Carrie Johnson, Wong Dan Chi, Nicolas Heath & Lim Sze Wei
With the Singapore Stock Exchange’s (SGX) announcement this year that sustainability reporting is to be introduced on a “comply-or-explain” basis for all listed companies from the end of FY2017, understanding Environmental, Social and Governance (ESG) material issues has never been more important. Up to 700 companies will soon have to start reporting on their ESG risks and ultimately tackle the all-important question, which is: when it comes to sustainability, what is considered relevant?
This is where the idea of materiality becomes important. Material issues, as defined by the Global Reporting Standards (GRI) are issues “that reflect a reporting organisation’s significant economic, environmental and social impacts”. The process that a company goes through in defining these issues (often termed a ‘materiality assessment’) will form the inevitable backbone of the reporting process for new reporters.
Hundreds of companies are now embarking on the process of assessing their material issues and prioritising risks and opportunities. Paia has, through conducting research, identified the material issues that matter to current sustainability reporters in Singapore. Which issues stand out, and what processes are companies using to decide on their material issues? Paia attempts to provide insight to this question by analysing the material issues and materiality process of all 40 Singapore companies currently producing sustainability reports to an internationally recognised standard.
What do reporters consider most material?
The majority of Singapore’s reporters have aligned themselves to the guidelines set by the Global Reporting Initiate (GRI). The GRI is the global standard for sustainability reporting, and its materiality determination process often forms the basis of the materiality assessments undertaken by companies. On the whole, Singapore’s reporters align their material issues with GRI’s predefined topics. The updated GRI Sustainability Reporting Standards (released in 2016) encourages companies to align their material issues to GRI’s predetermined list, so that companies are reporting on standardised issues, and therefore standardised KPIs. This encourages comparability across companies and their reports. Some companies also include sector specific topics, which are reporting recommendations under the new GRI Standards. This is most prominent among agricultural reporters who tend to prioritise sector-specific issues such as smallholder rights and peatland degradation, making their reports more meaningful in the process.
Paia’s has identified the 6 most reported material issues out of the 40 Singaporean companies, as shown in the following chart:
Note: In identifying the top material issues reported, Paia considered material issues that were ranked as highly important by companies. In the absence of ranking or prioritisation of material issues, all listed material issues were included in the analysis.
From Paia’s analysis, Singapore’s most material issue is ‘Occupational Health & Safety’. It is material to 80% of all GRI reporters. Paia also found that companies that didn’t include this as a key material issue primarily fell into the financial services sector.
Paia also found that even for issues not ranked as a key material issue, companies often still disclosed performance data. For example, companies that did not rank ‘Energy’ or ‘Water’ as key material issues typically still disclosed performance data around these issues, as this practice was seen to be in-line with reporting expectations.
Paia’s analysis also attempted to identify the most reported KPIs. Our results are shown in the table below, indicating the KPIs that were reported on by more than 75% of Singaporean companies:
|ASPECT||DESCRIPTION||GRI G4 INDICATOR||% OF COMPANIES|
|Training & Education||Average hours of training per year per employee by gender, and by employee category||LA9||90.0|
|Training & Education||Percentage of employees receiving regular performance and career development reviews, by gender and by employee category||LA11||90.0|
|Energy||Energy consumption within the organization||EN3||87.5|
|Economic Performance||Direct economic value generated and distributed||EC1||85.0|
|Occupational Health & Safety||Type of injury and rates of injury, occupational diseases, lost days, and absenteeism, and total number of work-related fatalities, by region and by gender||LA6||85.0|
|Water||Total water withdrawal by source||EN8||82.5|
|Employment||Total number and rates of new employee hires and employee turnover by age group, gender and region||LA1||80.0|
|Local Communities||Percentage of operations with implemented local community engagement, impact assessments, and development programs||SO1||77.5|
|Energy||Reduction of energy consumption||EN6||75.0|
|Emissions||Energy indirect greenhouse gas (GHG) emissions (Scope 2)||EN16||75.0|
More than 50%, but less than 75% of Singaporean companies report on the following indicators:
|ASPECT||DESCRIPTION||GRI G4 INDICATOR||% OF COMPANIES|
|Emissions||Reduction of greenhouse gas (GHG) emissions||EN19||70.0|
|Environmental Compliance||Monetary value of significant fines and total number of non-monetary sanctions for non-compliance with environmental laws and regulations||EN29||70.0|
