved rules covering ESG funds aimed at retail investors.
The TCFD framework provides recommendations for voluntary climate-related disclosures by companies, while the Singapore Green Taxonomy is a classification system that identifies economic activities that are environmentally sustainable. The taxonomy aims to promote investment in sustainable activities by providing clarity and consistency on what constitutes a “green” activity.
Who exactly will need to report on Singapore’s Green Taxonomy and When?
The framework will likely apply to all large companies, banks, insurers, and asset managers in Singapore, regardless of their size or ownership structure. This will probably include both locally incorporated financial institutions as well as foreign financial institutions that operate in Singapore. MAS has also stated that it will provide guidance and support to financial institutions on how to adopt the green taxonomy and report on their sustainability performance.
It is worth noting that many financial institutions in Singapore have already started to voluntarily disclose their sustainability performance and climate-related risks and opportunities, in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). However, the new mandatory disclosure requirements will provide greater consistency and transparency across the financial sector in Singapore, with the desired outcome of getting more financial institutions to adopt sustainable practices.
Financial institutions in Singapore will be required to report on their sustainability-related risks and opportunities annually starting from 2023. This means that banks, insurers, and asset managers will need to provide disclosures on their sustainability performance and environmental, social, and governance (ESG) risks and opportunities every year.
The first set of sustainability disclosures is expected to be published in 2024, covering the financial year 2023. The disclosures will need to be made publicly available and reported in accordance with the reporting requirements set out by the Monetary Authority of Singapore (MAS).
The reporting requirements are part of MAS’s efforts to promote greater transparency and consistency in sustainability reporting by financial institutions. The requirements are also designed to help investors and stakeholders make more informed decisions about the sustainability performance of financial institutions and to promote the growth of sustainable finance in Singapore.
Non-financial and sustainability linked reporting is becoming more and more prevalent in Singapore. The coming years will see the first reporting under Singapore’s TCFD aligned reporting requirements and the likely finalization and implementation of a Singapore Taxonomy.
To comply with the new reporting requirements, financial institutions will need to assess their sustainability risks and opportunities, set sustainability targets, and report on their progress towards those targets over time. They will also need to disclose any material climate-related risks and opportunities that could affect their business and financial performance.
Financial institutions in Singapore will need to begin reporting on their sustainability performance this year (2023). They will need to report annually on their sustainability performance, and the largest financial institutions will be required to report first, followed by smaller institutions.
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