[Featured Image: (L-R) Mr Christopher Y. Chan, APAC General Counsel, Jones Lang LaSalle; Mr Alex Liam, Senior Legal Counsel, Sustainable Metal Cloud; Mr Preston Wong, CEO & Co-founder of treatsure, and Adjunct Faculty at SMU; Mr Felix Tse, General Counsel, Pavilion Energy; Ms Sarah Loh, Senior Sustainability Consultant, Black Sun; and Dr Winston Chow, Professor of Urban Climate and Lee Kong Chian Research Fellow, SMU]
Since the landmark 2015 Paris Agreement, interest and impetus in sustainability disclosures have surged globally. Sustainability disclosures are crucial tools for organisations to communicate their environmental, social, and governance (ESG) performance to various stakeholders.
These disclosures enable better engagement with customers, investors, suppliers, and potential employees who are increasingly aware of the multi-faceted aspects underpinning a business—environmental impact, corporate social responsibility, ethics, and transparency.
On 15 May 2024, Singapore Management University (SMU) hosted a panel discussion exploring the often overlooked but critical legal implications of sustainability-related disclosures. The discussion addressed the legal difficulties and dangers of such disclosures, as well as developments in sustainability law, including legal and regulatory responses to greenwashing claims.
The panel featured legal and consulting professionals: Mr Christopher Y. Chan, APAC General Counsel at Jones Lang LaSalle (JLL); Mr Felix Tse, General Counsel at Pavilion Energy; Ms Sarah Loh, Senior Sustainability Consultant at Black Sun; and Mr Alex Liam, Senior Legal Counsel at Sustainable Metal Cloud. It was moderated by Mr Preston Wong, Chief Executive Officer and co-founder of treatsure, who is also an Adjunct Faculty for the Master of Sustainability (MST) programme at SMU.
Accuracy and transparency at the forefront of sustainability disclosures
As companies worldwide ramp up their sustainability efforts, there is now a greater focus on the accuracy and transparency of disclosures.
Mr Chan emphasised the significance of consistency and accuracy in sustainability reports, given the potential legal repercussions of misleading and inaccurate disclosures. “If you’re putting out information into the ecosystem, and you’re a publicly traded company, it has to be accurate,” he noted. “Your shareholders will hold you responsible.”
The challenge lies in not only the accuracy of the data, but also its consistency across different regions and business units. Mr Chan highlighted the difficulties of managing sustainability data from diverse sources, noting the importance of having a rigorous verification process. This is especially essential in industries such as commercial real estate, where the environmental impact of buildings is significant.
An ever-changing landscape
The legal landscape surrounding sustainability disclosures is complex and continually evolving. This underscores how important it is for companies to be highly adaptable.
Mr Tse discussed the legal risks associated with sustainability reporting in the energy sector, illustrating how Pavilion Energy pioneered a methodology to measure the greenhouse gas impact of liquefied natural gas (LNG) across the value chain from well-head to discharge terminal. In that regard, obtaining consistent and accurate data from different segments of the value chain has been challenging, yet necessary to avert legal risks.
When it comes to driving corporate sustainability efforts, regulation plays a pivotal role too. Singapore’s Carbon Pricing Act, which mandates a tax on carbon emissions, and the European Union’s Emission Trading System, are examples of regulatory measures that compel companies to follow through on their sustainability commitments.
“Regulations are very important as they provide signals to the companies to take the necessary steps towards sustainability,” added Mr Tse.
A balancing act
A recurring theme throughout the panel discussion was the challenge of balancing commercial objectives with sustainability goals.
Mr Liam shared insights from his past experiences as a general counsel, highlighting the difficulties of securing buy-in from various business units for voluntary sustainability initiatives. In these cases, it is important to tangibly demonstrate the commercial benefits of such initiatives to drum up internal support. Specifically on the topic of sustainability disclosures, Mr Liam highlighted the general difficulty on the part of companies in tracking Scope 3 emissions and even for Scope 1 and 2 emissions for small and medium enterprises (SMEs). To address this, he advocated for increased financial support for sustainability reporting, citing the EDB's Sustainability Reporting Grant as a positive example.
Further, Mr Liam touched on the emerging trend of ‘greenhushing’, which refers to a company’s reluctance to publicise its ESG performance out of fear of pushback from stakeholders who may find its sustainability efforts lacklustre, or from investors who believe ESG undermines returns. This trend, he warned, could be dangerous, hindering the progress made to date in corporate sustainability.
“If more companies practise greenhushing, all the momentum that has been built over the years would grind to a halt,” cautioned Mr Liam.
The role of engagement and authenticity
Effective sustainability disclosures require more than just accurate data; authentic and engaging communication with stakeholders is also a significant part of the puzzle.
Discussing the importance of stakeholder engagement in sustainability communications, Ms Loh mentioned the risk of greenwashing and the need for companies to be genuine in their sustainability messaging. “The problem with greenwashing is that it leads to a serious crisis of trust between the brand, and its customers and stakeholders,” she explained.
Chiming in, Mr Chan added, “It isn’t only about false statements; it’s also about unsubstantiated and misleading claims that can result in significant legal repercussions.” He referenced a case involving Delta Air Lines, in which the company faced penalties for misleading statements about carbon neutrality.
On the other hand, Ms Loh advocated for materiality assessments to prioritise the sustainability issues that matter most to stakeholders. She also underlined the role of internal assurances and governance in ensuring the accuracy and adequacy of sustainability reports.
“There needs to be more communication between internal teams,” she advised. “Regular touchpoints between the risk team and the sustainability team can ensure that the enterprise risk management and materiality assessment processes are in sync.”
This panel discussion provided a window into the intricate balance between legal, commercial, and ethical considerations in sustainability disclosures. Accuracy, transparency, commercial viability, stakeholder engagement, and regulatory frameworks are all essential elements that corporations need to take into account when navigating the evolving sustainability landscape.