BACKGROUND

On 4 December 2024, Monetary Authority of Singapore (MAS) published an information paper which sets out good disclosure practices for environmental, social and governance (ESG) funds.  There are currently more than 200 ESG Funds on the Singapore Exchange.

 

GOOD DISCLOSURE PRACTICES

Investment Focus and Strategy

Define ESG-related terms upfront

• Fund managers should ensure clear and substantiated ESG disclosures by defining ESG-related terms upfront to avoid vagueness, detailing how these terms apply to the fund’s investment focus and strategy, and aligning investor expectations.
• Definitions should ideally be included in the same section of the prospectus that outlines the ESG Fund’s investment focus and strategy.

Clearly set out how ESG criteria or metrics are used

• They should transparently disclose the sources, methodologies, and application of ESG criteria or metrics, including minimum ratings or scores and the proportion of investments adhering to these standards.
• Additionally, sustainability targets and milestones should be clearly stated, along with methods for measuring progress and underlying assumptions. These practices foster transparency, empower informed decision-making, and mitigate greenwashing risks.

Reference Benchmark

Fund managers tracking or referencing an ESG index for performance measurement should disclose whether they or any related corporation have had any influence on the construction of the index and the extent of such influence. This transparency helps investors understand the level of involvement the manager or related parties have over the ESG index’s composition, ensuring clarity on how the portfolio composition is determined or performance is assessed.

Risk

Fund managers should disclose risks associated with the ESG focus and investment strategy of a fund. For recognised ESG funds, it is recommended to include a summary of unique risks specifically tailored for Singapore investors, even if full details are provided in the prospectus of the scheme’s home jurisdiction.

Additional Information

Disclosure relating to stakeholder engagement activities

• Fund managers are encouraged to disclose details about their stakeholder engagement activities.
• This includes disclosing the purpose and scope of such engagement activities, why and how the manager engages with issuers, and the conditions under which divestment might occur.
• Additionally, fund managers should provide updates on these activities, such as voting records on ESG-related resolutions, on a periodic basis.

 

WHAT’S NEXT?

Manager of Retail ESG Funds should:   

1. review their current ESG fund disclosures and perform a gap analysis versus the updated best practices
2. establish a work plan to augment their ESG fund disclosures

And more…

 

HOW CAN WE HELP?

Contact Capital Governance today to discuss how we can provide sustainability reporting and disclosure solutions for you. Find out more here.