Financial institutions (FIs) in Singapore place significant importance on environmental, social and governance (ESG) performance, with a heavy focus on climate considerations. A majority of them said they evaluate clients’ sustainability disclosures, particularly in the environmental factors of energy, water, waste and effluents, as part of their decision-making process. This is among findings from a joint study by Singapore Exchange Regulation (SGX RegCo), the National University of Singapore (NUS) Business School’s Centre for Governance and Sustainability (CGS) and KPMG in Singapore on 'Perspectives of Financial institutions on Sustainability Disclosures'.

FIs interviewed said the motivation for greater emphasis on clients’ sustainability reporting stemmed from rising stakeholder expectations (92.9%) particularly from investors and regulators, government and tax incentives (78.6%), regulatory framework (64.3%) and sustainable business-friendly ecosystem (64.3%). 

"This study is important in shaping the work-plan for SGX RegCo as our listed companies become more accustomed to sustainability reporting," said Tan Boon Gin, CEO of SGX RegCo. "We see our role as guiding the distillation of key information so that challenges in ESG reporting - namely, quantification, comparability and harmonisation - can be addressed. Our next step will be to review how companies are doing on the sustainability reporting front three years since it was mandated. We intend thereafter to enhance our sustainability reporting rules to help listed companies better address increasing and more immediate interest around climate-related information."

Integrating sustainability into strategy

All of the FIs interviewed said they are evolving their processes to fully integrate sustainability into their investment strategy by 2030, in recognition of the critical role they play in moving the sustainability agenda through their allocation of capital. This includes the importance placed on governance of sustainability, such as their boards having oversight on sustainability-related matters in their organisations. Almost all of these FIs also evaluate and monitor non-financial risks.

Associate Professor Lawrence Loh, Director, Centre for Governance and Sustainability at NUS Business School, said: "Financial institutions are the vanguards in moving the entire business ecosystem. This report is a pre-cursor for the Singapore Green Plan 2030, particularly the Green Economy pillar. In disclosing ESG aspects, listed companies need to emphasise capacity building at the company level, including improving systems and structure, as well as capability development at the professional level, including honing skills and mindsets."

Emphasis on data quality

Participants in the study wanted the current quality and quantity of ESG disclosures to be strengthened, with consistency across and within industries for easy comparison. In particular, FIs interviewed also highlighted the need for capacity building, recommending that corporates and FIs deepen their understanding and disclosures of climate-related risks and opportunities.

Participants were members of the Green Finance Industry Taskforce. As part of this qualitative study, 14 key financial institutions in Singapore were surveyed, while 52 senior representatives participated in focus group discussions. Participants include banks, asset managers, institutional investors and insurers.

The study also suggested that governments and regulators could facilitate better disclosures, including providing guidance on the right kind of data to report, as well as providing capacity building support on top of financial incentives.

"Connecting environmental, social and governance data points with financial information can provide unexpectedly powerful insights into the current state of an organisation, while challenging us to ask hard questions of its future state," said Cherine Fok, director, Sustainability Services and KPMG Impact, at KPMG in Singapore. "The study validates that financial institutions in Singapore are using ESG indicators as proxies to assess credit worthiness and determine asset value. Corporates should capitalise on this, prioritising the need to build internal capabilities and working with advisors where apt, to drive deeper sustainability agendas that can position themselves strategically for growth. Reporting efforts should be aimed at building trust and credibility, holding up well against SGX’s guidelines and global standards, industry best practices, and in alignment with the expectations of stakeholders."