SGX urged to clean up firms of ‘greenwashing’

Greenwashing is duping consumers into eco-friendly products without making sustainable efforts.

Of all the top listed companies in Asia-Pacific, 80% use their sustainability goals to attract eco-conscious customers, the National University of Singapore and PwC found in their May 2022 joint study. With this, one Singapore law firm warned consumers against misleading tactics that are masked as efforts to defeat the climate crisis. This is an act known as greenwashing.

Drew & Napier suggested that SGX could look into ensuring that there are no companies involved in greenwashing, something that is missing from the recently implemented SGX mandatory sustainability rules for listed firms.

“Whilst mandating that directors of issuers attend sustainability training is a welcome start, much more can be done to entrench and operationalise long-term sustainability approaches into issuers’ business plans,” Benjamin Gaw, director of Drew & Napier’s corporate and mergers and acquisitions practice group, told Singapore Business Review.

In Singapore, Gaw said there are no companies yet to be reported for high-profile cases of public scrutiny for greenwashing but he cited a news report where a Singapore organisation, which includes oil and chemical firms, failed to disclose their project to resolve the plastic ocean problem has ended.

The news report also found that the organisation did not publish any data to show its progress in achieving the target.

Nevertheless, given the increasing importance of proper accountability, SGX can consider addressing the insufficient definition of greenwashing phenomenon, something which the European Securities and Markets Authority (ESMA) has considered.

Gaw suggested that ESMA’s sustainable finance roadmap from 2022 to 2024 indicates priorities, such as tackling greenwashing and promoting transparency, building regulatory capacity in the field of sustainable finance, and monitoring, assessing, and analysing environmental, social, and corporate governance (ESG) markets and risks.

Gaw also noted that the standards of disclosure under the SGX mandatory climate would be based on what is appropriate and suited for the industry that the issuer is in. For example, companies must disclose Scope 1 and Scope 2 greenhouse gas emissions but Scope 3 greenhouse gas emissions may only be required or appropriate for larger issuers.

“Whilst ‘Scope 1’ and ‘Scope 2’ emissions, which refer to direct emissions from owned or controlled sources and indirect emissions from purchased energy respectively, are not difficult to calculate, Scope 3 emissions — encompassing all other indirect emissions — prove trickier,” said Gaw.

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Phased approach

As sustainability goals cannot be done overnight, the SGX climate disclosure requirement is to be done on a phased approach.

Beginning 1 January 2022 until the end of this year, climate reporting is required for all issuers on a “comply or explain” basis. Consequently, starting next year, issuers in financial, agriculture, food, and forest products, as well as energy industries should comply.

After this, sustainable disclosure will be implemented on issuers in the materials and buildings, and transportation industries in 2024.

Gaw said the new listing rules are also in line with the increased popularity of green bonds and sustainable financing. This also allows listed issuers to better communicate their strategies to prevent ecological damage.

Comply or explain, but no punishment

This year, since the policies are on a “comply or explain” basis, there are no enforcement actions yet for those who will not follow the set of anti-climate crisis requirements.

“For most components, compliance is on a ‘comply or explain’ basis only — where an issuer cannot report on any primary component, the issuer must explain what it does instead and its reasons for doing so,” said Gaw.

Nonetheless, the lawyer sees that SGX’s expectations for disclosures may increase over time.

Training no more for sustainability experts

Disclosure of sustainable practices is not the only mandate for SGX issuers but the listing company also made sure that directors of issuers will undertake required training.

These directors must also prove that they attended sustainability training apart from their first sustainability report for the financial year. 

Gaw said if the nominating committee of SGX sees that training is not mandated because the director has expertise in sustainability, the basis of the assessment should be revealed.

For newly designated directors, similar training must still be pushed regardless that the new director is replacing a former director who is finishing their sustainability matters training.

To date, the SGX, regulated by the Monetary Authority of Singapore, has more than listed firms. Before the 2022 mandatory sustainability reporting, the listing company has been implementing sustainability strategies such as the 2017 subsidised capacity-building workshops to help listed firms craft their sustainability reports.