Navigating Changing Scope 3 Reporting Requirements: What You Need to Know
Introduction
Singapore is taking a pioneering step in Asia by considering mandatory climate reporting requirements for both listed and large non-listed companies. New standards by the International Sustainability Standards Board (ISSB) could become the norm, beginning as early as financial year 2025 for listed companies and 2027 for non-listed companies with revenues exceeding SG$1 billion (US$0.74 billion). With public consultations by the Accounting and Corporate Regulatory Authority (ACRA) and Singapore Exchange Regulation (SGX RegCo) underway, it’s crucial for companies to understand the impending changes and what they signify. This post aims to unpack these forthcoming requirements and offer insights on how to prepare.
A Pioneer in Asia
After the launch of ISSB standards last month, Singapore could become the first jurisdiction in Asia to mandate ISSB-aligned climate reporting for non-listed companies. The nation joins the likes of Hong Kong and Japan, who are also moving towards ISSB and Task Force on Climate-related Financial Disclosure (TCFD)-aligned reporting for listed companies.
The Reach and Scope
Approximately 1,000 companies could be affected by the new regulations, 300 of which are non-listed. Further down the line, private companies with SG$100 million (US$74 million) in revenue could also face similar requirements by around FY2030.
What Will Be Reported
For the first year, companies will not be required to disclose their Scope 3 emissions, which cover the financed and supply chain emissions often making up the bulk of a company's carbon footprint. Two years post-implementation, third-party assurance checks on Scope 1 and 2 emissions will become mandatory.
How EU-based Companies Are Affected
If your company has significant operations in the European Union, you'll also need to comply with its Corporate Sustainability Reporting Directive (CSRD) from 2028, which takes a broader “double materiality” approach, considering both financial and societal impacts.
The Costs Involved
It is estimated that the costs of reporting would represent less than 0.1% of the SG$1 billion in revenue for companies subject to mandatory reporting, based on cost data from the EU and the UK. However, cost flexibility is expected to be offered to companies with varying resources.
Building Capacity
To help companies adapt to the new requirements, nation-wide capacity building initiatives will roll out by 2024. Funds have been set aside to support local companies in areas like sustainability reporting and carbon management.
Final Thoughts
The mandate for climate reporting has not just regulatory but also business implications. Better environmental, social, and governance (ESG) data, especially in relation to Scope 3 emissions, can offer a competitive advantage and improve performance. As the saying goes, "what gets measured gets managed." With mandatory reporting on the horizon, now is the time to get ahead of the curve and start incorporating these elements into your corporate strategy.
Singapore's move signals a broader shift towards transparent and actionable climate-related disclosures, and companies should prepare to meet these requirements head-on.