|Emissions||Direct greenhouse gas (GHG) emissions (Scope 1)||EN15||67.5|
|Diversity and Equal Opportunity||Composition of governance bodies and breakdown of employees per employee category according to gender, age group, minority group membership, and other indicators of diversity||LA12||67.5|
|Anti-Corruption||Communication and training on anti-corruption policies and procedures||SO4||62.5|
|Training and Education||Programs for skills management and lifelong learning that support the continued employability of employees and assist them in managing career endings||LA10||62.5|
|Anti-Corruption||Confirmed incidents of corruption and actions taken||SO5||60.0|
|Emissions||Greenhouse gas (GHG) emissions intensity||EN18||60.0|
|Occupational Health & Safety||Percentage of total workforce represented in formal joint management-worker health and safety committees that help monitor and advise on occupational health and safety programs||LA5||60.0|
|Non-Discrimination||Total number of incidents of discrimination and corrective actions taken||HR3||60.0|
|Society Compliance||Monetary value of significant fines and total number of non-monetary sanctions for non-compliance with laws and regulations||SO8||57.5|
|Effluents and Waste||Total weight of waste by type and disposal method||EN23||57.5|
|Employment||Benefits provided to full-time employees that are not provided to temporary or part-time employees, by significant locations of operation||LA2||55.0|
|Anti-Corruption||Total number and percentage of operations assessed for risks related to corruption and the significant risks identified||SO3||55.0|
|Customer Health and Safety||Percentage of significant product and service categories for which health and safety impacts are assessed for improvement||PR1||52.5|
|Customer Health and Safety||Total number of incidents of non-compliance with regulations and voluntary codes concerning the health and safety impacts of products and services during their life cycle, by type of outcomes||PR2||52.5|
|Effluents and Waste||Total water discharge by quality and destination||EN22||50.0|
|Product and Service Labelling||Results of surveys measuring customer satisfaction||PR5||50.0|
Note: Although the GRI Standards are the most updated version of the sustainability guidelines set out by GRI, Paia’s analysis focused on GRI G4 indicators as most reports prior to 2017 used this standard.
The Materiality Determination process
Material issues essentially represent a company’s key ESG risks and opportunities. As such, a robust, auditable process should be used to identify which issues are most material. SGX’s reporting guidelines require companies to disclose the process used to determine its material issues. Companies are also required to engage internal and external stakeholders in this process. At present, only 68% of Singapore’s reporters state that stakeholder engagement was a part of their materiality process. Of this, only 7.5% provided meaningful disclosure on how stakeholder engagement informed their chosen material issues. Paia also discovered that the majority of those who engaged external stakeholders did so through the use of an online survey.
Engaging external stakeholders is crucial in building a relevant sustainability report. If key issues that are considered critical by external stakeholders are not taken account, the validity of these reports can be called into question. Through our work over the years, Paia has observed that reporters who embrace stakeholder engagement from the outset are more able to produce meaningful reports that address key material issues.
SGX also expects senior management and the Board of Directors to be involved in the materiality assessment process. At present, only 45% of Singapore’s reporters made reference to senior management being involved in the materiality process. Senior management teams and Boards of Directors are increasingly playing a vital role in determining the material ESG issues affecting long-term performance. Paia increasingly observes the materiality assessment process being driven by the CEO or CFO and being reviewed by the Board. This reflects a significant shift towards sustainability issues being viewed as business risks and opportunities. Senior management and Board engagement is where we see rapid uptake of global leading practices within companies locally.
As the next generation of Singapore’s sustainability reporters start to release their reports, the materiality landscape will surely change. However, there is much that reporters can learn from the current state of reporting. To reiterate these lessons, we list the main points of our research here:
- There are topics that will emerge as being material to most companies. Currently, ‘Occupational Health & Safety’ is one such topic.
- There are reporting expectations that will encourage companies to disclose KPIs on issues that might not be directly material to them – for example, it is standard practice for companies to disclose performance related to energy and water consumption
- Getting material issues right from the outset is at the crux of meaningful reporting and driving long term performance
We hope that Paia’s analysis has increased your understanding of the materiality determination process, and in particular, the state of reporting on material issues in Singapore.
 GRI Standards 101: Foundation 2016 pg. 27